What Will It Take to Save New Jersey's Suburban Market?

As Chris Christie prepped to take the national spotlight at last week's Republican presidential debate, NJ Economic Development Authority president Timothy Lizura sang his praises while keynoting Bisnow's Revitalizing New Jersey event in Holmdel Wednesday. Will Rand Paul roll his eyes at these staggering numbers?

"Since Gov. Christie took office, we have created over 192,000 private-sector jobs in New Jersey, an amazing feat," Timothy told the crowd at the Bell Works building. More than 200 registered for the event. The unemployment rate has been driven down to 6.1%, the lowest it's been since October 2008. "These are feats we should all be proud of...They don't happen by accident." Timothy credits turning around three critical pieces of NJ: the administration, the regulations and the tax code, which has allowed companies and business to invest in the state and foster job creation. Accomplishments include $2.3B in targeted tax cuts and reducing the minimum tax for NJ S-Corps by 25%. "Now we can convince companies to come in, and if we need to provide an incentive to do that, we have the tools."

Timothy, above, also credited the state's Partnership for Action—led by Lt. Gov. Kim Guadagno and comprised of the New Jersey Business Action Center, Office of the Secretary of Higher Education, New Jersey Economic Development Authority and Choose New Jersey—which provides a road map for companies to invest and create jobs in the state. "It's unparalleled and one of the things that differentiates us from all of our competing states," he says. It also provides the point of contact and relationship in Trenton that companies need. The passage of the NJ Medical and Health Science Education Restructuring Act, Building Our Future Bond Act and the NJ Economic Opportunity Act "are the things that will drive our economy and make NJ competitive into the future."

Rutgers School of Planning & Public Policy dean Dr. James Hughes, who moderated our planning panel, says five key forces have transformed NJ's office buildings, demographics and economics. First force: the legacy and aftershocks of the 1980s office building boom (when the state bird was changed from the goldfinch to the crane, he jokes). Second: advances in IT. Third: the greatest age structure transformation in history (comprised of maturing Baby Boomers and Millennials with the "neglected middle child" Gen X, who's now taking leadership positions). Fourth: the receding metropolitan perimeter as the wave of suburbanization ends. And fifth: the new model of innovation, which thrives in interactive, not isolated, environments.

These forces have led to multiple issues NJ is confronting today, including what PlanSmart NJ executive director Ann Brady calls "stranded assets" (buildings 100k SF or larger with a vacancy of 14% or higher for a minimum of five years). We have to think of ways to repurpose these assets, she says. In North Jersey, there are 860 buildings 100k SF or larger; of that, 173 fit her definition of "stranded." There are 45 properties completely empty. That's 30.1M SF of vacant office space concentrated in those buildings—the equivalent of seven Empire State Buildings. With today's absorption rates, it would take 36 years to fill, she says. They also sit on 6,000 acres (roughly six Central Parks). We also must think about repurposing the land the assets sit on, which are largely highway accessible with sewer service. "From a planner's perspective, they're a huge potential for NJ."

But NJ's going to have a supply problem, which may come as a surprise, notes Sills Cummis & Gross real estate co-chair Ted Zangari. The answer is in redevelopment, both urban and suburban. In the near-term, we do have a demand problem; there's still a leakage of residents and businesses. But the work of the EDA and the power of the incentives are not yet showing up in numbers. Ted—who worked on the Goya Foods, Imperial Bag and Paper and Panasonic deals—pointed out that these companies, some of the earliest applicants under the state's incentive programs, have only opened their doors in the past year. "So we're going to start to see a real uptick in the number of residents and businesses." Back to impending supply issues: ULI predicted 20 years ago that NJ would be the first state to reach full build-out by 2030, Ted says. But the reality is that the state is already fully built out. "We're down to 800,000 developable acres left in NJ—clearly not enough to feed the beast that is the economic engine." If urban redevelopment is not going to solve the ultimate supply-demand problem by itself, we have to start reusing these stranded assets.

RCM Ceberio president Robert Ceberio, who heads a strategic planning and management consulting firm, has the unique role of working with both municipalities and developers. "In the towns I work in, what you're seeing is a municipality that is starting to hit bottom on so many different levels because of the 2% budget cap." Feeling strangled, they know they have to look at ratables in this economic growth and how to get them into the community. "What you need are walking wallets," he says—Millennials who walk to get coffee or go to a store. Make municipalities understand it's OK to have residential units. "It's a process of education," he notes. For instance, help smaller communities understand what PILOT is, how it works, its impact on schools and how we can protect them politically. Robert says you need to ask mayors and councils: What assets do you have? Is your master plan up to date to reflect the potentials of this economic cycle? Are your regulations conducive to bringing in development? Are you, as a mayor and council, willing to come forward and say, "We're open for business?"

Holmdel Township Mayor Eric Hinds says that Bell Labs—which Somerset Development is now redeveloping into the mixed-use Bell Works and where the event was hosted—really put Holmdel on the map. "It was the revolution of not only creating a base for the town, but creating all kinds of wealth for individuals in this area. It helped create a school system that's one of the top in the state." So it was an unbelievable beginning for the town. "But then like a lot of towns in NJ—I call it the Cadillac effect—we just got a little lazy...As the trends took place, we didn't react." He says what has impressed him the most with Somerset Development's vision is that Holmdel is again a bit ahead of the curve. "That's where we're headed with this building—live/work/play is here to stay."

Somerset Development president Ralph Zucker, who kicked off the development panel, says one advantage of Holmdel is "a great governing body that really gets it. You cannot redevelop these places on your own." A big barrier to entry in NJ and any suburban market, he says, are the naysayers. But having a municipal government body with guts, enthusiasm and vision makes projects like Bell Works possible. Somerset had originally looked at Bell Labs as an office building and passed. The next buyer slated it for demolition, to much community outcry, then Somerset stepped in right after the deal blew up—and right before Lehman crashed. "It became clear then that Bell Labs would no longer be home to a single entity. Problem was, it was zoned for one." He was debating whether the firm should continue or drop the project. But a conversation with a local police officer, who thought it was a great idea, convinced Ralph that mixed-use could work. "There's a need in suburbia for urban hubs...I like to call them metroburbs."

"I think we can all agree that regardless of your age, whether you're a Millennial or Gen-Xer or Baby Boomer, we all really desire the same thing—it's quality of life and trying to get out of your vehicles a bit and enjoy it," says moderator and Partner Engineering & Science discipline leader Adam Alexander (left).

Symbolic IO just signed a 42k SF lease as Bell Works' first tenant, but it's still contingent on receiving state incentives, which were critical to Symbolic's decision to come here, says The Garibaldi Group president Jeff Garibaldi, whose team repped Somerset in the lease. The tenant went through an evaluation and considered NYC and San Francisco, but two things drew Symbolic to Holmdel: the high-skilled labor pool, and it's a site that can attract and enhance the labor force for the tenant by providing an environment with collaborative, synergistic, 24/7 space. All of the components of Bell Works and Ralph's vision, Jeff says, is what secured the decision.

Alexander Gorlin Architects principal Alexander Gorlin was amazed while working on what was the premier research lab in the world in its time; the laser and cellphone were invented at Bell Labs, and there were Nobel scientists walking around. "All the handrails you see had ashtrays every 20 feet because people would walk around and smoke...it was straight out of the world of Mad Men." It was also where science intersected architecture, as the building was designed by Eero Saarinen. There were a few design challenges, Alexander says: the atrium area was designed for a research lab, not Ralph's vision of the clear, open space. And there were solid walls everywhere since scientists liked working in dark cubicles. The team opened it up with glass storefronts that would allow light from the atrium so the spaces could be rented as offices and retail. "It's incredible how it was adapted from a private research lab to a public space with a few simple strokes."

What keeps Advance Realty CEO Peter Cocoziello up at night is the changing digital world. "People aren't drilling down on it enough," he says. It's why we have companies like Uber, WeWork and other on-demand services. And then there's a future with automated cars: "Fewer cars will be driven, and what does that do to mobility?" he asks. "It changes the dynamics of some of these suburban locations. It displaces a lot of people in our jobs." He says that when he conducts a deal, he looks for a minimum 10-year lease. "As I look at the tenant, I say to myself, 'His business model is going to change. What have I done in my buildings to retain him on a long-term basis?' Because if I'm not doing that, I'm going to lose at this game." He says it's critical that the real estate industry starts thinking about this a broad way. In the long-term, he believes there's hope for the suburbs because of all the connectivity, ride-sharing and automobile cost reductions. But if a building has no terminal value, it will lose as well.