Adaptive re-use comes full swing in New Jersey.

The past year has brought continuing good news for the Northern and Central New Jersey office and industrial markets. Robust office leasing during 1997 totaled 12.9 million square feet and resulted in an impressive 13.1 percent vacancy rate. On the industrial front, the state witnessed a dramatic, 12.9 million square-foot decline in available space in one year, with 33.2 million square feet in sales and leasing activity.

Within this context, available Class A office space has become scarce, as have quality warehouse distribution facilities. Yet demand remains high, which has prompted innovative owners and savvy tenants to seek alternative opportunities through renovations and conversions of existing space.

While upgrades of existing buildings have been prevalent for years, the activity we are now seeing goes far beyond the traditional aesthetic retrofits of lobbies and landscaping, and HVAC and other system upgrades. Today's market supports the concept of creating totally new products out of the old. This includes razing existing structures or taking buildings down to the steel. And with this new trend has come truly unique thinking, with properties being used in ways we would not have conceived of five years ago.

Office and industrial buildings, residential properties and retail sites are being reengineered and their uses interchanged to suit whatever the need.

Location, as always, is a key factor, and well-positioned older buildings are still attractive because they occupy the most desirable sites. For example, Medco Containment recently purchased and will renovate the former IBM corporate headquarters property on 201 acres in Franklin Lakes. The site offers outstanding access to I-287, I-87, I-80, the Garden State Parkway and Routes 202, 17 and 208. Within the Class A location, the property will receive improvements to bring it to Class A standards.

As many real estate professionals had been anticipating, older, antiquated industrial buildings are now the next target for office redevelopment. Reckson Associates is convening a 205,000 square-foot former BASF building at 1255 Broad Street in Clifton from mixed-use to pure office. The renovation is so extensive that Reckson stripped the building down to the steel to rebuild it. In addition, owner Gale & Wentworth is retrofitting 61 Sylvan Avenue in Englewood Cliffs, the 410,000 square-foot former Prentice-Hall building, from a two-building mixed-use office and warehouse property to pure office. Citibank has leased the entire facility.

The former Shulton site on Route 46 at the Garden State Parkway in Clifton - a mixed use, multi-building development - is also on the market. This antiquated property will require a complete redevelopment in order to become functional again. Formerly used for warehouse, assembly, light manufacturing and office functions, the property could be converted for any use, from office to residential. While new construction is also playing a significant role in creating new opportunities in the market - with more than 900,000 square feet of office and almost 3.4 million square feet of new industrial projects underway - it will not dampen the amount of retrofit activity. In fact, this trend is more than likely to pick up momentum in the coming year, based on the fact that it takes significantly less time to retrofit space than to build new product on vacant land. While a new building will take 18 to 24 months to complete, most retrofits are being achieved in a year or less.

In addition, because municipalities want to encourage higher use of outdated or rundown facilities, the approval process tends robe less arduous. It is also easier to lock in costs more accurately on a retrofit project, making it relatively easier to finance and more attractive for potential tenants.

Since the early 1990's, the market has continued to evolve, and the number of large blocks of available quality space have dwindled. Many in the industry anticipated the opportunities for older, obsolete properties. The question was not if, but when, the time would be right for re- engineering and re-use. The trend has now come full swing, and developers are making it work for all types of units, from small to large, from single-user to multi-tenant.

During the coming year, we look forward to more new and creative uses for New Jersey's real estate castaways by innovative brokers, entrepreneurial firms, REITs and corporate users.