The Deal at Exit 8A

Spec Space

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This story by Barbara Fox was published in U.S. 1 Newspaper on October 14, 1998. All rights reserved.

Market's Still Vibrant, But for How Long?

Despite predictions of doom in the stock market, despite warnings of a recession in real estate, Princeton's commercial real estate market is maintaining its momentum. "The market is still vibrant," says John Buschman of Buschman Jackson-Cross.

Three office buildings -- in the Forrestal Center, in the Carnegie Center, and on Roszel Road -- are under construction and a fourth will break ground next Tuesday at Alexander Park. At the other end of the market (geographically and categorically), a real estate investment trust is supposedly ready to sign a deal to buy 300,000 square feet at Exit 8A's Centerpoint Business Park.

All the new buildings are entertaining a number of proposals for fairly large space. Still, warns Buschman, "Two or three of the new office buildings should do well, but there may be a tad too much square footage for the market." By lining up Buchanan Ingersoll for College Road, he has signed the only tenant announced so far for any of the four projects. "One of those buildings is going to get squeezed," Buschman predicts.

The four new buildings along Route 1 are scheduled to come to market within a six month period. In June, Boston Properties will be ready to take tenants for its 115,000 feet at the Carnegie Center, and it is expected to fill that space easily, if only by juggling current Carnegie Center tenants.

By July or August, SJP Properties expects to finish 300,000 square feet at a complex to be called Princeton Commons on Roszel Road, and though it has announced no lead tenant, it will have the first big block of space.

The 168,000-foot four-story Forrestal Center building at 650 College Road is scheduled to be ready in September with Buchanan Ingersoll already signed for 40 percent of the building. As he had done with State Street Square in Trenton, Jim Kinzig of the Aegis Group refused to start construction without a lead tenant.

"Princeton hasn't had a tight market for 10 to 12 years," says Kinzig, a University of Michigan alumnus and Wharton MBA who partnered with Peter Longstreth, a scion of one of Philadelphia's first families. Kinzig worked for Longstreth at a bank and then joined him at the Aegis Group, now owned by the $2 billion private Berwind Property Group. "But we are a conservative institution," says Kinzig. "We did not want to take more than a certain amount of speculative risk."

Karen Iman of GMH Realty is leasing 140,000 feet at 600 Alexander Park, a Hillier-designed building developed by Trammel Crow, to be called Princeton Place. She expects it to be ready by the end of 1999. The groundbreaking will be Tuesday, October 14, at 5 p.m.

Other spec buildings that have not broken ground are not expected to come to market before 2000. (See page 64 for a listing of these projects.) But no real estate expert believes that all -- or almost all -- of these buildings will be constructed in the next couple of years.

"I don't think a lot of the spec stuff is going to go up on schedule," says Sab Russo of CB Commercial.

"The credit crunch is going to cause a lot of transactions to fall apart," says Gerard Fennelly of Fennelly Associates. Only those projects with cash in hand will go up soon. "If someone has the financing in place, they will grab the money and start building, even though the market conditions may change."

Even if all these "spec" buildings were to overbuild the market, the real estate brokers should not lose money. Whether it is a bull market or a bear market, those who do the transactions will prosper. Those who put down the money, developers, investors, and banks -- are the ones who could lose.

"I have had a couple of not stellar years, but it would be hard to look somebody in the eye and say I had a bad year," agrees Buschman. "But the lean years are a lousy time from an emotional standpoint." The son of an electrician, he went to Upsala College and worked in a clothing store. "The guys who were buying six suits for $500 bucks a piece -- I asked them if I could have a job. I have never done anything else." He started his own commercial real estate firm with a $5,000 loan from his aunt. "We were down to $400 when I made my first deal.

Says Buschman: "I've been through a number of recessions in the real estate business. They are ugly time periods when it is not fun. But you are still getting paid."

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The Deal at Exit 8A

As for the imminent deal at Exit 8A, four sources confirmed it, but none would comment for attribution. CenterPoint Properties is apparently selling 300,000 feet at the 600,000-foot office park built by Matrix Development. John Buschman of Buschman Jackson-Cross leases the office buildings at that park, and Colliers Houston had leased the warehouse space.

The buyer is said to be Corporate Office Properties Trust (COPT), a public company based in Bala Cynwyd (610-538-1800). The CEO of that firm, Clay Hamlin, says only that 8A "is a high growth market because of the great location and the housing around there, and we have had a great experience with TCG (Teleport Communications Group)."

That deal involved buying IBM's Dayton kingdom -- three buildings with 351,000 square feet -- for a reported $10 million. At that point Hamlin was a partner with Jay Shidler in the Shidler Group. Hamlin leased part of it to TCG, which now belongs to AT&T. Last year TCG had 175,000 feet there, but it has just signed a lease for the last 143,000-foot building. "They will have just about the whole complex," says Hamlin.

Shidler and Hamlin had participated in two other REITs, Trinet in 1993 and First Industrial Realty Trust in 1994. In October, 1997, the Shidler Group did a reverse IPO, merging $170 million from its office portfolio into a $20 million real estate investment trust (REIT), Royale Investments. The group changed the name to Corporate Office Properties Trust, moved the stock from Nasdaq to the New York Stock Exchange (where it trades as OFC), changed the focus of the firm to concentrate on suburban office properties, and raised $78 million in a secondary offering (in effect an IPO for the new owners).

COPT proceeded to buy $102 million worth of office buildings. Then in September it did a deal with Baltimore Gas and Electric, for which it exchanged $98 million in stock for $178 million of real estate owned by BG&E's real estate group. "Now we have a company that manages 20 million square feet between Washington D.C. and New Jersey to Harrisburg," says Hamlin. "We've grown from $25 million last year to $550 million now. We are negotiating a very large number of transactions and we have a very large interest in the 8A market."

A native of Buffalo, Hamlin went to University of Pennsylvania, Class of 1967, and has an MBA from Wharton and a law degree. After working as both a CPA and an attorney, he met Jay Shidler, an alumnus of the University of Hawaii, Class of 1968. Shidler made his first million doing commercial real estate deals in Hawaii and is now worth $6 to $7 billion; he visits his various companies in his corporate jet. Ken Sweet, the real estate consultant who had helped put together the Forrestal Center for Princeton University, is on COPT's board.

-- Barbara Fox

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Spec Space

While none of the projects listed below have yet broken ground, all are in various stages of approval. These proposed buildings are in addition to the four speculative office buildings now under construction in Carnegie Center, Roszel Road, Alexander Road, and Forrestal Center.

West Windsor

Palladium, Route 1 at Meadow Road. Available square feet: 25,000, divisible to 5,000.

Steiner Equities, Jeffrey Hale, 973-228-5800. Size of building: 250,000 square feet. Class A space, 880,000 feet under approval on 67 acres, adjacent to Carnegie Center.

Princeton Overlook II, Route 1 South. Available square feet: 154,000.

Mack-Cali, John Brandbergh, 908-272-8000. Class A.

Vaughn Plaza, Vaughn & Alexander Road. Available square feet: 28,000, divisible to 5,000. To rent for $17 net, $24.50 gross.

Nexus Properties Inc., Andrea S. Kotzker, 609-396-6800. Building owner: Nexus Properties. Class A, walking distance to Junction train station, office zone, ample parking, space planning.

Princeton Plaza, 731 Alexander Road. Available square feet: 60,000, divisible to 5,000. Gross rent, $24.50 plus tenant electric.

Buschman Jackson Cross, Tommy Romano, 609-896-1600. Building owner: Nexus Properties. Class A, walking distance to Junction train station, office zone, ample parking, space planning

Pennington

Straube Center, West Franklin Avenue. Available square feet: 20,000. Office and lab space.

Owner managed, Win Straube, 609-737-3538. Size of building: 50,000 square feet. Build to suit.

Straube Regional Center II, Route 31 and West Franklin Avenue. Available square feet: 2,000.

Owner managed, Win Straube, 609-737-3538. Corner lot, ideal bank or professional building, also allowed for retail.

Pennington Point West, Route 31. 18,000, divisible to 900. Occupancy spring or summer of 1999. Commercial Property Network, Albert Toto, 609-921-8844.


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