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As seen in
New York Business
April 16 - 22, 2001
Jersey City stays out of NY's shadow
for now
Costs rising but still cheaper
by MATTHEW FLAMM
Early last year, when Datek Online Holdings
Corp. began looking for a new headquarters building in which
to unite its five different offices, the fast-growing brokerage
considered locations around the metropolitan area including
downtown Manhattan.
But, ultimately, Datek found it had only one reasonable choice
- the same one that many financial service companies have been
making in the last couple of years: Jersey City.
"We looked at spaces in New York City, but they just priced
themselves out," says John Grifonetti, the company's president
and chief operating officer.
Datek is taking sole possession of 70 Hudson St., a new 409,000-square-foot
building that is part of a Hartz Mountain development on an
old Colgate-Palmolive factory site. "It has central access -
our employees can drive there, take mass transit or the ferry.
And we've given ourselves enough room for growth," Mr. Grifonetti
says.
Datek's enthusiasm for Jersey City wasn't unusual for the 1990s
or even last year, Thanks to the stock market boom, the decade
saw the once-derelict New Jersey waterfront transformed into
a gleaming, glass-curtained Wall Street West, with the vacancy
rate for Class A office space sinking to zero.
Now, though both the financial industry and the Manhattan office
market have been feeling a distinct chill. So it might be expected
that a city so dependent on a flourishing stock market and overflow
from Manhattan would be hurting.
On top of that, both construction costs and rents have been
rising sharply in Jersey City, presumably denting the competitiveness.
Yet Jersey City seems to be Teflon City.
Megadeals unabated
Most real estate players remain bullish,
and megadeals continue to be negotiated and signed with financial
firms, whether it's Charles Schwab & Co. proleasing all
of Harborside Financial Center Plaza 10, or UBS Paine Webber
Inc. taking 1.1 million square feet at The Lefrak Organization's
Newport VTI, or AXA Financial Inc, considering 500,000 square
feet in a prospective Hartz Mountain Building.
"We still have several (financial) tenants we're working with
who have expressed a desire to be there," says Edwin Cohen,
an executive director at Cushman & Wakefield Inc.'s East
Rutherford, NJ., office.
"The biggest problem is there's no new space coming on there
for at least another year."
Perhaps the most powerful sign of Jersey City's endurance can
be found in the cost increases - as steep as 50% by some estimates.
According to Nicholas La Porte Jr., executive director of the
Associated Builders and Owners of Greater New York Inc., construction
costs in Jersey City have risen over the last year to around
$45 per square foot from about $30. Office rents have reached
$40 per square foot, up from $34 just a year ago.
In almost any other locale, price hikes like that would be deal-killers.
But in Jersey City, developers just open their wallets. In large
part that's because even the new prices are still well below
Manhattan rates of $75 to $100 per square foot for construction
and $52 per square foot for downtown rent.
"Costs will never go as high as New York," Mr. LaPorte says.
Besides, people in the industry say, there are nonfinancial
advantages. The building code is less complex across the Hudson,
and labor relations are smoother.
"We have found the unions very reasonable. You play by the rules,
they play by the rules," says Robert Borton, senior vice president
of Manhattan-based construction management firm Bovis Land Lease
LMB Inc. "If you're out running a job in Jersey, you're not
going to be visited by the shop steward every day to moan and
groan about the job."
Jersey City also seems to have chosen its tenants well. They
are mainly major financial services firms that have signed long-term
leases, which means they are neither likely nor able to bail
out in a panic. The city can attract these firms with a slew
of brand-new buildings and state tax incentives.
Furthermore, the businesses moving into Jersey City are looking
for large blocks of space, which are hard to find in Manhattan
at any time.
These are not the kind of businesses that would be drawn to
the type of space that has been loosening up in Manhattan, thanks
mainly to the failure of Internet companies,
"I don't really believe the demand generators for space in Jersey
City - financial services companies, banks and the companies
that support them are the same people fighting over the remains
of (Class) B and C dot-com space," says Andrew J. Nick, principal
at the Manhattan-based owner-developer Taconic Investment Partners.
While a slowdown would undoubtedly pinch somewhat, it wouldn't
necessarily affect buildings that are already leased - which
is virtually all of Jersey City.
New-development peril
"I think it would only impact the developments that are on the
boards," suggests Drew O'Malley, managing director of CSFB Realty
Corp., a Manhattan-based brokerage firm within Credit Suisse
First Boston.
Mr. O'Malley is currently representing a client that has been
looking for 125,000 square feet in Jersey City and has been
forced to extend the search to Hoboken because of the tightness
of the Jersey City market.
"If financial service firms start cutting back, then you'll
see a slowdown, but it'll be across the board, not necessarily
in Jersey City," Mr. Nick adds.
Not that Jersey City is completely immune to economics.
I don't care how may bright and shiny,
sleek buildings they have, the motivating factor for a Manhattan-based
company to go to Jersey is space and economics," says James
Meiskin, president of Plymouth Partners Ltd., a Manhattan-based
firm that represents tenants. "But now space is opening up in
Manhattan and the economics are getting better."
Even Mack-Cali Realty Corp. - the developer of Harborside -
and The Lefrak Organization say they're going to wait and see
before they start construction on any new Jersey City buildings
that aren't pre-leased, a change from the policy they have usually
followed.
"Is (Jersey City) independent of the Manhattan market? No,"
concedes Richard LeFrak, president of The Lefrak Organization.
"But is it totally dependent on the Manhattan market? No, again."
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