"Bringing on the best team in the market is a perfect way for our firm to expand its industrial presence in this important market," says Craig Meyer, director of JLL's national industrial practice. "New Jersey is the third largest industrial market in the US and fourth largest in North America. It's an absolutely key market for us. We already have a strong presence in the office market here. This gives us equally strong capabilities in industrial."

Rob Kossar, a former partner at Klatskin and now an executive vice president at JLL, tells IPJ the decision to sell sprang from the demand by Klatskin's clients for more coordinated services related to geographic dispersion. "We have been the industrial leader in New Jersey for several years, and we've done that without a global platform behind us," he says. "But it's become increasingly evident that there's a need for us to offer more. Just in the past few days, one of our clients asked for work to be done outside our market. In the past we couldn't do that. Now we can."

Both Meyer and Kossar emphasize the strategic importance of New Jersey not only to the Boston-Washington corridor but to the Eastern US. "Two thirds of the US population lives east of the Mississippi, and New Jersey is the key port of entry for the East Coast," says Meyer. "In terms of population, this is a huge area for distribution."

Until recently, the state faced a severe shortage of modern distribution facilities, compounded by a lack of development opportunities. Most of the land around the ports had been developed decades ago, and the majority of facilities were not only outdated but also heavily contaminated. Making matters worse, many properties are adjacent to residential enclaves, ensuring close scrutiny of any redevelopment effort and driving land prices up due to competition from other generally higher-value uses.

There have been changes in the past few years, particularly in South Jersey around Exit 8A of Interstate 95. "We've have had new buildings built in Middlesex County, pushing south into Mercer County and west into Somerset County. But the farther north you go, those modern large buildings just don't exist," says Kossar.

More recently, he continues, opportunities have also begun to appear in Central and North Jersey as rising rents and innovative environmental remediation approaches have enabled older refining, storage and manufacturing sites to be redeployed for modern distribution needs. "We probably have 1,000 acres of infill that can be redeveloped," says Kossar. "A lot of it is under way already, but there's still opportunity." Such redevelopment, however, does not come cheap. Kossar estimates industrial real estate in and around the port runs above $1 million an acre. "To pay for that, new building near the port will have a net asking rent of $9.50 per sf. At Exit 8A, it's about $5 per sf net," he says.

Despite the cost, tenants appear willing to pay. The reason? Transportation and labor costs to get to more distant sites eat up any real estate savings. "It's easier to pay higher real estate and be closer to the port than be farther away and risk transportation costs," Kossar explains. "And as you move farther from the port, your labor cost goes up and your accessibility to labor goes down. That's why in this market 25 miles can be a chasm you can't cross."

According to Kossar, 26 Klatskin employees, including 20 who actively work the industrial market, have shifted over to JLL, bringing the latter's total New Jersey work force to 300. In addition to Kossar, the transferring team includes firm founder Charles Klatskin, who serves as an advisor, and principals David Knee, Charles Fern, Joel Lubin and Anthony Scaro, who have become JLL executive vice presidents. Klatskin's Edison, NJ office is being closed, with the staff there shifting to JLL's Metro Park office. In the next year or so, says Kossar, JLL plans to expand its supply chain and logistics practice in the state.

As to growth in the other top five US industrial markets, Meyer says his team is "in discussions with individuals both internally and externally" to quickly grow the industrial practice. "We intend to become a global leader in the industrial market," he declares.

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Industrial Property Journal: Jones Lang LaSalle Becomes NJ Powerhouse

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