New Jersey's thriving apartment market was feeling the weight of the recession by late 2009, suffering a decline in rents and a slowdown in new development.
But that didn't stop AvalonBay Communities Inc. from breaking ground on its latest project in the state, a 180-unit luxury apartment complex in West Long Branch. For the Arlington, Va.-based developer, it was not the time to push off construction.
"We were confident that, at some point, the cycle was going to change," said Ron Ladell, the company's senior vice president and top executive in New Jersey.
It turned out to be the right decision as demand for luxury rentals has come roaring back, driven in part by the growing pool of "renters by choice."
In the four years since, AvalonBay has opened seven other multifamily projects from Passaic to Somerset counties, adding to a Garden State portfolio that now boasts about 6,500 units across 18 communities. The company has three projects under construction and two more it hopes to begin this year, plus more than 1,000 units in its pipeline.
Such activity is a reason AvalonBay is not only surviving but thriving in a market that has become increasingly crowded with some famed commercial builders entering the apartment business in an effort to strengthen their platforms.
In the face of new competition, Ladell said a real estate investment trust such as AvalonBay can use its experience to its advantage.
"I think the people that have been doing this for a long time have certain benefits," he said.
Ladell, who joined AvalonBay in late 2002, pointed to "certain economies of scale from an operation platform … that new multifamily developers don't necessarily have," such as contracts for carpeting, construction or snow removal.
The company's breadth and longevity allows it to take a longer-term financial view than a firm that's just entering the market, he said. When AvalonBay underwrites its deals, it uses current rents rather than projections based on trends.
But Ladell said that's not always the case with some newer multifamily developers, who have been "incredibly aggressive" with rent projections while underestimating future increases in operating costs. That's a recipe for "sometimes-underwhelming yields, to their surprise, when they get into multifamily.
"The multifamily market in New Jersey is priced to perfection," he said, noting that high demand has combined with low interest rates and — up until recently — lower construction costs to make it especially attractive.
Ladell, who has overseen the development of 10 new communities and four acquisitions since joining AvalonBay, said the company has been successful with different types of projects — and in different settings. Many developers are flocking to urban, transit-centric sites, but the company has built in urban and suburban markets while appealing to all types of demographics, he said.
"New Jersey is still a very difficult state, a high barrier-to-entry market that has not changed that dramatically," he said.
But more local governments are coming around, and for AvalonBay, part of its success has been proving that its developments won't overrun the town with new school-aged children, as local officials often fear.
"There are towns today that are more receptive to multifamily development," he said "And on the positive side … there are towns that certainly now understand that AvalonBay's resident demographic is very varied."
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