New Jersey Apartment Summit Preview: Alan Hammer Says Prices are Too High to Feel Comfortable Buying
by Josh Anderson
NEWARK, NJ — Since 1971, Alan Hammer has concentrated his practice in the areas of investment real estate transactions and tax appeals, representing the purchasers and sellers of office buildings, shopping centers, industrial facilities, apartment complexes and vacant land. Highly successful in real estate tax appeals, he has been involved in obtaining landmark rulings, including the Supreme Court’s Glen Wall Associates decision, one of the most important and widely cited decisions on the valuation of investment properties. Alan is personally active in the acquisition, ownership, management and operation of investment properties, primarily apartment complexes, throughout New Jersey, Eastern Pennsylvania, and New York State. In advance of CapRE’s upcoming New Jersey Apartment Summit, we connected with Alan for a sneak peak of the New Jersey Apartment conversation.
Capre: Thank you for chatting with us. Please tell us our readers a bit about what you do.
Hammer: Well I really have two roles in buying and selling apartments. I’m an attorney with a specialty in apartments. I work on apartments in New Jersey from river to river and throughout Eastern PA as well. I’ve been doing this since 1971, and my father was also a major real estate professional. I have professional management companies that manage properties but have two companies that manage the bulk of them – our businesses are basically their business. I also have partnerships with others to manage other properties. I’m involved in the operation of many buildings in many, many places all across New Jersey.
CapRE: I see. So what have you been seeing lately in the New Jersey apartment arena?
Hammer: What I am seeing as a buyer of apartments is that I’m unable to compete. Prices are too high for me to feel comfortable buying, based on my operating experience and costs. I’m a different kind of operator though. Similar to others, I’m a buy-and-hold operator. While I have sold the buildings over the years, basically I buy to hold, maintain and improve. Our business, which is doing very, very well, is the operation of buildings in some of the better neighborhoods in New Jersey and Pennsylvania. We do a very hands-on kind of property management, maintaining them at a very high level. We are in the middle of – as we always have been – renovations of kitchens and bathrooms, as we’ve been doing for many years. We spend a lot of money on maintenance, repairs and improvements.
CapRE: So why are prices so high?
Hammer: Prices are high because real estate investors want to invest in real estate. For years and years, the apartment industry competed for investors with people who owned office buildings. But people have concerns about office buildings. There is a concern that there are too many suburban office buildings. And there is fear that retail is being taken over by the internet – that it’s the dinosaur of the industry. People who were at one time interested in office and retail are now more interested in apartments. Rates on treasury bills are driven by the market for that treasury bill. When you’re concerned about the stock market, price goes up, yield goes down. It’s all very logical, natural, and predictable.
As long as the demand for apartments stays as strong as it is, the prices will stay where they are. Now if you’re in the business of buying with the idea of selling in mind – which I’m not – it’s a good market to be in. Because prices continue to go up. And many apartment house investors are looking for a 5-7 year horizon, thinking they will operate for that long, and sell it for more than they paid. While their yield may not be as high as they’d like, it will still work out for them, because prices will keep going up. As long as prices go up, investors will be fine.
CapRE: That doesn’t work for my model though?
Hammer: For me to buy again, prices have to come down. If prices come down we’re all worth less money, but it works for me because I’m not trying to sell. Everybody wants to build apartments today, because it usually costs more to build than to buy, but not in this particular marketplace. People all over the country are building apartments, which will have an impact on the marketplace, which will produce more product. New Jersey has been fortunate though because we have always prospered. We’ve always had the fortune of an imbalance of supply and demand.
CapRE: Oh really now?
Hammer: Really. Demand has exceeded supply for our product since WWII. Since the 40s, there’s been more demand than supply of apartments. That is changing and shifting on a daily, weekly, monthly bass. And it will impact everyone. As more apartments are added, you will find availability of units, and you will find an inability to continue to raise rents when you’re competing with a newer, better product. That is and will happen. This is happening everyday. We see so many apartments under construction, even in Northern New Jersey.
CapRE: So what could change this?
Hammer: It will be helpful to build a tunnel to New York City. Anything that gets people to our market will be good. Christie made a terrible blunder in killing the tunnel deal years ago. But right now, people are online to build tunnels to New York City. That will be good for us in New Jersey — anything that gets people in and out of the city better and faster will be good for New Jersey. Unemployment at the rate it is now is also very good. If people have a job, they can pay rent. There has not been a lot of rent growth lately. Rent growth was automatic for years, since wages rose, and they could afford it. Then it slowed for awhile, but it’s coming back. That’s a good thing.
CapRE: And what’s the bottom line? What do you want people to know about the New Jersey Apartment conversation?
Hammer: That we’re a good industry. It’s been very good for many of us. My biggest concern is that people have been buying more aggressively than they will be able to maintain their properties. The industry used to have a very bad reputation when landlords didn’t take care of their properties, and I hope that people entering the industry now will take care of them. Tenants are our customers – take care of them.
CapRE: Thank you for your time. We’ll see you at the Apartment Summit.