High demand, low vacancy push rents up

KATHLEEN LYNN - The Record - Jan 28

North Jersey apartment rents -- already among the highest in the nation -- are expected to rise about 3 percent this year, a real estate brokerage says.

Marcus & Millichap Real Estate Investment Brokerage Co.'s annual apartment report estimates that rents in the region will reach an average of just under $1,400. And vacancy rates will remain low, below 4 percent.

Apartments in North Jersey are in demand because of the area's "proximity to the great employment hub of Manhattan," said Michael Fasano, regional manager of Marcus & Millichap's New Jersey operations.

Demand for apartments declined a few years ago, as low mortgage rates lured tenants into buying homes. But purchase prices have risen so fast that more tenants are now staying in the rental market, according to Jose Cruz, senior director of Cushman & Wakefield's metropolitan area capital markets group in East Rutherford.

In North Jersey, the percentage of people who rent varies widely by county. According to the Census Bureau, about one-third of Bergen County residents rent. In Passaic County, the percentage is 47 percent; in Hudson, 66 percent, and Morris, 22 percent. The numbers are from 2002, the most recent available.

The demand for rentals, coupled with the difficulty of building apartments in an area with little available land, has pushed up the prices that investors will pay for apartment buildings, according to Ken Uranowitz, managing director of Gebroe-Hammer Associates, a Livingston commercial real estate brokerage. He pointed to several recent apartment building deals: The $6.5 million sale of a mid-rise apartment house at 263 Franklin Ave., Ridgewood; the $11.5 million sale of 345 Prospect Ave., Hackensack; and the $7.5 million sale of 390 Prospect in Hackensack.

Because land is so scarce, much of the apartment construction is redevelopment of old industrial sites, especially along the Hudson River waterfront. Developers will add 1,800 rental units to the area this year, with more than 800 apartments located in Hudson County, Marcus & Millichap said.

Cruz pointed to four large projects close to completion in Hudson County: Riverwalk at Port Imperial in West New York, which includes 700 apartment units; and Grove Point (458 units), The Columbus Tower (392 units) and Liberty Harbor North (134 units) in Jersey City.

Also among the new rentals in the area are two large projects in Englewood -- the Towne Centre in the downtown shopping area and the Brownstones at Englewood South, just off Route 4. Like much of the new development in the region, both of these buildings are luxury projects; rents at the Brownstones start at $1,768 for one-bedrooms.

In older complexes, apartments are less expensive. At the Brookchester garden apartments in New Milford, for example, one-bedrooms go for $1,000. Vacancy rates at the Brookchester are just above 1 percent, according to leasing manager Doreen Ercolano.

A wave of renovation is under way at the Brookchester and other older apartment complexes, because today's tenants expect nicer surroundings. The Brookchester and other large North Jersey garden complexes were built to house soldiers returning from World War II and their families, said Alan Hammer, head of Westminster Management, the apartment-house division of Florham Park-based Kushner Companies. That means they're about 60 years old and need updating.

"These buildings were built before air conditioning, before dishwashers," Hammer said.

Many North Jersey communities have rent control laws that limit yearly increases, often to the inflation rate or less, although in many towns, landlords can raise rates to market levels when a tenant leaves. But even with rent control, the region's rents are a strain for low- and middle-income people. The National Low-Income Housing Coalition recently reported that a tenant needs to make $22.37 an hour to afford the typical two-bedroom apartment in the area.

That's more than three times the state's minimum wage of $7.15 an hour. And it makes the Bergen-Passaic region one of the most expensive rental markets in the nation, according to the annual "Out of Reach" report by the coalition.

Arnold Cohen, head of the Housing and Community Development Network of New Jersey, said the state needs to do more to encourage the construction of affordable units. Now, because of the high cost of land, developers build mostly higher-priced units.

He said the state could offer tax incentives to builders for putting up affordable apartments, and it could pressure towns to allow affordable development. Now, developers focus on building large, expensive single-family homes and communities for 55-and-up residents. Towns like the age-restricted development because it doesn't add schoolchildren to the schools, which are financed by property taxes.

E-mail: lynn@northjersey.com