NEW BRUNSWICK—The multifamily asset class may be getting overbuilt, and developers should be thinking about how to react if consumers change the way they look at their shelter needs, said members of the New Development, Redevelopment and Repositioning panel at last week's RealShare New Jersey conference.

“There is going to be a point when multifamily becomes overbuilt,” says Constantino (Gus) T. Milano, managing director, Hartz Mountain Industries. “The fundamental question is whether people are changing the way they look at shelter needs. Is luxury rental continuing as a long term commitment or is it a trend that's coming to an end? Marketing has been white hot in the state for a significant time.”

“A lot of driving force in the market is liquidity, and smaller players skew the market,” says Ronald Ladell, senior vice president, New Jersey, for AvalonBay Communities. “Merchant builders are not really looking at the issues of whether demand exceeds supply, they don't care, they build it and they're gone, unlike build and hold developers. People are underwriting multifamily on a razor's edge, trending rents, and not construction costs. They could get caught in the switchover when the market changes.”

Hudson County and The Oranges are ideal locations to benefit from the multifamily boom, says Ken Sisk, national client manager, Partner Engineering & Science, because of their proximity to excellent transit and New York City.

In New Brunswick, the bulk of its renters are commuters, and the town would like to encourage more home ownership, targeting a 60/40 split with renters, says Christopher Paladino, president, New Brunswick Development Corporation. But, he says, planning for the next generation of tenants/homeowners is difficult.

“The Millennials are looking for more amenities and smaller units. They are willing to live in high rises, they don't want to live in suburbs,” Paladino says. “It's important to remember that the person we're building for now isn't at Wharton today, but is in English Comp at Brown, Johns Hopkins, or NYU. Where is that person going to want to live and work?”

Panelists agreed that housing and economic development in the Garden State are being constrained by continued uncertainties over affordable housing requirements.

“Affordable Housing is a complete debacle,” said Ladell. “It will not get resolved. The Governor has proposed something, and that has been challenged and revised. I fully believe it will be 2017 before there is some traction that moves affordable housing forward.” Towns tend to tell developers to come back with proposals in “a couple of years” so they defer giving any guidance, making it hard for developers to make commitments, he says.

“A failure to solve this could kill economic development in New Jersey and render us non-competitive with the states around us,” says Carl Goldberg, co-president, Roseland. “Developers demand predictability. We can't do pro formas without understanding what the affordable housing obligation may be. This is chasing private investment away from New Jersey at a time when we are desperate to change the perception that New Jersey is an unfriendly place to do business. Every other state in the region has dealt intelligently with affordable housing. The fact that New Jersey has chosen to ignore those approaches is nothing short of catastrophic.”

Goldberg also points out that companies considering relocation to New Jersey need more than just attractive work environments. He tells about a pharmaceutical company executive considering a move to New Jersey from Kansas. “I can afford housing, but I want my executive assistant and midlevel management to come with me,” Goldberg says the executive told him. “None of them could find shelter in New Jersey affordable at their salaries and commensurate with what they have in the Kansas locations.”

New Jersey has failed to deliver housing “across a wide spectrum of price points,” says Goldberg. “Until we do, we will not regain our competitive edge.”

Instant Insights /

MF May Be Getting Overbuilt, RealShare NJ Panel Says

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