Open 24 Hours? - CITY REPORT: NEWARK

With an arena scheduled to open this year, new public transit, new downtown residences and a charismatic young mayor, Newark’s future has brightened.

By Sean Ryan
Associate Editor - Real Estate New Jersey Magazine

Newark’s CBD is becoming a better place to do business. Office properties are being renovated, the new light rail makes it easier to get around and the Prudential Arena is months from opening. A new business-friendly mayor (see sidebar) has given the city a much-needed surge of hope. Anyone living downtown would have an easy commute into Manhattan, and an even easier commute if they worked downtown.

Anyone planning a visit, though, will probably pass by a billboard screaming “HELP WANTED: Stop The Killings In Newark Now!” Not the best thing to convince high-end renters.

Newark’s renaissance has been focused on downtown, where the businesses are, and where an increasing number of entertainment options are being built. But other parts of the city, with an unfortunate crime rate, is what many people still think of when conjuring thoughts of Newark.

“2006 was a breakout year for Newark from a commercial real estate perspective,” says Gil Medina, executive managing director of Cushman & Wakefield of NJ, East Rutherford. Overall vacant office space in the city dropped 3.4%, he notes, giving Newark an 11% vacancy, the lowest since 2001.

Those taking new space are not coming from just one area. Tenants are relocating from other buildings in Newark, from suburban office parks and a few tenants are even relocating from Manhattan. It might be a while before Newark gets a sizable amount of Manhattan spillover, though. Jersey City is just one river away from Manhattan and has an eternal struggle to get tenants to even consider its space. Newark is two rivers away and has a tougher image problem to crack.

One of the big downtown buildings, 570 Broad St., switched hands in the past year for around $22 million. Ivy Realty bought the 14-story tower from Heritage Management, while it was in the midst of a redevelopment. Renovations include a new lobby, and installing new windows on the entire east side of the building. GVA Williams NJ, Parsippany, is exclusively representing the building.

“One of the challenges, historically, of 570 Broad is that they only have windows on two sides of the buildings,” says Bryan Cinque, SVP of GVA Williams. “Ivy is proactively addressing this,” he says, noting that proposals are currently out for 100,000 sf of the 120,000 sf of vacancy.

Newark’s rising tide isn’t lifting every boat, says Kevin Swill, president of Kushner Cos., Florham Park, which manages 60 Park Place. “It appears that there’s a little bit of a slowdown in the marketplace as it relates to some of the large floorplates. But we are definitely finding some of the small tenants. The 2,000- to 5,000-sf tenant is still very active.” Bit by bit, 60 Park Place is climbing past the 80% mark for occupancy.

The new light rail trains are up and running, connecting the two train stations in Newark to the NJPAC and other intermediate destinations. “The light rail is a wonderful service,” says Ed Rytter, executive director of the recently re-formed Newark Real Estate Board. “Terrific cars. Ridership, as in any new transportation device, will build over the years as we bring more people in. It’s certainly going to be part of the infrastructure that’s marketable for the CBD.”

“The light rail certainly has helped tie the Broad St.-Washington Park area into the Penn Station area,” Cinque says. “But I can’t say yet that I’ve seen any direct leasing as a result.”

Newark’s redevelopment is a long-term project for the whole city, so not every change will bring short-term benefits to every sector.

“You can’t variegate all of the attributes that are combining to make Newark a city with great promise,” Medina says. “It’s not just the light rail. It’s the fact that you’ve got two major train stations. You’ve got a number of major highways that connect Newark to the metropolitan regional economy. Those are all factors in Newark’s favor. When you start putting investments like the NJPAC and now the arena, what you have is all the major components for a great city.”

The freshly-branded Prudential Center, home for the New Jersey Devils starting with the 2007-2008 hockey season, could bring more visitors to Newark at night, when most of downtown vacates. Rytter calls the Prudential Center a tremendous asset to the city—not surprising, given that he’s also a vice president for Prudential Insurance).

“It’s being handled in a first class way,” Rytter says. “The venue will be outstanding, probably the finest in the country. You couple that with the NJPAC, the Bears stadium, all of which are almost in walking distance of the CBD…it’s a no-brainer as to whether this is going to boom over the next couple years.”

Another big component to tally is the Rutgers Business School, which made headlines this year by setting up shop in the 17-story One Washington Park. In an unusual transaction, Rutgers purchased its 11-floor portion of the property. The acquisition and renovations will total $83 million.

“It was done by essentially condominiumizing the building into two units, one to the business school and one to function as a traditional office building,” explains Marc Berson, chairman of the Fidelco Group and a Rutgers-Newark grad. “Rutgers’ 11 floors are accessible from one bank of elevators on the south side of the building, and our six floors are accessible on a new addition on the north side of the building. It’s effectively a partnership where they have the full benefits of ownership.”

There is “minimal” housing around Rutgers’ new business school, Berson says. “The future for housing is something that has to happen. I can’t tell you that’ll be in a month, in year one, or year five or seven, but there has to be a tremendous increase in university housing as these schools move from commuter schools to residential campus schools.”

The residential picture, in the larger sense, has already started to change, with Eleven80, one of the most-discussed projects in Newark’s recent history. This redevelopment of the former office building at 1180 Raymond Blvd. by Cogswell Realty Group is the first market rate housing downtown Newark has had in decades. 1180 sat vacant for years before Cogswell’s redevelopment.

“The quality of the work performed by Cogswell and the vision of [Cogswell principal] Arthur Stern is just outstanding,” Rytter says. “It’s going to add another dimension to downtown, a residential life.”

1180 has ads along the PATH stations advertising its on-site health club and (something very few buildings can offer) on-site bowling alley. The obvious half-price comparison to Manhattan is made, similar to the campaigns for the successful Newport condos on the Jersey City waterfront.

“Everybody’s sitting on the sidelines awaiting the success of 1180 Raymond,” Cinque says. Big names like Matrix Development Group and Advance Realty Group have development sites that could hold market rate housing, and Cogswell itself owns several other buildings that could get the 1180 treatment. But will the market rate tenants come?

Fidelco’s Berson expects 1180 to be the first step of a larger residential push: “The biggest piece that will be coming over in the next five to eight years will be market rate housing, probably rental, which will be much different from what we’ve seen in Newark. Not two- or three-family, but much higher end that will respond to those who want to walk to work.”

Downtown’s current retail stock is not developed for a residential base, however. “But what comes first?” Swill asks. “Do you build the residential first and hope the restaurants and stores follow, or open the restaurants now and hope they can survive until the residential builds itself to value? It’s a Catch-22.”

The deciding factor for retail in the area might not be from the residential market at all, but the arena. Thousands of hungry fans every game night need to eat.

“The retailers are keeping a close eye on how [the arena is] going to do,” says Steve Greenberg, a principal at the Ridgewood-based Heritage Management. “We know that just from our office building –the closest office building to the arena—having a food court. We’re talking with a lot of national white tablecloth steak houses. As soon as this thing’s open, they’re going to make their move.”

“In many ways Newark is like a football club that’s a couple players away from the playoffs,” Medina says. “In 2006, Newark made the playoffs. Now the focus has to be to make it to the Super Bowl. And win the Super Bowl.”

“We have a lot of rundown buildings that have now been gobbled up and converted to residential. Others are being refurbished into continued office space. I think over the next five years, it’s going to be a very vibrant, exciting downtown with a lot of new restaurants and hotels,” Swill concludes. “I really believe that it has the potential of being like Hoboken, but with office space.”

BET ON BOOKER?

A new young mayor ended the 20-year tenure of Sharpe James as Newark’s mayor. How will things be different with a mayor who wasn’t even alive during the 1967 riots?

The generation-long administration of Sharpe James ended dramatically. Sitting at city hall now, is the young, enthusiastic, Yale-educated, business-friendly Cory Booker. Booker’s failed run for James’ office in 2002 was chronicled in the Academy Award-nominated movie Street Fight, which portrayed James as corrupt and willing to delve into ugly racial politics to hold onto office. A successful second run in 2006 won Booker the seat, and with it control over Newark’s renaissance.

Ed Rytter executive director of the recently re-established Newark Real Estate Board, describes the difference between Booker’s and James’ administrations as “night and day.” It’s no coincidence that the NREB re-formed after a new, change-oriented hand had taken the reins.

Not everything Booker does will be favorable to the developer community. He has already cut back on some of the city-run parks and plazas slated for the area around the Prudential Arena. Booker wanted to lessen the financial impact the arena would have on the city, especially from promises made by a previous administration that had been less than fiscally sound.

“It’s certainly an uphill battle, given what [Booker]’s inherited,” Rytter says. “But if you look at his staff, and him personally, their enthusiasm and vigor and integrity are outstanding. It really makes you want to get behind them and help them.”

 “It’s critical to view a history of a city as a continuum, not an abrupt change,” says Gil Medina, executive managing director of Cushman and Wakefield of NJ. “When Sharpe James came to power, the city needed a leader like Sharpe James. As the city evolved, the times changed, the city needed a different type of leadership to take it in a different direction. Cory Booker became the person who fulfilled that destiny.”

“We don’t want to knock on Sharpe, because Sharpe did wonderful things,” says Steve Greenberg of Heritage Management. “But Cory’s the right guy to take the city to the next phase. 1967 was 40 years ago. That’s two generations ago. Newark is a diamond in the rough, ready to be shined, and Cory’s the guy to do it.”