Suburban N.J. Assets Faring Well; Urban Assets Still Face Difficulties

Elmwood Park, N.J.--Improvements in the New York City economy has resulted in some concession burn-off in the northern N.J. suburban markets, particularly in Hudson County.

Elmwood Park, N.J.—Improvements in the New York City economy has resulted in some concession burn-off in the northern N.J. suburban markets, particularly in Hudson County.

The Hoboken, Weehawken, West New York, Jersey City, Edgewater and Fort Lee corridor, in particular, is a bedroom community to New York, explains Michael J. Fasano, vice president/regional manager of the Elmwood Park, N.J. office of Marcus & Millichap Real Estate Investment Services. “As things have improved in N.Y., there’s been a benefit to Hudson County. Concessions are no longer as deep as they once were, rent levels have stabilized and occupancy has improved,” he tells MHN.

Union and West Essex Counties are also benefitting from the accessibility to New York City, as well as the presence of some major employers. Vacancy rates here are averaging in the 4 percent range at Class B and C properties, according to Marcus & Millichap’s third-quarter 2010 Market Update on the State of New Jersey.

At the same time, some urban markets, such as Trenton, Camden, Newark, for example, experienced different dynamics than the suburban markets. “Operators are faced with vacancy issues and collection issues,” points out Fasano. “When we look at distressed assets in N.J. we’re not finding distressed multifamily assets in suburban markets, but you are finding them in urban markets.”

According to the report, statewide vacancy has increased 20 bps in the past year, to 4.9 percent. Vacancy in Northern New Jersey improved 10 bps, to 5.1 percent. Central New Jersey vacancy increased 20 bps, to 4.1 percent, while vacancy in the southern portion of the state improved 40 bps, to 7.5 percent.

Part of the stability, notes Fasano, can be attributed to a lack of new mult

ifamily construction, and while there was some shadow market in 2009, most of that has been absorbed. (According to the report, there are over 6,700 units in the planning pipeline, but none of the projects have announced a groundbreaking date.)

The report also notes that overall asking rents for the state fell 0.8 percent, with effective rents dropping 0.9 percent. Marcus & Millichap projects, however, that asking rents will increase 1.3 percent, while effective rents will rise 2 percent.

On the investment side, activity has picked up and multiple offers are being places on multifamily properties that come to the market, according to Fasano. “There’s been a correction on pricing, but from where the pricing was, we are seeing compression on cap rates,” notes Fasano.

The median sales price overall has declined 7 percent over the past year, to $73,840 per unit, according to Marcus & Millichap’s report. (The median price in Central N.J. increased 3 percent, to $93,330 per unit, while assets in Southern N.J. saw a 10 percent decline, to $62,325 per unit.)

Class A and B assets in quality locations are trading at 6 and 7 caps. Other markets that are plagued with vacancy and collection issues are seeing cap rates in the 9 percent to 10 percent range, while C assets in C markets are achieving 7.5 percent to 9 percent cap rates.

Overall, the Hudson corridor’s accessibility to New York City positions it for a strong recovery, Fasano asserts. “As N.Y. grows and job creation begins in N.Y., those markets are going to benefit from it first.” At the same time, however, he tells MHN that the urban areas that have struggled with unemployment have the greatest potential for an upside in value-add opportunities.

N.J. overall has always been in the top-five of the markets that Marcus & Millichap tracks, Fasano adds, “in large part because of the strong, stable fundamentals.” And some of the initiatives that are coming out of Trenton over the course of the last year, he notes, has been making the state more business-friendly, which will, in turn, position the multifamily market for a strong recovery.