ATLANTIC CITY, NJ—For the first time in a decade, the multifamily rental market “is starting to see a few dark clouds on the horizon,” as supply and demand move toward equilibrium, says Carl Goldberg, co-founder and former partner of Mack-Cali affiliate Roseland, who recently formed an investment partnership called Canoe Brook Management with his daughter and a former Roseland associate. “After ten successive years of rental growth in Hudson County, the primary luxury multifamily market in the state, we are seeing prices flattening.”

Goldberg spoke during a three-part panel on the economic outlook, during a session focused on multifamily development, at the Atlantic Builders Convention of the New Jersey Builders Association held in Atlantic City, NJ, this week.

In Jersey City, Goldberg says, there are approximately 10,000 multifamily rental units under construction. “It's hard to imagine, despite its operation as the sixth borough [of New York], that being absorbed as easily as product was in the previous nine or ten years,” he says. “We are beginning to be a somewhat concerned as to whether we are entering a period of oversupply in the luxury market.”

Construction costs that appear to be rising about 8-10 percent annually are a bigger concern to Ronald S. Ladell, senior vice president of development, AvalonBay Communities. “While the profit margins start to narrow as a result of that, you start to look for more economic opportunities.” Ladell is critical of state government inability to do more to promote economic development in the state.

“You would think with the statistics that we saw, someone, or some group of people, i.e., the Governor, the legislature, municipal officials and the like, would somehow get together and try to move forward in a comprehensive and cohesive fashion and try to facilitate growth,” he says.

AvalonBay structures its deals based on current market conditions, Ladell says. “We underwrite deals. We do not trend rents. We do not trend construction costs. We underwrite deals on today's rents, today's construction costs. And if we cannot get the deal, then so be it.”

Illustrating how overheated he believes the market has become with inappropriate transactions, Ladell described a Morris County bankruptcy auction taking place at the same time as his panel appearance.

“I had my people there bidding at that bankruptcy auction,” he says. “We did not win today. The person that won today signed to do a deal that's mixed use development, non-contingent, deposit goes hard after 90 days due diligence, and they start picking up taxes at the end of due diligence. That's called irrational exuberance. I don't understand why people are doing that. I don't think the market has petered out, but I do think there are many people that are so desperate to get into the multifamily side of the business that they're becoming irrational with regard to what they're offering sellers at this moment in time.”

Agreeing with the sentiments was Alan Laing, CEO of Orleans HomeBuilders, who says “We've struggled to underwrite multifamily that would work. We see the market soft in that segment and difficult to underwrite land.”

You can listen to the complete panel discussion among Goldberg, Ladell, and Laing, moderated by Kevin Gillen, Ph.D., chief economist of Meyer Research, in the player below. The program runs about 25 minutes.