Jersey City Is Hungry for Housing

At the rate Jersey City is building luxury housing, you’d think it was some barren patch of land that had just struck gold. It’s not, of course. Jersey City is the second largest city in the state, with a huge established office market and a plethora of mass transit. But it’s become a particular beneficiary to New York City’s dizzying housing market.

“The prices in Manhattan are so astronomical that Jersey City is really a half-price sale,” says George Filopoulos, president of Manhattan-based Metrovest Equities. “You’ve got space, you’ve got quality of life—you can sit down for a cup of coffee at Paulus Hook and it wouldn’t be a stretch to think it’s the West Village. And the transportation couldn’t be better.”

A simple list of the major multifamily developments in the works is astounding:

• The $2-billion Liberty Harbor North, comprising 6,000 housing units, 750,000 sf of retail and four million sf of office space, has its first phase under construction.

• The LeFrak Organization has its 28-story Shore Club Condominiums set to debut later in the year.

• K. Hovnanian has two major developments at Paulus Hook and Droyers Point, and it has just acquired the 77 Hudson St. waterfront property from Hartz for a high-rise project.

• Metro Homes is joint venturing with Donald Trump for Trump Plaza, which will be the two tallest residential buildings in New Jersey.

• The Barry brothers at Applied Development have, incredibly, found the space for the entire 18-hole Liberty National Golf Course. “The original plans had been for a nine-hole course,” says Dan Frohwirth, director of real estate for the Jersey City Economic Development Corp. “We said to the Barrys, ‘No, you’re not going to do this whole thing and then do a nine-hole golf course. So start finding a way to acquire the property you need’.” Three high-rise towers, at 37-, 42- and 50-stories, are planned to flank the course. • Exeter Property Co. bought St. Francis Hospital and plans an $80-million, 225-unit mixed-use complex with underground parking. “We’re looking to break ground in late spring,” says Eric Silverman, principal.

• In the center of the city, Metrovest is working on the $350-million Beacon, a redevelopment of the 14-acre, 10-building former Jersey City Medical Center. “It’s the largest historic restoration in the state’s history,” says Filopoulos. “The buildings are in the state registry and the national registry in Washington, so they have to be preserved.”We’ve configured spaces on the ground-floor levels into some pretty unique amenity space for the condominiums,” he continues.

That renovation has uncovered unexpected bits of history, including personal space from legendary Jersey City Mayor Frank Hague. “We found a secret office of his, with coffered ceilings, wood paneling and lead-glass windows,” Filopoulos says. “We’re making a poker room out of it. I’m sure there were some poker games played there back in the day.”

Metrovest recently obtained a $105-million loan to complete the first phase. Phase two—another two buildings—is in the planning stage, with marketing to start in the spring.

Residential developments are underway even in the no-man’s land between the Holland Tunnel and Hoboken. “You’ve got Toll Bros. putting up 700 Grove,” says Frohwirth. “There will probably be 900 condos at what used to be City Chemical and Van Leer Chocolates. The City Chemical site is hugely dirty; the cleanup’s going to be amazing.”

On the office side of the market, a similar rent disparity is at work. “Rents are historically 30% to 50% less than they would be in Manhattan,” says Emanuel Stern, president and COO of Secaucus-based Hartz Mountain Industries.

“Midtown rents are $60 a foot. Downtown rents have been more in the $40 range,” says Joe McMahon, vice president of leasing services at the Staubach Co.’s Murray Hill office. “Here, with sublets, you can do transactions at $25 a foot. So there’s a big disparity.”

Both sides of the Hudson, however, are currently dealing with a less-than-comfortable vacancy rate. Jersey City’s particular surplus is large blocks of trophy sublease space controlled by New York tenants that have scaled back.

“Up until 2001, we were building office towers like crazy,” says Frohwirth. “Fortunately, we stopped. Even when there’s space, it’s being paid for, even if nobody’s in it, so the developers aren’t hurting.”

“We’re handling the Chase sublease, which is 300,000 sf at Newport Office Center VI,” says Seena Stein, principal at the Rutherford office of the Newmark Knight Frank. “They leased the space and didn’t quite use it. It’s completely built out, the floors are all raised, the furniture’s all in there.

“These owners are in good financial shape,” Stein continues. “In other words, none of the owners of these buildings are going to give back these buildings because they don’t have rent. These are all very long-term leases—15 and 20 years—and as long as the people moving in are responsible they’ll let us sublease them.”

Staubach has the sublease assignment for 200,000 sf of AICPA’s space on two floors at Harborside Financial Center—AIPCA is sending its branch office down to Durham, NC. “The easy divide is two floors of 100,000 sf each,” McMahon says.

“We go from 40,000 sf and up,” adds Tom Stanton, managing principal at the same Staubach location. “We can do five tenants; we’d love to do one. Our client isn’t going to sit back and say ‘Oh, we only need one tenant for the whole space or we don’t really care.’ Our position is’ bring ‘em in, we’ve got a motivated client we’re working for, looking to make deals’.”

“For years we had no activity in Jersey City, but now it’s very busy, ” Stein says. “ The whole state’s busy. I guess people are back looking for space. We had a lot of action, which means we make money, but not a lot of absorption in the last year. We feel that if half the deals running around the state get made, some of them very large, it’ll make a major dent.”

“Right now there’s amazing opportunity for tenants that need space in this market,” Stanton says. “It’s a very exciting opportunity for a tenant that’s looking for a footprint outside Manhattan, or a tenant looking to cover Manhattan in the most economic way.”

Migration trends out of Manhattan will undoubtedly change with the addition of the Freedom Tower in Lower Manhattan. Construction could start soon, adding 2.6 million sf to the Downtown market. “This is largely seen as a sign of strength, not competition. “We want to see a vibrant Lower Manhattan,” Stern says. “One strong submarket begets the other. I’ve always said that it’s critically important for Lower Manhattan to revive itself and figure out how to evolve itself. It’s not a zero-sum game.”

“Most people don’t move out of New York and go to mid-New Jersey,” Stein says. “They usually go to the waterfront first, and then farther out.”

Hartz Mountain recently purchased the 125,000-sf 15 Exchange Pl., one of the few waterfront buildings catering to small users. “It’s unique in Jersey City in the way we positioned it and what we thought it was,” Stern says. “We’re making it the nicest little boutique office building in the state. Most of Jersey City is large, 200,000- to 300,000-sf tenants on the waterfront. Jersey City needs a first-class office address for small tenants, too.”

Stein has found the Journal Square market also useful for small tenants. Most waterfront space is via large subleases whose tenants don’t want the space broken up in too many pieces. Journal Square offers more flexibility.

Stern can attest that Journal Square has large tenants, too, notably ADP, which has a long-term lease on all of the Hartz-owned Journal Square I and II. “The Journal Square revival going on around ADP is terrific,” Stern says. “We have the ability to build another tower on the site, and we’re looking at some of the possibilities now.”

On the industrial front, Jersey City’s location makes it appealing to multiple tenancy groups. “It can be classified as a port market and as a New York City suburbs market,” says Rob Kossar, principal and EVP for Lee & Klatskin in Teterboro. You get the best of both worlds—the companies that need to get in and out of Manhattan, and also the companies that want close proximity to the port.”

Industrial availability on the Hudson waterfront (Jersey City and neighboring Bayonne) is a high 14.24% at the moment, up from 11.36% the previous quarter. “It’s a double-edged sword,” Kossar says, explaining that it’s a quick ride from here to Manhattan for ground transportation, but not as good as to the Meadowlands. Similarly, port operators can get space in Jersey City, but they could also get space closer. “It’s not the first choice for either of those folks. It’s probably why right now the availability rate in Jersey City is running pretty high.”

“We’re currently representing the only new industrial property in Jersey City, 25 Colony Rd.,” says Kossar. “The building’s brand new and has a 36-foot clear span, wide columns, tailgate loading on both sides. All the other area buildings have been renovated and upgraded, but they are buildings that are ’70s vintage.”

Jersey City has always evolved to match the times, and the present seems to be a period of preparing for a long economic boom. “I think there’s going to be some big absorption in the next two quarters,” Stein predicts. “There’s so many deals happening, that have been putzing around for a long time. If they finally get signed, it’ll change the whole tone of the market.”

“There’s a whole lot of residential coming out of the ground now,” Stein says. “It seems to be an insatiable market. And I think we’ll see office buildings coming out of the ground, on spec, at some point.”

“This market right now is presenting a real opportunity,” Stanton concludes. “There’s not going to be a foot to be had at some point in the future. Just like five years ago when there wasn’t a foot to be had. It’s conceivable that someone coming to the market a few years down the road will pay twice what people are paying now.”