Hoboken / Manhattan Real Estate Blog

By ANTOINETTE MARTIN

When New Jersey’s office vacancy rate, stuck around 19 percent for several years, dropped 1.4 percentage points in the third quarter of this year, to 17 percent, analysts at Cushman & Wakefield, the big commercial real estate brokerage firm, called it a stellar performance “fueled by tightening options for prime space in Manhattan.”

Analysts at CB Richard Ellis, another big firm, highlighted the fact that a couple of the major lease deals for the quarter involved two corporate banks from Manhattan taking large blocks of space in Jersey City. In the largest deal of the year so far in New Jersey, Citibank sublet 316,775 square feet from UBS at its 2-year-old building in the Newport Office Center just south of the Exchange Place PATH station. In the other deal, Deutsche Bank leased 282,238 square feet at Mack-Cali’s refurbished Harborside I at Exchange Place.

Despite these big lease signings, the vacancy rate for New Jersey’s waterfront market is currently estimated at 15 percent, far higher than the rate in Midtown Manhattan, according to various real estate companies.

While some professionals discern signs of a migratory trend from New York to New Jersey, most say it is more like a trickle.

Builders are not exactly rushing their construction equipment to New Jersey, either. An example of the marked difference in one developer’s confidence about the New Jersey market relative to New York involves SJP Properties, which is based in Parsippany.

While SJP is moving ahead with a speculative 40-story office tower project in the Times Square redevelopment area, pushing for expedited approvals, the company’s executives say the timing is not yet right to begin construction of the third and last building at its Waterfront Corporate Center on the riverbank in Hoboken.

“We’re positioned and we’re poised,” said Peter Eppie, SJP’s executive vice president.

Mr. Eppie said SJP stayed in constant touch with planning authorities so that the start-up of construction of the third building could be swift once the company decided to go ahead.

In September, SJP had announced that it had already “commenced development” of the third building. But this month, Mr. Eppie said the only work done for the 550,000-square-foot office structure was ground clearing that took place when construction began for the adjacent W Hotel. SJP’s new building and the Hoboken W will share a retaining wall on one side.

“We’re just not comfortable moving ahead with a spec building in Hoboken right now,” Mr. Eppie said, “and frankly, we don’t see big tenants moving over from Manhattan at this very moment.”

The chairman and chief executive of SJP, Steven J. Pozycki, added, “We follow the numbers very, very closely, and we believe it will happen, and we believe it is due to happen soon.”

Stephen B. Siegel, chairman of global brokerage at CB Richard Ellis, who represented SJP on the Times Square deal, said, “Right now, we have a vacancy rate of 7 percent or less in Midtown and tremendous velocity in deal making, with spillover from Midtown to downtown.”

But tenants that may see rising Midtown rents as too steep are eventually going to look beyond downtown, he said. “Any time space is being quickly absorbed, when that push is evident, the next move has got to be out of the city,” Mr. Siegel said.

Immediately after the attacks of Sept. 11, there were predictions that there would be significant defections from Manhattan to the Hudson River waterfront in Jersey City and Hoboken, and on the Passaic River in Newark.

That happened to a limited degree, mainly involving companies in the financial services and publishing industry. Tenants at SJP’s first two buildings at Waterfront Corporate Center include the publisher John Wiley & Sons, which moved its headquarters from Manhattan, and the offices of Marsh & McLennan, Sumitomo Trust and Banking and Mizuho Securities.

Now, Mr. Siegel says that “nontraditional” expansions out of Manhattan might be on the horizon. “Law firms, for example,” he said, “may have always stayed in Manhattan, but it’s very feasible that given the conditions now, a firm might decide to consider moving part of its operation out of the city.”

“Akin Gump signed a lease at the Bank of America building a month ago for $105 per square foot, for over 200,000 square feet,” Mr. Siegel said. “Let’s say a firm needs 500,000 square feet, and 100,000 square feet of that is back-office operation. Class A space is available in New Jersey, or Westchester, for $50 to $70 per square foot, a nice lower-cost alternative.”

Mr. Pozycki of SJP said the intensity of the demand for space in Manhattan was unprecedented, and the situation anywhere else did not compare. “Manhattan, quite simply, is on fire,” Mr. Pozycki said.

SJP acquired the Times Square parcel in a deal announced during the summer. The parcel, the last remaining redevelopment site in the Times Square renewal project, is on the southeast corner of 42nd Street and Eighth Avenue and had been owned by Howard and Edward Milstein since 1983. It was not officially for sale.

In the deal arranged by Mr. Siegel, the Milsteins were persuaded to set a price — $305 million — and SJP was required to take it or leave it. “We pounced,” Mr. Pozycki said.

The parcel was purchased in a joint venture with Prudential Real Estate Investors. SJP is proceeding with the building at 11 Times Square without having secured any tenants. It will be designed by FXFowle Architects, which has designed other office buildings in Times Square.

SJP will have to pay another $23.2 million to secure development rights before construction can begin.

But Mr. Pozycki said the company was confident that the space would be sought after given the prime location; sleek glass-and-steel design; rights to signage along 42nd Street, where the main entry will be; and coveted curb space for chauffeur service on the 41st Street side, where the second entry will be.

In New Jersey, SJP has approvals to build a total of 2.5 million square feet of office space at the Hoboken site, other sites near the waterfront and in Morris County.

Historic schoolhouse finds new life as high-end residences
By Tom Jennemann

CLASS IS IN SESSION – R Squared Real Estate Partners have converted a 136-year-old school into Adams Square Condominiums.
The final bell rang long ago at 501 Adams St., but Manhattan developers R Squared Real Estate Partners believe that area homebuyers are ready to go back to school.

The five-story building, which has been renamed Adams Square, began life in 1870 as the private Kealy School and later served as Hoboken’s Public School No. 2. In 1996, it was converted to rental apartments and remained that way until R Squared acquired the property last year.

Now the building has been converted into condos, which are currently on the market.

Architecturally speaking, R Squared Principal Mitchell Rechler said the building is one of the Hoboken’s most unique. It boasts twin towers, accented with gothic arched windows and stone tracery. Inside, the lobby is highlighted by white marble and framed by dual staircases that ascend the left and right side.

The lobby flows into what used to the school’s auditorium and cafeteria. The ceiling has been removed, which has left a quiet courtyard.

The building has 59 one-, two-, and three-bedroom condos from 612 to 1,395 square feet of living space, which are currently priced from $430,000 to $800,000, according to Rechler.

Each of the condos features modern amenities such as solid hardwood floors and remote-controlled air conditioning systems. Kitchens include walnut-stained cabinets, honed Kashmir granite countertops, and stainless steel appliances, while bathrooms offer Carrera marble vanity tops, floors, and bases.

An example of adaptive reuse

Instead of demolishing the interesting old buildings, there has been a movement in urban renewal called “adaptive reuse,” in which buildings are adapted for new uses while retaining their historic features and maintaining a link to the past.

Rechler said that the building’s history as a schoolhouse and “gothic castle-like” façade made the building the perfect candidate to be adapted into condominiums.

R Squared hired Manhattan architects Beyer Blinder Belle to remodel all of the building’s interiors. That firm specializes in historic renovations and has worked on projects at Ellis Island and Grand Central Station in the New York Area and the Capital Building in Washington D.C.

“Our goal was to adapt the existing classic design into today’s world and with today’s aesthetics,” Rechler said. “All of the important architectural elements that existed in the building have been adapted beautifully.”