Multi-family market benefits from NYC conditions.

Manhattan's thriving economy can be credited as the major catalyst for New Jersey's red-hot multifamily investment environment as 2007 commences.

As conditions continue to tighten in the city, activity has shifted to nearby Garden State communities like Bergen, Hudson and Essex counties, which serve as bedroom communities for many New York commuters.

The Garden State's multifamily inventory went into the final months of 2006 with an impressive occupancy rate of 97%--continuing to beat both the national and northeast regional rates.

Competition among the state's affluent population for housing also plays a major factor in the consistently low vacancy rates, which is driven by the high incomes and population density. New Jersey ranks the 10th most populous state in the country and the densest state in the nation at 1,134 persons per square mile. Nine of New Jersey's 21 counties are among the wealthiest 100 in the entire country.

Within this context, more than one-third of New Jersey's 3.2 million households rent and pay an average of $1,200 per month for a one-bedroom apartment (averaging 750 s/f of living space)--a 25% premium compared to the national average monthly rent of $964.

This is why New Jersey consistently is ranked among the top 10 most expensive places to lease nationally. In select markets such as Edgewater, Hoboken, Jersey City and Fort Lee, Class A apartment complexes are commanding higher rents, surpassing $2,000 per month for a one-bedroom unit.

While rental rate growth has hovered near inflation over the past half-decade due to the booming for-sale housing market, an inventory undersupply has begun to push rates higher. During 2007 rental growth is set to exceed 5% for Class B product, while Class A product is projected to grow by 8 to 10% throughout the state.

Investors have recognized the compelling nature of the New Jersey housing market. The apartment investment arena was extremely liquid during 2006, prompted primarily by institutional and private buying. Approximately 37 properties (5,600 units) changed ownership, representing $880 million in sales. Despite a slight decline in transactions toward the end of the year, some 10 newly offered properties are on the market that could push apartment sales over $1 billion during 2007.

The median price per unit was $154,725, a rate 37% higher than the national average. Investors continue to push pricing benchmarks, paying upwards of $420,000 per unit for "Gold Coast" apartments directly across the Hudson River from Manhattan. Institutional and private investors are seeking to acquire properties over $50 million.

Cap rates have stabilized and are currently between 5 and 6%, depending on the age and the class of property. The average cap rate hit a record low 5% during the third quarter of 2006, a 0.4% decrease from year-end 2005.

The New Jersey apartment inventory includes some 1,600 properties totaling nearly 370,000 units. Since 2005, 19 new apartment communities totaling 3,200 units have been brought on-line in the state.

Hudson County is the most active in regard to new construction, with four large projects slated for completion in the near future. The largest mixed-use project is Riverwalk at Port Imperial in West New York, which includes 700 apartment units. Also nearing completion are Grove Point (458 units), The Columbus Tower (392 units) and Liberty Harbor North (134 units)--all located in Jersey City.

The New Jersey multifamily market is among the nation's strongest, based on current and projected activity. It is poised for another solid year.

By Jose Cruz, senior director

Cushman & Wakefield,

Metropolitan Area Capital Market GROUP