Housing USA: Settling in Jersey

6 min read

When it comes to housing, along with other industries, New Jersey is a spillover market – it receives many of the people priced out of New York City. Most major U.S. metros are like this, since a natural gradient exists putting a premium on centrally-located housing, and a discount on housing the further one moves out. But this is especially so in the New York-Newark-Jersey City MSA, which is abnormally “spiky.” Average listing prices are over $1 million for much of Manhattan, Brooklyn and Queens. In some suburbs 20 miles away, home price medians dip well below $300,000. This has caused a population outflow from the city into these suburbs, creating new pressure in the receiving areas. New Jersey, which gets much of the influx, has responded by becoming one of the more aggressive states for supporting workforce housing. Affordable projects are getting built through the Housing and Mortgage Finance Agency, including a notable recent one in Newark, where housing challenges have become particularly acute.

To understand what’s happening in Newark, it’s worth noting the demographic trends of New York City. It has lost population for two consecutive years, declining by 40,000 people in 2018. Many of those outbound migrants are moving to the suburbs.

“Within the New York City metro area, far more people move from one of the city’s five counties (Bronx, Kings, New York, Queens and Richmond) and settle in the suburbs than move in the other direction,” reports the New York City Economic Development Corporation. “Five of the top ten aggregate net outflows from the city’s five counties are to other counties within the metro area (#1 Westchester, #2 Nassau, #3 Hudson, NJ, #6 Essex, NJ and #7 Fairfield, CT).”

Newark sits within Essex County and is adjacent to Hudson County. After decades of population loss, it has now added 22,000 people since 2000. People from across the metro view Newark as a respite for housing affordability, mainly because it was long a distressed urban area. This inbound demand has caused Newark’s housing market to explode, with median home prices jumping from $162k in March 2017 to $260k this May. There have been similar price jumps in proximate suburbs, such as Jersey City and Elizabeth, and Zillow describes the entire state as having a “very hot” market.

The state has responded with a bureaucracy—the New Jersey Housing and Mortgage Finance Agency (NJHMFA)—that has been especially proactive about distributing federal Low Income Housing Tax Credit equity and getting projects built. According to its website, NJHMFA “currently monitors over 600 tax credit developments that contain more than 50,000 units and assists with the rehabilitation or construction of approximately 20 projects annually.”

Last fall, NJHMFA announced that it would award $28 million in LIHTC to help build 1,400 affordable apartments for families, seniors and special needs residents, across 22 developments statewide. An analysis by New Jersey Future, a smart growth organization, found NJHMFA funds are more likely than before to be allocated in high-opportunity neighborhoods instead of low-income ones. To that point, NJHMFA-backed projects have a mixed-income set-aside, aiming to integrate different people.

A good recent example is 915 Broad Street in Newark, better known as “City Hall Apartments.” The project sits on vacant land formerly owned by the Newark Housing Authority. The lot is across from Newark’s City Hall, in a stretch of downtown that’s coming along, but isn’t quite fully revived. In 2016, Broad Hill Partners (BHP), a subsidiary of New York-based Urban Builders Collaborative (UBC), purchased the land, hoping to make it a high-density, mixed-use project. In December of 2018, BHP broke ground on an 84-unit facility with retail at ground level.

The building will have 46 affordable units and 38 market-rate ones, as part of a split that met NJHMFA’s mixed-income guidelines. Most of the units, according to Matthew Gross, director of real estate development at Urban Builders Collaborative, will look the same, with a majority of them one-bedroom and a small percentage two-bedroom. The only difference is that the market-rate units will have in-house washers and dryers, while LIHTC residents will have common washer/dryer facilities to access on each floor.

The anchor ground-level retail will be an IHOP owned by Adenah Bayoh. Bayoh is a Liberian immigrant who grew up in Newark’s housing projects and is now one of the city’s most successful entrepreneurs. She owns various IHOP franchises around New Jersey and a $250 million real estate portfolio. She has a partial stake in City Hall Apartments.

A variety of financing sources combined to make the $26.9 million project happen. The permanent lender is Capital One and the construction lender is Sterling National Bank. The project benefitted from $10.6 million in LIHTC equity, another $1.8 million from the developers, and a 30-year tax abatement granted by city council. Capital One’s loan is backed by a Freddie Mac Forward Taxable commitment, which helped, said Evan Williams, a senior vice president with Capital One’s Multifamily Finance team, because Freddie Mac,“did a great job understanding the local housing market and the demand for both market-rate and low-income units.”

Elaborating on the loan, Williams says that, “Freddie Mac achieved the leverage needed, with a 1.15 x debt service coverage and 90 percent LTV for the mixed-income nine percent deals. The Forward commitment also took into account income from the commercial space and the tax abatement, while providing flexibility for an earnout at conversion.”

Estimated completion date for City Hall Apartments is April of 2020 and will add to a number of other projects that have already helped bolster downtown Newark. Gross said, however, that the project’s relatively minor scale—five-stories, 90,000 square feet—is because they couldn’t find lending for a high-rise project. Newark’s market still isn’t robust enough to justify such development.

“Right now today, I can’t say that there’s been any market-rate developments of significant size…that have been financed without some sort of subsidy,” says Gross, of downtown Newark.

But there’s still a decent number of people moving there, and to other parts of New Jersey, in response to high home prices in New York City. The state’s allocation of LIHTC for centrally-located, mixed-income projects is a response to that.

Story Contacts:
Matthew Gross
Director of Real Estate Development, Urban Builders Collaborative

Evan Williams
Senior Vice President, Originations Capital One
Multifamily Finance Group