To Break Free Of The Past, New Jersey Developers Are Tearing It Down
New Jersey is stuck between an unwanted building stock and red-hot demand for newer buildings it struggles to meet.
The need for distribution centers with convenient access to New York refuses to abate, and apartments in markets near the big city over the river remain coveted. Meanwhile, the state has an overabundance of retail and office product, much of it hopelessly out of touch with today's emphasis on walkability.
The owners of functionally obsolete buildings in New Jersey are responding by attempting to retrofit them to more contemporary uses, but as panelists discussed at Bisnow's New Jersey Repositioning Summit on April 17, many have found it easier to simply demolish and start again.
HFF Senior Managing Director Jose Cruz described to attendees a property he was helping to market in South Plainfield on which a 125K SF office building stood, which is less valuable as is than it would be as a bare patch of land.
“As an office building, I’d say it’s worth something in the $40/SF range — not an exciting deal," Cruz said. "But for industrial, for the land, it could be worth anything like $65-$70/SF. That market might have changed, and it may no longer be truly an office market, so it becomes a more compelling [asset] in industrial.”
For developers of affordable housing, where every penny is agonized over, converting an older building with a nonresidential use is a much more complicated process than modernizing older apartments. When attempting to turn the former Irvington General Hospital into a 650-unit mixed-income complex, Adenah Bayoh and Cos. worked for three years to win the city's approval, secure a Low-Income Housing Tax Credit and find a joint venture partner.
In order to fit all those pieces together, founder and CEO Adenah Bayoh needed to tear down the hospital, and early results have more than justified that decision; the 114 units in the project's first phase leased up in 60 days and now have a 2,100-person waiting list.
“People living in [low-income communities] and public housing, the buildings are very, very old," Bayoh said. "And people don’t necessarily want to leave their communities, but they want better product. And being from that community — most of my family comes from there — we knew the pent-up demand.”
For buildings in denser areas and with more history behind them, redeveloping is more worthwhile. Prism Capital Partners, which principal Ed Cohen called "very strong believers in repositioning," has seen profound results with its redevelopment of the former Hoffmann-La Roche campus in Clifton and Nutley.
At the site now labeled ON3, Prism has renovated 1.2M SF of former headquarters space into modern offices and labs, with only 300K SF still unoccupied. Its success has also inspired new construction in the form of a new testing facility for Quest Diagnostics, a medical school and a Marriott hotel, Cohen said.
“It takes you about three times as long to deal with municipal approvals, construction and all the other issues you have when repurposing a property [compared to new construction],” Cohen said. "We love challenges like this, but it's not for the faint of heart."
As the popularity of loft apartments and creative offices in former industrial buildings has proven, the right renovation can produce an asset that is impossible to replicate with today's construction costs and the state of labor. The bulk of New Jersey's functionally obsolete buildings do not fall into that category — Cohen estimated that fully half of the state's office stock today was built in the 1980s.
“We were building buildings left and right of inferior quality in locations with no long-term potential," Cohen said. "Even then, I was questioning some of those buildings. But for a time, they were renting, until the flight to quality began 10 or so years ago.”
Buildings that no longer appeal to office users in areas that can't support a mixed-use complex are enticing as targets for repositioning, but tear-downs come with their own set of difficulties.
“It takes a long time to tear down a building; you need to dig a deeper foundation, and you lose the embodied energy that is in the building itself,” KPF Design Principal Hugh Trumbull said.
Demolishing and building new is much worse for the environment than redeveloping, even if the new building is designed to be more environmentally sustainable, according to the National Trust for Historic Preservation. For a state like New Jersey that has so much coastline and such low elevation, such concerns hit closer to home than for much of the country.
Even if the bulk of New Jersey's buildings don't carry architectural significance, concerns about the environment or cost and scarcity of construction materials place responsibility on developers to redevelop, rather than raze. Those concerns seem unlikely to wane in the future, so creative thinking is needed in the near term.
“We’re faced with an enormous amount of '80s buildings that need to be reused," Trumbull said. "And we need to rethink and change those spaces so they can satisfy the modern workplace or the modern residential place. We want to make a better situation than what’s in front of us.”