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Jersey City building turns around.

It's not every day the owners of a vacant office building ask a major corporation not to lease 135,000 square feet of back-office space at their property. But that's what The Limited, Inc. and Georgetown Company did shortly after purchasing Newport Office Tower in Jersey City.

Unlike most of the other developers on the Hudson River Waterfront, limited partner Georgetown, which serves as the asset manager for Newport, envisioned this building they purchased with Ohio-based The Limited as a technologically advanced "front-office" property. So, they advised their partner that the Dean Witter lease was not in keeping with their marketing plan.

"It would have given the building a total operational feel like the other buildings," said Alan Grossman, a principal in Georgetown, the company that served as development manager for Madison Square Garden, and the director of leasing at the building.

A victim of the 80's glut, Newport Office Tower is part of a mixed-use development created by the LeFrak Organization and Melvin Simon & Associates. They sold it to Georgetown and The Limited on July 30, 1992. The Georgetown leasing team then set out on a campaign that, one year later, has resulted in 430,000 square feet of leases, inspired unusual involvement by the State of New Jersey, and, as a result, renewed the border tensions between New York and New Jersey.

Beginning with the leasing of 240,000 square feet to First Chicago Trust Company, Newport's tenants are almost all companies that decided to leave New York City and take with them some 1,500 jobs. The First Chicago deal was followed by 50,000 square feet to USA Networks, 80,000 square feet to the Federal Deposit Insurance Corp. and another 60,000 square feet to Bristar Trading Limited, Solar International Shipping Agency, and Legent Corporation.

Already in negotiations, Grossman said, Georgetown and First Chicago last summer reached out to the State of New Jersey Economic Development Agency to see if they could match or outdo New York's efforts to keep the tenant and its 1,000 jobs. In addition to the usual tax abatements, the state agency delivered an interesting proposition: They would make a near-$7 million investment in the building to be used for specialized tenant fit-outs in exchange for an 8 percent stake in the property.

After First Chicago signed at Newport, New York City announced that it would have had to give $50,000 per job to maintain the company and that was more than they had ever given.

Grossman says the state did not lure First Chicago away from New York City. They were already in negotiations, he said, and he points to the building's amenities and its location in an Urban Enterprise Zone that allows many "as-of-right" benefits. Tenants, he said, enjoy low utility costs, New Jersey Bell's Sonet-OC12 fibre-optic network, satellite communications, and a dual-grid electronic system. The complex also offers child care and a six-minute Path ride from Manhattan. Newport, Grossman said, also has a financially-secure ownership and there is no mortgage on the building.

Chris Paladino, deputy director of the New Jersey Economic Development Corp. (EDC), also maintains that the state only complemented what the building could provide.

"We truly believe that New Jersey and Jersey City have so many off-the-shelf advantages. All we were doing was providing that little nudge."

According to Paladino, the decision to invest in Newport Office Tower was part of the state's plan to turn away from the "one upmanship" between states that had previously characterized its involvement with the real estate industry.

"We believe that for too long government was depending on tax abatements to encourage real estate development," said Paladino.

So, out of the Governor's Economic Recovery Fund was created the Real Estate Partnership program, which was to provide resources to assist the ailing real estate market.

What makes that fund controversial is that it is fueled by the state's share of the rental stream from the World Trade Center and, many charge, it is being used unfairly to compete against the complex' other partner - New York State. And critics claim New Jersey is in violation of a non-aggression pact in which New York, New Jersey and Connecticut consented not to do direct interstate marketing.

According to Paladino there is no prohibition against using the money for this purpose. There were so few "strings attached" to the money, he said, except that it be used in a positive manner. New York, on the other hand, he said, used the money to "fill a budget gap."

By leveraging the funds, Paladino said, over a three-year period, they will turn a $220 million fund into $1 billion worth of investment and create 90,000 jobs. For example, he said, they will use $45 million school renovation and construction capital to access $250 million and put 11,000 construction workers on the job by the end of this month.

"We are creating jobs in New Jersey," he said. "We are using that money in a smart way."

As for the non-compete pact, Paladino said, the tenor of the agreement discouraged active solicitation of another state's tenants and negative advertising.

"We're not doing that," said Paladino. "As a matter of policy, we do not cold-call or solicit ... There's enough people who are actively considering New Jersey."

At Newport, Paladino said, they helped solve two problems: Capital for tenant fit-outs is difficult to find and it translates into an additional cost to the tenants. The New Jersey EDC, he said, make "public/private partnership" more than just a phrase. And, The Georgetown Company and the Limited, he said, "redefined" the way developers approach government.

"It wasn't with their hand out," he said.

Newport Tower has not been the only, nor the largest, target for the state's funds.

In Camden, the state built and financed a $90 million aerospace facility for General Electric. Capital was accessed through a bond offering backed by the GE lease. At 101 Hudson Street, the state filled the gap between what was needed for tenant improvements and what the bank of Montreal was willing to pay by providing loans at a blended interest rate.

Paladino stresses that not all the fund's projects are related to commercial tenants. In addition to school construction, capital will also go to the New Jersey Performing Arts Center in New Jersey, and a concert facility in Waterloo Village and the expansion and modernization of the Atlantic City Airport.

Katie Marshall, spokesperson for the New York City's Economic Development Corporation, said she is not sure the steps New Jersey has taken have all been in the name of "good business", but, she said, "if the people of New Jersey think this the way they want to spend their money ... "

While New York City has not pumped money into any of the office projects of the 80's developments that went sour, she said, they have stepped up their efforts by expanding the industrial and commercial improvement program (ICIP) for upgrading older buildings.

Most of New York City's tenants are here to stay, she said. In any event, "there are more leases signed here every year that they have office space in New Jersey," she said.

Steven Spinola, president of the Real Estate Board of New York, said he does not object to New Jersey doing what it has to do for economic development and that such actions by New Jersey's Economic Development Corporation may encourage New York City and State to "be more aggressive."

But, despite the loss of a few tenants, Spinola said, " New York is still the only game in town."

And is it taboo for a New York broker to show space in New Jersey? Absolutely not, said Spinola, noting there are many brokers who work both sides of the river.

"A broker is going to do their job and that is to best serve the tenant," he said.

Grossman said the New York versus New Jersey rivalry distracts from the contests with states outside this region that have taken such corporate tenants as W.R. Grace, J.C. Penney, and Texaco.

"That's the kind of competition I think New York and New Jersey have to team up to deal with," he said.

Grossman said Georgetown does not seek to operate a large number of office buildings that would compete with each other and they do not have any plans to purchase any in the near future. Rather, he said, they like to take each building and create a specialized product.

In downtown Manhattan, Georgetown is development manager and owner's representative for Continental Center, 180 Maiden Lane, for Continental Insurance - the main tenant in the building. With some 200,000 square feet vacant, they are targeting small users that require the highest quality amenities. The building offers a 20,000-square-foot luncheon club operated by the same concern that runs the rainbow room and a fitness center.

"What we seek to do with these buildings is to treat them in a custom-type way," said Grossman.
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Title Annotation:Limited Inc. and Georgetown Co. develop marketing plan for newly purchased and vacant Newport Office Tower in Jersey City, New Jersey
Author:Fizgerald, Therese
Publication:Real Estate Weekly
Date:Aug 18, 1993
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