Jose Cruz Talks the State of the NJ Multi-Family Arena at NJ Apartment Summit: Pricing, Cap Rates Still Strong, But Buyer Pool Shrinking

NEWARK, NJ — The first round-table discussion at CapRE’s 2018 New Jersey Apartment Summit was a broad discussion of the New Jersey multi-family arena. Moderated by David Wolfe, Managing Partner at Skoloff & Wolfe, P.C. the panel featured some deep insight by panelist Jose Cruz, Senior Managing Director at HFF about the state of the NJ multi-family arena.

“I thought I’d start with you Jose, as the broker on the panel and according to the emails I get, I see that you say you sell every property in the state of New Jersey,” chuckled Wolfe. “So what’s your view? The name of the panel is Multi-Family 360: Still Strong and Growing in the Face of Potential Macro-Economic Forces. So in English, what’s your view on the current state of the market?”

“You know, we’re still staying pretty active out there,” replied Cruz. “I would say, during 2018, at the beginning of the year we had a lot of carry-over. It could slow down during the summer. But after Fall or Labor Day, I feel like the regular season ends in August and but then we move onto the play-offs in September and October. So we got really busy. We put about $2 Million USD into the market in multi-family deals in the Tri-State suburban market, or for sale, in the last two to three months. And I would say that, at least 90% of it has found a home.”

Jose Cruz of HFF with Adam Altman, KABR; Alan Hammer, Brach Eichler LLC; Maurice Hornblass, Hornrock Properties at CAPRE's 8th Annual New Jersey Apartment Summit on November 29, 2018.
Jose Cruz of HFF with Adam Altman, KABR; Alan Hammer, Brach Eichler LLC; Maurice Hornblass, Hornrock Properties participated in CAPRE’s 8th Annual New Jersey Apartment Summit on November 29, 2018. Brian Klebash for CAPRE

According to Wolfe, it’s not just the other buyers out there. The pricing is still relatively aggressive. “I would say that, per unit, today, we’re seeing records set on a permanent basis,” Wolfe continued, breaking it down sub-market by sub-market. “I’ll give you an example. Jersey City, we’re over $700,000. In Hoboken, we’re over $700,000. In the Suburban Princeton area we’re over $220,000. That’s a record for that sub-market. In Younkers, we’re pushing $450,000 a door. In Long Island, we’re pushing $470,000. These are new high-water marks for all of these sub-markets. So the activity is strong. I would say that the buyer pool is thin. As that pricing pool has gotten more aggressive, there are less buyers showing up, no doubt. And it’s taking longer to get these deals done. But I haven’t seen the pricing suffer dramatically like that.”

“Cap rates, given interest rates at where they are, we may see a slight increase. Early fall or during summer. I will say that today though, we are seeing prices in the fours for aggressive waterfront product and in the 5s for suburban product,” he recalled. “We’re still not trading any multi’s in the 6s. So it’s still relatively strong in terms of cap rates today.”

Jose Cruz, Senior Managing Director, HFF

“One other quick comment too, we did see one deal get re-traded on interest rates in October. It was a large transaction, the pricing was $261 Million USD,” he added. “The buyer came back to us and said there is no physical, there are no financials, no environmental, but rates have moved. Here’s where rates were when you awarded it to us, here’s what the debt service coverage was, and here’s where it is today. And then they asked us for 2% which was $5 Million USD on that deal. And we negotiated on all weekend to figure it out and we needed up at a 1% change of price. Which was $2.6 Million USD.”

“So the seller was still content and happy and we moved forward and we are closing that deal next week,” he concluded. “But we did see an impact from the rates. I checked rates today, which are 3.2, that’s down. But in general, pricing is still strong, cap rates are still strong, deals are taking longer, not as many buyers are around, but the activity is still there.”