Good deal, great space ? but it's still Jersey City

Area can't overcome being perceived as remote; bargain-hunters go Downtown Jersey City

Crains NY Business -- Laura Koss-Feder -- Jan 14

Richard LeFrak, chief executive of Manhattan-based developer The Lefrak Organization Inc., has an answer for all those companies fed up with Manhattan's soaring rents.

The answer is a place where acres of state-of-the-art Class A space can be had for rents that average under $32 a square foot, a place that is about as close to Manhattan anyone can get without actually being there: Jersey City, N.J.

Though Mr. LeFrak's arguments sound persuasive, the response to them has been profoundly underwhelming.

Despite midtown's huge run-up in rents and steep drop in vacancy rates over the past three years, 2.6 million square feet of prime property remains on the market in Jersey City.

That translates to a 15.8% vacancy rate as of September, according to Trammell Crow Co.

Deals that were sealed late last year, including Deutsche Bank's lease of 280,000 square feet at Harborside 1, show that Jersey City has appeal for bargain-minded tenants.

The new leases have also eaten into inventory a bit. But brokers don't see such scattered transactions turning into a massive land rush anytime soon.

Strictly overflow

"Jersey City is fundamentally defined as a release-valve market for Manhattan," says Gregory Scott, a senior vice president at Trammell Crow.

Mr. Scott estimates that the rent differential between Manhattan and Jersey City has to be over $12 a square foot for firms to feel compelled to move across the Hudson.

Jersey City's rents are a fraction of midtown's, but most businesses fleeing those prices go no farther than downtown, where rents for Class A space average about $40 a square foot.

Though that figure is up 20% from a year ago, it's only $8 more than what landlords like Mr. Lefrak and Harborside owner Mack-Cali Realty Corp. are asking for space in Jersey City. The gap is narrowed further by savings on commercial rent tax and sales tax, employee relocation benefits and other incentives available to downtown tenants.

Viable alternative

Landlords on the western bank of the Hudson also continue to face a perception problem.

Even though unsightly holes in Jersey City's landscape have been filled by 7.7 million square feet of office space over the past decade, many workers still regard the area as unappealing and isolated.

"For those who live in the city, commuting to Jersey City on the PATH train is a long, slow ride," says Richard Economou, a senior vice president for the Equis Corp., a Manhattan commercial real estate firm. "It's not as convenient and as fast as the subway," he says.

Businesses that choose to relocate from New York risk major staff defections, says Peter Cohen, director of government services for commercial brokerage NAI James E. Hanson Inc.

Longer term, apartment construction is one of the things that's likely to help Jersey City. In the past five years, 11,589 condominium and rental units have been completed there, and about 19,000 are being built or have been approved for construction.

"This new housing will help lead to office vacancy rates coming down," says Mr. Cohen, who is based in Hackensack, N.J.

That is certainly Mr. LeFrak's hope. In the past 20 years, his firm has completed 5 million square feet of office space and more than 4,000 housing units in Jersey City.

"No company that really wants to be on 57th Street and Fifth Avenue is going to come to Jersey City," Mr. LeFrak says. "But it is a viable, strong market attracting more and more smaller companies." JERSEY CITY?S OPEN ARMS

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Midtown refugees settle in suburbia
For the economy-minded, downtown isn't far enough

Crains New York Business -- Andrew Marks -- Jan 14

Increasingly, midtown tenants are having to face the fact that rents are on a tear not just in their immediate neighborhood, but all across the borough as well.

For large public companies with shareholders to please, as well as for many small companies that divvy up profits among their partners, the economic argument for fleeing Manhattan altogether is becoming overwhelming.

In recent months, RBS Securities announced that it will relocate 600 jobs from 101 Park Ave. to a new building in Stamford, Conn. Within days, the Bank of Ireland also said that it will move a block of staffers from Manhattan to Stamford.

Scott Landis, an office building owner in Stamford, says he's in talks with two Manhattan-based companies, each of which is looking for more than 250,000 square feet of space.

Big Swiss bank Credit Suisse already shifted some of its private bankers to Rye Brook. True, a company spokesman says the move was made to accommodate clients located in Westchester County. But rents of $30 per square foot for the firm's new 8,000-square-foot lease versus $100 per square foot for its Manhattan space may have had something to do with the decision.

Rents at the best Class A office buildings in Stamford, Conn., and in Westchester top out in the mid-$50s per square foot, says Jeffrey Newman, who manages two Stamford office buildings for W&M Properties.

A year of change

Although the number of companies heading for the burbs is small, that could very well change over the next 12 to 18 months, says Richard Economou, a senior vice president with Equis Corp. in Manhattan. He is doing feasibility studies for two large companies based in midtown to determine whether or not they need to remain in New York.

"It's not an easy thing to relocate people, so these companies are not approaching this idea lightly," Mr. Economou says. "Moving out of the city is under serious consideration by a lot of companies with leases expiring over the next few years."

Carrying out feasibility studies may prove to be a bit of saber-rattling designed to squeeze concessions out of landlords and City Hall, but the gambit is becoming increasingly common. In recent weeks, even mighty Merrill Lynch has confirmed that it may relocate its headquarters out of downtown New York. Brokers report that insurance Goliath AXA Equitable and European financial giants HSBC and Deutsche Bank are also scouting for locations outside the city.

In the media world, Viacom is reportedly considering locations in Long Island City, Queens, and in Jersey City, as is Disney. London-based advertising conglomerate WPP is also said to be looking at options outside the city for some of its midtown operations.

For Clutch Media & Marketing, the moment of truth came late last year, when Clutch merged with World Wide Marketing.

"We looked at staying in midtown, but the rents were just ridiculous," says Ronnie Zeidel, Clutch Media's chief executive.

In the end, the 15-employee firm moved to Stamford, near the homes of the firm's two partners.

Real estate insiders think that some businesses may end up stripping down their Manhattan offices.

"You'll see instances in which companies choose to keep only their top executives in town and locate everyone else outside the city," says Stuart Lilien, managing partner at The Lansco Corp., a brokerage firm.

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