The Mount Prospect Towers in Newark is for sale.
Date: July 22nd, 2013
Source: nj.com
Key words: Commercial Real Estate Multifamilies
A 219-unit apartment complex in Newark recently went on the market and it could sell for as much $27 million.
The Mount Prospect Towers in the well-tended Forest Hill section of the city is 97 percent occupied. The owner, the Praedium Group, invested about $4 million in upgrading more than half of the apartments.
HFF, the real estate investment firm that is shopping the property, anticipates a new landlord could raise rents 3.3 percent a year for the next several years.
For a commercial real estate investor, that rental income increase may not sound like a lot, but the multifamily housing market is like the tortoise in its race against the hare — slow and steady.
“Coming out of the recession, investors who were burned in the past were looking for safety,” said Jose Cruz, senior managing director at HFF. “Office (real estate) was reeling, retail was still trying to get its footing. Multifamily is a very safe investment and returns are very good.”
The Otteau Market Report, which tracks real estate data in New Jersey, reported in June that rents are at a five-year high and have increased every quarter since the start of 2010.
A study by Marcus & Millichap Real Estate Investment Services ranked New Jersey the eighth hottest apartment market in the country. It found that vacancy rates are below the national average of nearly 6 percent, at 2.8 percent, and the number of apartment building sales rose 13 percent last year as investors jumped in while interest rates remain low.
“There’s a lot of demand,” said Cruz. “Everybody wants one, even groups that have not wanted one before, they’re now buying multifamilies.”
Mack-Cali is the largest real estate investment trust firm in New Jersey. It’s also the state’s largest office real estate management firm. Last year, it decided to expand its portfolio and purchased Roseland Property, one of the largest multifamily developers in the Northeast.
Hess, which is selling its refineries and gas stations, is looking to sell its 19.5-acre Edgewater property to a developer. It wants to rezone the property, which now has several large storage tanks on it, for multifamily use. Bids are expected to be about $30 million.
Secaucus-based Hartz Mountain Industries is adjusting its real estate portfolio to include more multifamily properties.
“We have been in all the real estate classes except for multifamily,” said Gus Milano, managing director of Hartz. “In 2009, we made a strategic decision to diversify and that included multifamily.”
Hartz has been repositioning some of its properties, including converting an outlet center into a 114-unit apartment complex. Milano said the goal is to have 20 percent of Hartz’s portfolio in that asset class. It has 580 units under construction in Weehawken and is planning another 450 in Secaucus.
“Everybody wants one, even groups that have not wanted one before, they’re now buying multifamilies.” -- Jose Cruz
It has close to 3,000 units nationwide.
“We’re staying in our other assets — industrial, office, retail, hotel,” he said. “Nothing is changing. But it’s a built-in hedging mechanism. We like making money in high volatility areas when markets are good, and we like not losing money in low-volatility areas when the economy gets rough.”
There are several factors that make owning an apartment building attractive. Demand for rental units remains high because a growing number of Baby Boomers don’t want the hassle of maintaining a home in their latter years, the Millennial generation is holding off on buying a home until it can unload its college debt, and the recession forced families to downsize.
Also, investment money has been readily available.
Investors Bank expects to do $2 billion in commercial real estate loans this year, and half of that will be for multifamilies, according to Joe Orefice, a vice president and head of the commercial real estate division.
“Borrowers have the luxury of being at historic lows for interest rates,” he said.
The Federal Reserve has helped keep interest rates low with its plan to buy billions of dollars worth of Treasury securities. Recent talk, however, that the Fed may soon stop its buying spree has driven interest rates up about a half percent in the past few weeks.
“Even with all that movement, it’s still well below where it’s been,” said Orefice. “There’s still plenty of room. It’s still cheap money.”
The bank recently provided a $30 million interest-only loan for a planned 240-unit building to be constructed in Bound Brook.
Alan Hammer, a partner at Brach Eichler in Roseland, noted that North Jersey has historically been one of the most competitive markets for rentals in the country, but also one of the most difficult in which to get local permits to build new apartment houses. He suggested that towns may be more open to new construction as they search for new ratables.
“A lot of people we represent are looking aggressively for sites,” he said. “People have determined that compared to the cost of buying an existing building, it makes sense to build a new one.”
There are other attractions in this real estate asset as well, explained Marc Solomon, founder of the Summit-based Solomon Group, which owns more than 10,000 apartment units. If an investor owns 100,000 square feet of office space with two tenants, for example, and one of the tenants pulls out, the building is half empty. But if an apartment owner with 100 units loses five of them, his loss isn’t as great as the office-space landlord’s.
“It’s always been a good place to invest money regardless of cycles and trends,” said Solomon.
He has watched from the sidelines as economic turbulence rocked other commercial real estate sectors, most of which are still recovering from the recession.
“There’s a bigger swing on either end of the seesaw,” he said. “We’re in the middle of the seesaw, and we like it there.”
