Multifamily Overview- Northern & Central New Jersey (May 2006)
Sponsored by Cushman & Wakefield

Table of Contents: State of the Market - Investment Sales Activity - Rental Trends - Occupancy Trends - Construction Activity - Economic Overview

State of the Market

New Jersey's (NJ) multifamily inventory ended 1Q2006 with an impressive occupancy rate of 96%, continuing to best both the national (94%) and Northeast regional (95%) stats due to the state's combination of high barrier to entry mature markets and undersupply of inventory. NJ's demographics bode well for apartment owners as over one third of the 3.2 million households rent and pay an average of $1,200 per month - a 25% premium compared to the national average monthly rent of $909.

Competition for housing plays a major factor in the consistently low vacancy rates, which is driven by the high affluence ($82,927 avg. h.h. inc.) and population density of NJ, which ranks as the densest state in the nation at 1,152 persons per square mile - greatly exceeding that of New York State (318/ sq. mi.) and Connecticut (613/ sq. mi.)

The state's total apartment inventory consists of over 1,600 properties comprising nearly 370,000 units. The highest concentrations of multifamily properties are mostly located within the densely populated Northeastern counties of Bergen, Hudson and Essex. These counties either support an area employment center or serve as bedroom communities for Manhattan commuters.

Investment Sales Activity (back to top)

The NJ multifamily investment sales market continued to remain very active throughout the trailing 18 months prompted primarily by condominium converters, institutional investors, an abundance of equity and favorable lending rates. in addition, demand has surged as institutional buyers have come to recognize the state's economic stability and strategic location as an excellent long-term play and Portfolio diversification.

The apartment investment environment was extremely liquid during 2005 with approximately 42 properties (7,708 units) changing ownership totaling $1.14 billion in sales. the median price per/unit was $149,000, a rate 32% higher than the national average. per transaction, the average cap rate was 5.07% and the average occupancy rate was 97%.

Notable investment sales included Avalonbay's 4q2005 disposition of the tower at Avalon cove, a 269 unit apartment community in Jersey City. Developed by Avalonbay, the tower fetched $106 million, or $394,052 per unit, resulting in an unleveraged irr of 17.8% over the seller's 7.7 year holding period. Condo converters continued to push pricing benchmarks

Paying upwards of $420,000 per unit for "gold coast" apartments located directly across the Hudson river from Manhattan.

Rental Rate Trends (back to top)

NJ's average rent of $1,200 per month consistently ranks it among the top 10 most expensive places to lease, however still well below the $2,400 per month average paid in neighboring new york city. Albeit, the shifting market conditions have poised the state for solid gains in 2006.

The Foundations for near term aggressive rent growth are being laid as rising interest rates are placing hopeful homeowners back into the apartment rental market, the condominium conversion boom has limited inventory as it has claimed many prior apartment complexes and both economic and employment growth forecasts remain strong across the entire tri-state region.

Rental Rate growth has hovered near inflation over the past half-decade due to a renter's market, but has begun to pick up pace as evidenced in both the Northern and Central Regions. During 2005, statewide monthly rents increased on average $36.00, or 3.2%, nearing par with the northeast regional average of $1,285 per month. so far in 2006, many market participants are reporting the ability to raise rents 5-7% with no adverse effect on occupancy and concessions have disappeared for class a properties.

During 1Q06, the average rent in northern NJ, which consists of bergen, passaic, morris, essex, hudson and union counties, registered in at $1,311 per month, 22.1% higher than the average rent of $1,021 for central NJ, which includes Mercer, Middlesex, Monmouth, Somerset and Ocean counties. Although northern NJ posted higher rents, central NJ's 2005 rental rate grew at 3.0% over 2004 levels, compared to 2.0% for the northern half of the state over the same time period, according to reis and Cushman & Wakefield research.

Historical Effective Average Rental Rates (source: www.reis.com)

Occupancy Trends (back to top)

According to the U.S. Department of Commerce, the NJ apartment market is one of the strongest in the nation as it is linked to both the New York City and Philadelphia Metropolitan Areas. At the end of 1q2006, the average statewide vacancy rate registered 3.7% - considerably lower than the national (5.8%) and northeast regional (4.3%) vacancy rates.

Northern NJ began the year with a 3.7% vacancy rate, whereas central nj came in slightly higher at 3.8%. As shown in the following graph, vacancy rates were impacted in 2001 by low interest rate mortgage financing that allowed many previous renters to convert their monthly rent into a mortgage payment.

Beginning in 2003, the impact of decreasing inventory from conversions was most evident in Northern NJ as the vacancy rate tumbled by 2.1 percentage points to currently rest at 3.7%. near term vacancy rates in both Northern and Central NJ are anticipated to return to the levels observed prior to 2001 (sub 3%) as purchase financing becomes more expensive resulting in a heightened predisposition to lease.

Construction Activity (back to top)

During the last 12 months, 15 new apartment communities (2,878 units) were brought on-line. currently proposed rental projects include the second phase of pier village in long branch, which will include 223 apartments, adding to the existing 320 apartments and 100,000sf of retail already on-site, the roosevelt in Jersey City (133 units) and Harbortown Phase i, a 520-unit apartment complex located in Perth Amboy.

Rental Apartments - 1Q 2006 *

*excludes subsidized/low income properties & senior citizen housing

Construction starts on two new major condominium developments were announced in august. in Englewood, MDK and S. Hekemian group will build 399 condominiums to be priced in-line with that market's average for luxury, new construction selling in the range of $350-400 per sqft. chunk pricing is anticipated to start at $322,000 for an 860-sqft, one bedroom condo and $489,000 for a 1,399-sqft, two-bedroom condo. Taking part in the urban revitalization for the city of New Brunswick, ast development received approvals to build two mixed-use towers that will include 100 condominiums, ground floor retail, 60,000sf of class a office space and parking for over 850 vehicles.

Looking ahead, the trump organization announced construction plans to build trump plaza in jersey city. the $415 million condominium project will include the two tallest residential towers in new jersey topping out at 55 stories with a total of 862 units.

Condominiums - 1Q 2006*

Economic Overview (back to top)

NJ's economic picture improved as of March. The state's unemployment rate dropped 2.0% to 4.5% since February and continues to remain below the national average of 4.7%. presently, over 4.0 million workers are employed in NJ, accounting for 3.0% of national employment. the majority of the jobs were created by private companies, which added 3,300 workers. the area with largest decline in employment was the professional and business services industry where employment fell by 1,000 jobs as reported by the NJ dept. of labor. Through 2006, employment statistics are expected to remain favorable as NJ's economy is projected to grow at an annualized 3.3%, according to the federal reserve of Philadelphia.

For more information, please contact:
Jose Cruz, Senior Director Captial Markets Group
One Meadowlands Plaza, 7th floor
East Rutherford, NJ 07073