June 8, 2021

What will be the pandemic’s longest-lasting impact(s) on New Jersey’s multifamily sector?

By Joshua Burd

We assembled a panel of industry experts to tackle this month’s question.

Here’s what they had to say.

Jonathan Gertman, vice president of development, The NRP Group (New York)

During the pandemic, public awareness and appreciation of the people who make our lives possible — the ‘essential workers’ — expanded significantly. It isn’t just police, firefighters and teachers, but also the delivery person and the deli worker. The need to spend resources and make zoning allowances to make sure they have affordable, quality housing close to jobs is something I hope continues for the long term.

Secondly, I think we will see that ‘micro-units’ and the push to ever smaller living boxes failed spectacularly. While that had only started to creep into the northern reaches of the state, I think we will see a renewed focus on the apartment unit itself and centering customer value.

Finally, as an industry we just cannot be building interesting inclusive communities without diverse teams and representation. This continues to be top of mind for NRP and should be a focus for the industry until our business looks much more like our society.

Dan Gorczycki, managing director, TrueRate (New York)

The pandemic has changed tenants’ wish lists. Tenants in multifamily buildings have already made it clear that they want more open space. New developments will be forced to add amenities such as recreation areas to stay competitive. People who will be working from home permanently will want newer product. Therefore, older buildings will be forced to renovate or their occupancies will suffer. This desire for open space will help secondary and tertiary markets in New Jersey and may hurt urban areas if office space contracts. As tenants demand new buildings, new construction will increase and this will help construction jobs. The increase in housing prices across the board will bolster multifamily building rents as younger people will be priced out of purchasing new houses. There is less of a general desire among young people to buy homes as they want to remain flexible so new housing developments may become build-to-rent developments.

Nicholas Minoia, founder and managing partner, Diversified Properties (Montville)

Despite the myriad of challenges posed by the pandemic, New Jersey’s multifamily sector continues to innovate and position itself for continual growth in the coming years. We are amid a transitional phase, where landlords and developers must take a new approach to satisfy the needs of tenants in a post-pandemic world. Transit-oriented, urban-centric development is taking somewhat of a backseat as people continue flocking to suburban areas with premier educational and retail services. As remote work gains traction, I anticipate an industry-wide focus on increased apartment sizes to accommodate in-home office, workout and deck spaces. On-site gyms will be of less importance compared to pools, patios and pet-friendly spaces. As health and wellness remain at the forefront of everyone’s minds, state-of-the-art HVAC systems will continue to be vital. Additionally, contactless delivery systems built to handle the increase in online shopping will also no longer be optional, but a necessity.

Ludivine O’Toole, senior development director, AvalonBay Communities (Westfield)

While facilitating the relocation of workers to the New Jersey suburbs, the workplace shift into a hybrid model accentuates the need for decentralized developments where residents can live, work and play. Apartment layouts are getting a bit larger to accommodate an office space and direct entry products are being considered more often. Co-working spaces are being offered as an amenity to residents who want a satellite office which is not home, but not far from home either. Flexible schedules mean more time and demand for great amenities in good neighborhoods and communities. In this post-COVID environment, the New Jersey suburban multifamily sector is poised to continue to perform well.

On the operational side, the rise of e-commerce is forcing developers to streamline package management from the installation of smart and restricted access points for delivery drivers (such as Amazon Key) to the secure storage of the parcels in package lockers and oversized package rooms (including refrigerated spaces for food items) and the safe retrieval of packages by residents. During the pandemic, residents have enjoyed unlimited access to food and grocery deliveries and this new consumer habit is here to stay. Developers need to rethink building access points to deliveries and short-term parking management to provide the best resident experience and avoid traffic congestion.

Donald M. Pepe, partner, chair, commercial real estate law group, Scarinci Hollenbeck LLC (Red Bank)

I am glad you included the plural ‘impacts’ because the pandemic has had multiple, overlapping negative impacts affecting virtually every segment of the market. From a development perspective, the approval process has slowed dramatically. In some municipalities, it is taking up to 180 days to get a hearing date scheduled on even simple applications. While not likely a long-term problem, it will take time to clear the backlog, causing delays on new construction starts. For projects currently under construction, pandemic-related material shortages and the concurrent price increases on lumber and steel are delaying project completion dates and adding as much as 30 percent to the bottom line. Filling out the trifecta, rents are down 25 percent throughout Hudson and Bergen counties, and competition for tenants is fierce, with multi-month rent incentives increasingly the norm. In short, proformas in the multifamily market are getting pinched from every direction.

Wendy S. Paul, executive director, Jersey City Apartment Owners Association

COVID has had a dramatic and negative effect on the existing multifamily market and could have a significant chilling effect on the future. The impact is obvious in Jersey City, which is likely to be confirmed in the most recent census as New Jersey’s largest city, but also statewide.

While the eviction moratorium has provided refuge for renters, the multifamily apartment owners are expected to continue to cover all related expenses with little to no assistance. Rental assistance programs have provided further and more meaningfully help for renters. The city of Jersey City was innovative when it supplemented the state’s rent relief program by providing direct rent relief and utility assistance to residents earlier this year, which staved off a small part of the mounting loss, but the amount of rent relief provided is only a drop in the bucket. More support is needed to help owners not collecting rent to pay their bills.

The integrity of existing and growth of new housing could be significantly stunted, as property owners struggle to recoup lost rental income and catch up on debt taken on to stem the pandemic.

More should be done. For example, apartment owners, which have not received rent relief due to renters not having shown documentation or applying for assistance programs over six months, should be made eligible to receive funds. In addition, more funds should be allocated to rent relief. Programs like this will ensure stability of the rental market in Jersey City and the state.

Renni Trinh, assistant project manager, March Associates Construction (Wayne)

Early in the pandemic, many city offices closed which initially caused delays in getting building permits. Most residential construction projects had begun to halt as they were deemed nonessential. As the pandemic went on, multifamily development quickly picked back up, but the demand for material has caused shortages amongst the industry as suppliers are not able to ramp up production quickly enough to meet the new need. Not only has this shortage in materials put pressure on the industry but the rise in cost for key construction materials such as steel and lumber have caused developers to re-strategize on opportunities that once made sense. Any existing construction may still be ongoing, but there has been a pause in new builds as developers continue to look to secure financing. Especially in the multifamily sector, it’s difficult for developers to absorb the increased cost of material and still remain profitable.

Not only has the pandemic affected the construction of multifamily development, but it will ultimately affect future designs and layout as people are rethinking the space in their home. The increase in working remote have and will continue to shape buyers’ demand for specific amenities and space allocation.