Multifamily development is dominating the commercial real estate market in Fairfield County, much to the astonishment of some industry veterans.
The asset is attracting buyers from as far away as California and the Middle East, many of whom are attracted by the relatively low cost of entry and favorable yields. Moreover, demand for rentals in cities such as Stamford and Danbury is keeping investors interested.
That bears out in the numbers. Six of the 10 most expensive commercial real estate deals in Fairfield over the past 12 months were for multifamily buildings, according to The Real Deal’s data. TRD’s ranking considered all commercial sales — also including office, industrial and storage space — between April 1, 2018, and March 31, 2019, using Fairfield property records collected by the Warren Group.
“The big surprise to me is the continued demand and development of apartments,” said Al Mirin, executive managing director of Cushman & Wakefield’s Stamford office. “That market is so much stronger than anybody thought because people expected the occupancy to come from local people, not from New York City. But millennials are moving up here.”
In fact, 4,000 more units are set to come online in Stamford alone in the next year, Mirin said — apartments many would “never in a million years be able to afford in New York City.”
The average rent is set to hit $1,812 per month this year in Fairfield and New Haven counties, according to the 2019 Multifamily Investment Forecast released by Marcus & Millichap. In addition, vacancy rates have declined to 4.6 percent in 2019, the report stated.
Apartments on the rise
It’s easy to see why apartment buildings appeal to investors, said Jeffrey Dunne, vice chairman in CBRE’s capital markets group, which is focused on the Tri-State area. CBRE represented the seller in five of the six biggest sales of apartment buildings on TRD’s ranking.
Multifamily properties typically appeal to risk-averse investors, Dunne said.
“Apartment demand nationally is very strong, and it’s a conservative product class,” he said. “You have two, three, 400 tenants, depending on how many units, [so] if you lose one or two or five, it doesn’t damage the deal.”
By contrast, since there are far fewer tenants in an office building, losing even one can derail a sale, he added.
The No. 2 deal on TRD’s list was the $108.5 million sale of Crown Point at the Reserve, a 466-unit apartment complex in Danbury, which was handled by Dunne and his team at CBRE (more on the No. 1 deal later). It was completed in 2011, said Lane Shea, a managing director at Harbor Group International, which sold the property. Rents there start at $1,500 a month.
Crown Point’s buyer was a New Jersey real estate investor who used an LLC — Crown Pointe Sep — to make the purchase. That investor was also behind the seventh most expensive deal on TRD’s ranking, the $42 million sale of Park Square West in Stamford, Dunne said. The latter is a nine-story, mixed-use building with 143 apartments and retail space on the ground level.
Dunne noted that the Park Square West deal was the buyer’s first foray into the Connecticut market.
“We’re good at finding new capital sources to come into markets where they haven’t gone before,” Dunne said, noting that some sellers are wary of making deals with buyers who are not familiar with the area. CBRE, he said, works with far-flung buyers to educate them on the Connecticut region and set up deals where both buyers and sellers are comfortable.
Buyers from outside the area also snapped up 1 Kennedy Flats in Danbury and Element One in Stamford, according to Dunne. Those apartment complexes took the third and fourth spots, respectively, on TRD’s list.
1 Kennedy Flats sold in May for $86.25 million. The buyer was an unnamed investment client based in Qatar as part of a joint venture with Los Angeles-based Lowe Enterprises Investors. The Qatari company also worked with a Boston-based firm that helped bring its executives to the table, Dunne added.
Greystar Real Estate Partners bought the property for around $8 million in 2015, also with CBRE in on the deal. 1 Kennedy Flats was completed in 2016, bringing 374 units to Danbury.
“So we went full circle on that,” Dunne said. “We always like that, and I think we had a happy buyer and a happy seller.”
Element One was purchased by San Francisco-based Friedkin Realty Group for $78 million in September. Friedkin “has been buying on the East Coast,” explained Dunne, adding that the company is finding that yields are better locally than in California.
In March, Stamford Corners sold for $60 million, the fifth most expensive deal of the year. CIM Group was the seller, also represented by CBRE, with Stamcon Holdings LLC listed as the buyer.
And the Bridgeport-based Navarino Property Group was the buyer behind the final apartment deal on TRD’s list: the $35 million purchase of the two residential properties that ranked as the area’s ninth-priciest trade.
Only one industrial deal made the list, despite high demand for the asset, Dunne said.
Industrial is “very, very hot — hotter than apartments, but certainly Connecticut is not an industrial hub,” he said. Companies are looking for space on industrial corridors, such as along the New Jersey Turnpike or cities like Atlanta, Chicago and Los Angeles.
Still, TRD’s list shows that the sixth- priciest deal in Fairfield was the $46.3 million sale of five industrial properties that are part of the Stamford Executive Park. HFF represented the seller, Jersey City-based Mack-Cali Realty Corporation. The buyer was a joint venture partnership managed by the Robert Martin Co., which is based in Westchester County.
The trade was part of a $487.5 million deal, with Robert Martin acquiring more than 3 million square feet of industrial space from Mack-Cali, the company announced in March. Four properties were included in the deal, three of which are in Westchester. The fourth, the Stamford Executive Park, contains 270,000 square feet and houses such tenants as Fujifilm Medical Systems and RPM Raceway, a go-karting track operator.
While there were fewer deals in the office asset class, the most expensive sale on TRD’s Fairfield ranking was for 155,504 square feet of office space.
The deal for 100 West Putnam in Greenwich took the No. 1 spot at $130 million. The Boston-based Rockpoint Group purchased the 3.3-acre office campus in November from Antares Property Management, which was represented by Eastdil Secured.
The Greenwich property includes two four-story, Class A buildings that received the Outstanding Building of the Year award from the Building Owners and Management Association in 2016. Rockpoint declined to comment for this story.
Cushman & Wakefield’s Mirin said there’s “a ton of good news” in Stamford. Take for example World Wrestling Entertainment, which announced in March that it would double its square footage in Stamford, moving its global headquarters to a new office complex at 677 Washington Boulevard, the former North American headquarters for UBS. Charter Communications and Finacity Corporation also leased Stamford space in the first quarter, about 18,400 and 16,000 square feet, respectively.
There are also opportunities to be had in some of Fairfield’s northern urban areas. The other office deal on TRD’s list was the sale of the Offices at Greens Farms. It took the 10th spot, trading for $32.6 million in December to JEM Holdings.
The space was 100 percent leased when the deal was made, said Mirin, who represented the Silverman Group, the seller. Rents are in the low- to mid-$30s per square foot, he added, which is significantly less than rents in the southern part of the county.
Mikael Levey, the founder and CEO of JEM, said he is not a big fan of suburban office space nor Fairfield itself, and he thinks much of the product in the area is outdated and unappealing. In fact, his company is 99 percent focused on multifamily properties in the southeast, he said.
“But I’m opportunistic in markets in communities that make sense, like Greenwich, Darien or Westport,” he added. In addition, the Offices at Greens Farms is a Class A office park, and Levey noted that the product is limited in the area.
Still, Levey’s concerns about the region as a whole are reflected in the numbers.
Office vacancies across the county are at 26.5 percent, up from 24.2 percent in the first quarter of 2018. And rents nudged down to $31.96 from the average per-square-foot rate of $32.55 a year ago, according to a Cushman & Wakefield first-quarter report on the Fairfield office market.
In some cases, the interest is there, but not the product. Office space in such cities as Stamford and Greenwich has often been carved up to meet the needs of smaller firms, and big blocks of desirable space are lacking, Mirin said.
Indeed — the Stamford- and Austin, Texas-based online job listing company — has been looking for space in Stamford, but so far hasn’t been able to find enough square footage in a building with modern amenities.
“The vacancy rates on paper seem high, but you can’t find big blocks of space anymore,” Mirin said. “Average office deals are historically 4,000 to 5,000 square feet. When you start reading about these deals that have hundreds of thousands of feet, you can count on one hand the places you can even go.”