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Up From The Ashes: Once the white elephants of the industry, abandoned industrial sites are being turned into viable properties.

Michele Kriegman
Sources:
1993, 'Up From the Ashes: Once the white elephants of the industry, abandoned industrial sites are being turned into viable properties', Business Journal of New Jersey, 3:19-20.

New Jersey’s industrial sites, once symbols of prosperous pasts, stand as reminders of the neglect and decay in many of the state’s urban areas. But now, as developers look to rebuild cities in the hopes of rejuvenating the real estate market, industrial buildings may once again signify success.

“Restoring older commercial commercial and industrial sites is the wave of the future. Over the next 10 years we’ll see a revitalization of the inner cities. They are great locations because the infrastructure is already there,” said developer George H. McLoof, on the eve of the Cooke Mill Complex reopening in Paterson’s historic district in January. McLoof’s firm, Longstreet Development Corp., took over the site after the textile mill it housed shut down two years ago. McLoof managed to create a successful real estate recipe – sweetening complicated environmental and historic-preservation regulations with state and local incentives – to convert the complex from a defunct industrial site into medical office space pre-leased by St. Joseph’s hospital.

If there is a typical industrial-site rehabilitation project, the Cooke Mill Complex may be it. In the 19th century, it was a locomotive works; in the 20the century, it was retooled to become a textile mill; and, as of January, it has been converted into office space, reflecting the growth of the service sector. Also typical of industrial rehabs, it rents for several dollars less per square foot than built-from-scratch buildings in the area ($12 per square foot vs. $15 to $16 per square foot, according to McLoof).

Incentives. McLoof found that, despite tight real estate financing, “there are investment dollars out there…for buildings with historic significance.” Because the Cooke Mill Complex is in Paterson’s historic district, the city granted it a five-year tax abatement and all building materials were exempt from state sales tax.

Locating in one of New Jersey’s 10 urban enterprise zones can also save on renovation costs for the developer, and provide financial incentives to prospective corporate tenants. In South Kearny’s urban enterprise zone, the River Terminal Development Corp. “saved over $100,000 in the last six years because it didn’t have to pay state sales tax on building materials,” says Joe Skelly, former zone administrator.

Other benefits of the urban enterprise zones help to market renovated space to prospective tenants. There is a reduction in corporate tax by $1,500 per employee hired off public assistance. The corporation also pays reduced unemployment insurance tax on that new hire.

In return for the employment and real estate tax revenues industrial rehabs bring, many municipalities also offer incentive programs of their own.’

Location. However, the major incentives in redeveloping these older sites are intrinsic: location, cost, structure, lot size and even charm.

Location may be the byword of real estate, just s location was the raison d’etre for the first and largest industrial rehab in New Jersey, the Haborside Financial Center, which received no special tax breaks. The 1.8 million-square-foot site in Jersey City has a 93 percent occupancy rate in its three buildings, and rents at $24 per square foot - $2 to $3 less than the going market rate for newer Class A space in the area, according to Charles A. Simberg, CEO of its developer, Jones, Lang, Wootton in Manhattan. The draws: it is on the waterfront, in a commmercial zone and located near a PATH stop that links the site to Manhattan.

Location, not special incentives, is also what led the Woodbridge-based Atlantic Realty Development Corp. to turn the old Eastern Airlines Reservation Center in Iselin into the Metrotop office complex. Located near the parkway and the tunrpike, it is in an urban setting that is accessible and zoned for commercial and industrial use.

“It is also cheaper to buy an existing building with a good structure than to build a new building right now,” says Ivan Sobel, owner representative at Atlantic Realty. Senior vice presidents Paul Giannone and Robert Dinner at Metrotop’s leasing agent, Jacobsen, Goldfarb & Tanzman Associates in Woodbridge, say the facility’s large lot size and good concrete structure made replacing all the mechanicals and building exterior worth the investment.

In a few circumstances, such as in the historic district in Paterson, even the age of a site can be a marketing tool. Manufacturer’s Village in East Orange is a case-in-point. In 1880, Manufacturer’s Village was the home of Seabury & Johnson, the predecessor of Johnson & Johnson, which produced mustard plasters and bandages there until the Depression. Current renters include a furniture maker, a TV producer and several photographers – artistic types who enjoy the building’s 19th century design.

Hidden costs. But owner/manager of Manufacturer’s Village, Joy Hubert, warns of the additional costs of maintaining a rehab’s authenticity. In 1988, when Hubert switched from a single furnace for the multi-building complex to separate boilers, she chose to keep the old hot-water radiators, she says, because “the radiators feel better to people than commercial hot-air furnaces, and they just look right here.” Hubert estimates the cost differential to be $200,000.

Similarly, while renovating the Cooke Mill Complex, Longstreet Development Corp. had to follow strict historic guidelines that determined the HVAC systems, windows and interior design. McLoof says, “This added at least 20 percent to construction costs, but the package was worth it.”

A second area of concern is the effect of environmental clean-up regulations. Alan Lambiase, real estate manager for the River Terminal Development Corp., says RTDC has turned them into a negotiating tool. Because his firm often knows the laws better than the seller, it can get a lower price by taking over responsibility for compliance, normally assumed by the seller. RTDC can do this because industrial rehabilitation is its market niche. But even Lambiase concedes  that environmental clean-up costs “have stopped us from purchasing some properties.”

The economy, stupid. Industrial rehabilitation is an area to watch as it follows a very different curve from the rest of the real estate market.

“Development peaked in the late eighties, and now the economy can’t support real market growth. There’s a lot of downsizing that will leave companies with surplus real estate, so there’ll be more rehab opportunities that will be economical at good locations,” says Lambiase.

“Because of the downcycle in real estate and lack of financing, many owners of Class B buildings will rehab to upgrade to a Class A property – developers can’t borrow money to develop new property instead,” said Dinner.

Perhaps industrial site rehabs are the silver lining of the early nineties’ dark real estate cloud.

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