NJ Multifamily Market Shows Strength

The multifamily market in New Jersey is extremely strong. Property owners report multifamily performance surpassing 2007 peak levels. Institutional and other large investors are fiercely competing to employ burgeoning levels of cash on their balance sheets.

Properties located in urban, suburban and mixed-use areas are all highly sought after, as long as demonstrated occupancy levels are in the 90% range or properties have upside potential.

Locations with access to major roadways--in particular within the I-287 corridor--New York City and mass transit are extremely desirable. Concessions, which appeared in the market in the depths of 2008 and 2009, have almost completely disappeared. In a few markets there are some incentives, such as free parking, amenity-fee waivers or similar concessions.

In general, though, no concessions are necessary to keep stabilized assets fully leased, and new multifamily properties in lease-up typically offer one month’s free rent or something comparable to incentivize new tenants and lease up new properties quickly.

It should also be noted that most class A multifamily properties in New Jersey are experiencing vacancy levels of 0% to 5%, which is stronger than the 10-year historical average of 3.5%. And almost all multifamily owners in Northern New Jersey report occupancies in excess of 96%. In fact, many of them call this one of the strongest rental markets they’ve seen in years. Some owners actually report being at maximum levels (98.5% or up; with just frictional vacancy) across their portfolios.

These very positive metrics and, in conjunction with investors’ desires and institutions’ need to deploy capital, quality assets have driven the cap rates for multifamily assets to almost record levels. Large appraisal firms confirm multifamily transactions are being completed with cap rates in the 4.75% to 5.50% range.

In 2008 and 2009, Fannie Mae and Freddie Mac’s participation in the financing market proved to be the underpinning in the strength of the multifamily market. Now, life companies have returned to the market seeking to finance class A assets with strong borrowers. Strong investor demand, low cap rates and low interest rates bode well for continued strength in the New Jersey and New York multifamily market. 

Mark Scott is founder and president of Commercial Mortgage Capital in Livingston, NJ. He may be contacted at mscott@newcommercialmortgage.com or 201.787.7111.