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Report: Multifamily sales trigger bidding wars among investors

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With banks moving forward on single-family foreclosure actions in New Jersey, demand in the multifamily market has intensified competition among investors for a shrinking available supply, according to a quarterly report from the Elmwood Park office of Marcus & Millichap.

"There's a market-rate, 56-unit property in Clifton we're marketing right now, and it has 15 to 20 offers on the table — and that's just one deal," said Thomas McConnell, a senior associate at the firm. "It's healthy to have multiple groups chasing one deal, but I think it would be nice to see more supply come in."

According to the report, developers added 1,485 market-rate apartment units to the state's inventory over the past year, though it fell below the previous year's total of 2,245 new units. However, nearly 4,400 units from stalled projects are under way, and builders will complete an additional 2,415 units in the state this year as a result of increasing demand, the report said.

According to McConnell, fierce competition among large investment firms in the North Jersey class A apartment market is driving smaller investors to lower-class properties in central and southern parts of the state, where multifamily construction and sales historically have lagged.

"North Jersey has become so ultra competitive that 90 percent of local folks can't compete against the institutional money from firms that are much more willing to overpay for class A properties," McConnell said. "It's leading independent investors to acquire lower-class properties at a discount and then upgrade them to drive more demand, since folks coming from single-family homes are used to certain amenities that the older garden properties in Central (Jersey) and South Jersey don't have."

According to McConnell, the inevitable increase in interest rates and the looming potential increase to the capital gains tax following the presidential election are prompting landlords to put their properties on the market to avoid reductions in the value of their assets, which has led to a 40 percent surge in sales activity from a year ago.

Write to the Editorial Department at editorial@njbiz.com

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