NJ Apartment Summit Preview with Alan Hammer, Brach Eichler: “Keep Your Eye on New York City”
by Josh Anderson
NEWARK, NK — 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, which established the authority of tax court judges to use the sale of an apartment house for property tax valuation purposes. 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. Alan is a frequent contributor at CapRE Multifamily Summits. In anticipation of CapRE’s Eighth Annual New Jersey Apartment Summit, we chatted with Alan about growing supply in New Jersey, rising interest rates and more.
CapRE: Thanks for chatting with us today, Alan. Please share with us a bit about what you’ve been seeing in Jersey over the last year or so. How have things changed in the multi-family arena since this time last year?
Hammer: Well, I come from two different perspectives. For one, I’m the operator of many buildings throughout New Jersey. As you know, I have buildings as far south as Salem. I probably don’t have the most units of anyone but I have a lot of buildings. And we do operate many units. The business of apartments has been strong. Our occupancy is very good. I have probably seen not as much rent growth to the extent of many markets…but business is good. I don’t have many complaints. I do have some concerns about all of the new construction that’s been approved or is in the approval stage.
CapRE: And what about from your other perspective, as a transaction attorney?
Hammer: If anything, I’m seeing more sales than acquisitions in the New Jersey market. For most of my career, most of the activity was acquisitions, not sales. But many of my clients have decided that for these prices, they just can’t not be a seller. For the first time in my life we are now doing many more transactions outside New Jersey than inside New Jersey. New Jersey is only a fraction of all transactions.
CapRE: Please share more about your thoughts on new construction.
Hammer: As people have heard me say, we have prospered from the fact that there has been an imbalance of supply and demand in the New Jersey housing market since the end of WWII. That’s a long time. There has been more demand than supply this whole time. And that demand has never been satiated. While I don’t see us having a market where the supply exceeds demand, I don’t think we’re going to be continue to enjoy these same benefits from a continued shortage of housing. Eventually, and in not too much time, there will be either a balance of supply and demand or, in some markets, an excess of supply. That is a concern of mine. To that end, we’ve been aggressively doing improvement work in our buildings for many years.
CapRE: How are rising interest rates impacting deals?
Hammer: From a first-hand basis, interest rates have risen. People may say they are still historically low, but if someone had mentioned to me ten years ago that I’d see 5% interest rates today, I’d say they were out of their mind. They are considerably higher than they were. We around 4% a year ago. That’s 20% or 30% higher. I recently lost two very substantial transactions as a lawyer because of the increase in the interest rates. That 20% – 30% increase dramatically reduced the amount of return. I had buyers for the first time in years during due diligence walk away from transactions because of the increased cost. These are big deals too, not just $20 Million USD, $30 Million USD deals.
Typically, when you see interest rates go up, people move. When interest rates go down they often will wait to make an acquisition. When rates go up, the converse takes place. In an increasing interest rate market, they move because they don’t want to be priced out. But I’m not seeing that in the apartment marketplace.
CapRE: What new developments or trends in New Jersey have you been tracking?
Hammer: There’s not much new. Which is good. I’m happy with no new. Business has been so good that any change is likely to be negative, not positive. I don’t see anything new. But I do see that the marketplace has been consistent. It’s maybe a little tighter.
There might be a fraction more vacancy in some markets. If you’re competing with new product in towns like Morristown, you are competing with new product. And when you’re competing with new product, it’s harder for us to increase rent. And then you do see some more vacancy, at least until that new product gets absorbed.
CapRE: So finally, what’s the bottom line in New Jersey right now? What’s the takeaway heading into CapRE’s Eighth Annual New Jersey Apartment Summit?
Hammer: The important message in New Jersey is to keep your eye on New York City. Our success, or lack of success, is driven by the New York City market. If the New York City market weakens, we weaken. If there is too much product, we are affected. If there is a shortage, we prosper. But right now, there hasn’t been a lot of change or anything new, exciting, or scary in New Jersey. And that’s good. I’ll take no change any day. Overall, we’re in a great place.
CapRE: Got it. Thanks Alan. We’ll see you Thursday.