Corrections or additions?

This article by Euna Kwon Brossman was prepared for the November

17, 2004 issue of U.S. 1 Newspaper. All rights reserved.

From Toilets to Tenants

The movie "Field of Dreams" is based on the philosophy "build it and

they will come." Preferred Real Estate Investments Inc., a

Conshohocken, Pennsylvania firm, has become a multimillion dollar

success story on the same idea with a twist: take an already existing

structure that’s in decline, renovate it, preserve it, and turn a

local albatross into a booming economic center.

They did it in Conshohocken, turning dingy but historic factories and

warehouses along the Schuylkill River into one of the Philadelphia

region’s most successful office markets. They did it in Jersey City,

converting the vacant powerplant into part of the sleek complex of

offices and apartments that sits on the river facing downtown

Manhattan.

And now they’re hoping to work their same magic on the old American

Standard manufacturing plant in Hamilton. Built in 1917, the old

American Standard plant in Hamilton once supplied most of the

country’s toilets. Though production had been declining for years, the

factory shut down completely only about two years ago when it moved

some 800 remaining jobs to Ohio and put the building up for bid.

Out of about 20 interested parties, Preferred Real Estate Investments

won the contract with a bid of $10 million, largely because of the

company’s intent to preserve the best of the original structure rather

than bring in the wrecking ball. "This is the biggest development in

Hamilton’s history," says Erik Kolar, the company’s president. "We’re

taking a building that was an eyesore and turning it into an asset.

Generations of local families worked here, but in recent years there’s

been job loss, a general decline. We’re preserving what is historic

and beautiful and creating new jobs."

In fact, the American Metro Center at 240 Princeton Avenue in

Hamilton, when completed, will consist of three restored buildings,

designed by Blackney Hayes, totaling 456,000 square feet. What was an

obsolete toilet manufacturing plant will be transformed into Class A

office space for nearly 1,500 workers. Best of all, the AMC is

strategically and conveniently located just 10 minutes from downtown

Princeton, one mile from Route 1 at Exit 65 of I-295/95, and within

walking distance of the Hamilton train station. Indeed, the company is

constructing a pedestrian walkway from the train station to the office

complex. Workers who now battle horrible rush hour traffic along Route

1 from Woodbridge to Lawrence would be able to commute by train into

Hamilton in 25 minutes. Workers from West Windsor and Plainsboro area

would be able to hop on the train at Princeton Junction and be in

Hamilton in six or seven minutes flat.

"Technology makes everything move faster. It increases the speed at

which we do business but you can’t take humans out of the equation,"

says Kolar. "When you need to get face to face time you don’t want to

waste time in traffic. Jumping on a train can make things a lot

easier. Princeton has the cachet but I think people are beginning to

understand that access is more important than address." Kolar says a

fundamental change in the nature of today’s workforce means that

access to public transportation is playing a bigger role in the

workplace. "Instead of the boss in the corner office, work teams today

are more collaborative. You want to get your people out in the field

and have your customers come to you in the easiest and fastest way

possible."

Originally the builder predicted that tenants would be moving in by

September, 2003, and acknowledges that some tenants have been

disappointed by delays. In fact, the first tenants, Duane Morris, a

Philadelphia-based law firm, moved in only last month, consolidating

its Princeton and Cherry Hill offices (see page 49). To date, the

company has leased about 105,000 square feet of some 352,000 square

feet of available space, with signed commitments from a dozen or so

tenants, including a number of marketing, engineering, finance and

accounting firms. The Federal Bureau of Investigation is leasing

second story office space.

Frank O’Neill, brother of company founder Mike O’Neill and one of the

Preferred Real Estate Investments brokers in New Jersey, predicts that

sections one and two of the building will be done by January, while

the last section, which includes the largest contiguous block, a

250,000 square foot chunk closest to the train station, will be

completed by the second quarter of 2005.

The company’s intent is to make the rent very competitive compared to

the region. At the Carnegie Center just up the road off Route 1, a

tenant can expect to pay $32 to $34 a square foot, largely because of

the Princeton address. At the American Metro Center rent runs $23 per

square foot, according to Matt Malatich, who recently came from CBRE

to join Frank O’Neill and Larry Doyle in the New Jersey office of

Preferred Real Estate Investments.

"Let’s face it, there are certain companies that are not going to pull

out of Princeton," says Malatich. "But we have plenty of companies

willing to make the move. It’s cheaper to live in Pennsylvania because

of lower rates for property taxes and car insurance. We can still draw

from the large, well-educated workforce along Route 1 but heading

south to Hamilton you don’t get into that terrible Route 1 bottleneck.

After some time the CFOs have to realize they’re spending too much of

their operating budget on rent and suddenly that Princeton address is

not the be-all end-all."

"Rehabbing a former manufacturing facility is a good idea and a good

trend. The train station location helps, and the highway system is

good," agrees Jerry Fennelly of NAI Fennelly. But he points out that

11,000 square feet is the largest lease American Metro has announced

so far. "They are doing it the hard way. They are slugging it out. The

challenge right now is the costs. For all these rehab jobs, the cost

of steel goes out of sight."

Today the 50-plus acre site is abuzz with earthmovers, backhoes, and

cement trucks. Workers in hardhats pound hammers as dust flies in the

shafts of sunlight pouring in from the skylights. The firm is working

with a historic renovation consultant to retain the architectural

integrity of the building. The original tile is being refurbished and

the handsome criss-cross mosaic brick will be cleaned. One of the

factory’s most unusual structures, a 360-foot brick kiln that runs

half the building’s length, once used to fire toilets, will be

preserved. The center will have a cafeteria, gym, and a shared

auditorium. There will be courtyards. While the structure currently

sports a tangled mess of old wiring and exposed pipes, the high beams

support a soaring vision of natural light and lofty ceilings with lots

of exposed brick giving an open, historic feel. The long rows of

skylights along both lengths of the structure will be preserved, the

frames refurbished, the glass replaced for safety. While the original

factory had about 760,000 square feet of space, some 300,000 square

feet on either side that were added on later will be demolished. The

entire roof is being replaced, and the building will have all new

mechanicals, including heat and air conditioning.

Total renovation cost: $30 million. That brings the total cost of the

or project to $40 million or about $114 per square foot. In

comparison, Patrinely Group sold two buildings on College Road West

for $240 per square foot.

Outside, much of the Belgian block curbing is in. The parking lot is

dotted with temporary lights. Across Sloan Avenue from the American

Metro Center stands the Congoleum plant, one of the few remaining

companies that represent Trenton’s manufacturing heritage and still an

active manufacturing center for tile. A three-lane entrance with a

traffic light will be built off Sloan Avenue West leading to the

American Metro Center.

While the entire project has enjoyed the support of Hamilton’s mayor,

there has been some resistance from the local community, especially

from people who live in the houses on Princeton Avenue behind the

center who are worried about increased traffic. "Change can be

difficult," says Malatich, "but part of what we’re doing is long-term

brand-building for Hamilton. We’re building a bridge from Princeton to

Trenton, taking advantage of the Princeton amenities and the workforce

opportunities in Trenton and Bucks County. We are building cachet for

Hamilton and the prestige will come with it and have a trickle-down

effect on the entire community."

In fact, another developer, Steve Goldin of the Columbia Group, is

building an upscale 700-unit townhouse complex on just over 50 acres

behind the site. "The developer has incorporated concerns about

traffic and looked at everything with an idea of a balanced impact,"

says Malatich.

Preferred Real Estate Investments has built its bread-and-butter

business model and reputation on historical renovations,

rehabilitation of industrial sites, and the revitalization of

under-utilized real estate. While the company focuses largely on

what’s known as the "EZ-Pass corridor" from Maine to Florida, it is

also looking at projects in California.

Says Malatich: "We don’t have blinders on when we’re looking to

acquire a site. We’re looking at everything. We’ve built a niche to

take a problem property where perhaps others might not see the value.

We pay a higher price than the company might have expected to get. If

it’s an environmentally contaminated site, we work with the Department

of Environmental Protection to clean it up."

Kolar agrees that everybody loves the underdog and wants to see a

piece of history preserved. "America was built around rivers, rails,

and roads," he says. "These old factories literally stand at the

crossroads of history. Europe’s been doing this kind of thing for

years, preserving and adapting functionally obsolete real estate for

modern use. But in America we have so much more open space that we’ve

been knocking down corn fields for new development. Our company has

built its success on taking the factories of the past and converting

them into buildings that promote creativity and energy and convey a

sense of character."

Kolar grew up in Chester County and graduated from the University of

Delaware with an economics degree in 1988. He’s been with Preferred

Real Estate Investments for the last eight years. He was in commercial

real estate representing national clients when he met company founder

Mike O’Neill, became personal friends, and shared his vision of

turning old manufacturing sites that nobody wanted into revitalized

regional economic centers. "We started with seven people and now we’re

at 150 and still growing. In 2004 we will have bought 6 million square

feet of buildings. We own and operate over 10 million square feet

today, mostly on the eastern seaboard."

One of Kolar’s favorite projects is the renovation of a 400,000 square

foot office building in Chester, Pennsylvania, which just opened in

September with Wells Fargo Bank as the lead tenant. Located on 90

acres on the Delaware River, it was a 1 million square foot power

plant that with 50,000 jobs, was part of the manufacturing backbone of

the state. After the war, with the decline of manufacturing, jobs had

dwindled to about 5,000 and the city fell into decay. The company saw

the potential in the rundown town with its regional presence, and

proximity to Philadelphia, the Philadelphia Airport and Wilmington. It

convinced the state to put ramps in off I-95. Some 2,000 people now

work at that site.

With three children ranging in age from seven months to five years,

Kolar feels driven to preserve the past for the enjoyment of future

generations. "While we are a for-profit development company, what we

do has an incredible impact on communities. It is so much more

responsible to take these development projects and create jobs where

there is loss. My business is just as much about economic development

as real estate development. Part of the victory of what we do is that

we initiate positive change and revitalize communities and that’s

exciting."

– Euna Kwon Brossman

Preferred Real Estate Investments, 134 Franklin Corner

Road, Suite 202, Lawrenceville 08648. Larry Doyle, director.

609-912-1144; fax, 609-912-1166. Home page:

www.preferredrealestate.com


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