While soaring interest rates have doomed some commercial deals, multifamily brokers in New Jersey say demand is still strong enough for trades to happen without a discount.
Marcus & Millichap associate David Ferber points to his $76 million Hudson County listing as an example.
The 30-building, 319-unit portfolio concentrated in Jersey City with some properties in Bayonne is asking about $238,000 per unit.
That’s 6 percent higher than the average sale price in late 2021, before the Fed’s rate hikes drove up financing costs, according to a Colliers’ market report.
Ferber said 115 investors were still interested enough in the Hudson County portfolio to sign confidentiality agreements in just three weeks, well above the demand he remembered pre-pandemic.
In part that’s because, despite macroeconomic headwinds, free apartments are scarce and tenants are scrambling to sign leases.
“I can’t even tell you how crazy the rental demand is,” Ferber said. “It is rare to see vacancies. Everything gets rented out very quickly.”
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As of mid-June the median rent for a one-bedroom in Jersey City clocked in at $3,225, a ridiculous 79 percent more than a year ago, according to Zumper.
For potential buyers of the Hudson County portfolio, that difference comes out to a 31 percent upside once older leases can be repriced to the new market rate.
And though 84 percent of the listing’s apartments are rent-regulated, under Jersey City and Bayonne rent laws, a new owner has the option to institute sizable rent hikes.
“Jersey City’s rent control is very similar to pre-2019 rent stabilization in New York,” Ferber said.
In the Gold Coast city, a law prohibits landlords from hiking rents above 4 percent or the change in the inflation rate from three months before a tenant rented an apartment to three months before he vacated it, whichever is less.
However, an owner who makes capital improvements when a unit becomes vacant can then raise the rent above that cost-of-living threshold without a prior application to the city’s rent bureau.
For example, $20,000 worth of work allows for a $300 bump in the monthly rent.
Bayonne is even more friendly to landlords. It has vacancy decontrol: When a tenant is evicted or moves out, the owner can free the unit from rent regulation.
“It’s definitely a lot better than New York and buyers know that,” Ferber said.
The broker did acknowledge that deals haven’t escaped the impact of rising mortgage rates.
As rates increased over the past few months, Ferber saw banks reduce the amounts they were willing to lend to buyers.
“So then they’d have to come up with, as an example, let’s call it $300,000 extra on a deal,” Ferber said.
But the broker said that hurdle didn’t curtail closings. It just forced agents to get “creative.”
If a buyer didn’t have the extra capital on hand, Ferber would negotiate with the seller to offer owner financing to bridge the gap. The parties would close at the same price and the seller would collect interest on the loan while the buyer paid it back.
“I saved a few deals that way,” Ferber said. “You know, you make it work.”
This article has been updated to reflect that in Jersey City $20,000 worth of work would allow for a $300 increase under the rent control ordinance, not $310.