Source: Commercial Investment Real Estate Magazine


Thomas McConnell, CCIM, associate director of Marcus & Millichap’s National Multi Housing Group in Elmwood Park, N.J., recently sold an East Rutherford, N.J., apartment property built in 1979. The family owners had not pushed rents or made basic upgrades in many years. “I sold the complex at a going-in sub 5 percent cap rate to a private syndicate that was able to see the upside,” McConnell says. “Within six months, the new owners had dramatically improved occupancy with simple upgrades and a very aggressive, hands-on management campaign.” The property, which is located in a thriving transit-oriented community, is now stabilized at a 7.5 percent cap rate, he adds.

There is hope, however, that multifamily deals will surge before year-end in these and other markets. McConnell says that reluctant sellers, who otherwise might not have considered selling until next year or beyond, could be spurred on by the potential capital gains tax increase. And some uncertainty remains about just how long this seller’s market will last.

Investors are probably wondering: What will happen when these units eventually come on line? Consider New Jersey, where builders are delivering 2,412 units this year, according to McConnell, a nearly fivefold increase over 2011. “With the influx of new starts, investors are keeping a watchful eye on their older, existing product,” McConnell says. “On the flip side, I believe the new developments will cater to the folks who would have been home buyers a few years ago. The tenant going into the new product is in a different income bracket than the tenant going into the older garden community.”

Potential tenants are looking at the price to-rent ratio, according to McConnell. And in some markets, including New Jersey, effective rents are closing in on the max point. “When the rents max out, the tenants will be redirected back toward homeownership,” he says.

Thomas McConnell, CCIM, of Marcus & Millichap in Elmwood Park, N.J., and a partner negotiated the $7.3 million sale of a 75-unit multifamily property in Mahwah, N.J., from K. Hovnanian Enterprises to Norfolk Investors LLC.