A full-on economic recovery is coming, and the companies who get ready for it now are the ones that will thrive when it arrives.
So says Jerry Fennelly, president of NAI Fennelly commercial brokerage, which just moved to a new office at 500 Alexander Park. Fennelly points to companies like Idis Pharmaceuticals, which tripled its space at 902 Carnegie Center, and ALK Technologies which doubled its space when it moved it offices from Herrontown Road to 457 North Harrison Street.
“Why did they double or triple? They see the opportunity to grow and they are preparing themselves for what they see as a positive future,” Fennelly says. “Recoveries typically don’t go up in a straight line. They chop, chop, chop, and then they pop.”
The companies that make bold moves now are the ones who succeed the most when the economy finally does “pop,” Fennelly says. “You have to be ready when the wave hits the beach, and you have to ride at the top of it. You don’t want to be at the middle, or at the bottom of the wave.”
Fennelly likens the current economic situation to the recession of the early 1990s. “1990 was the worst year of that recession and we didn’t pop until 1996. That was six years. This recession started in 2008. We’ve gone through four years of choppiness now, so hopefully in two more years things will pop.”
The signs that the commercial market is coming back to life are out there, he says. “It was a great first half. There were a lot of transactions and a lot of growth. For the first time in the last four years more companies grew than contracted.”
He also points out, though, that one of the inevitable “chops” in the recovery graph came when things “flattened out a little bit” in the past few months.
At the beginning of this year, in his annual market report, Fennelly boldly proclaimed that “the recession is over.” He backed up his words with action. “I took a risk and hired a bunch of new salespeople at the beginning of the year, and we just killed it,” he says. “If I hadn’t done that, we wouldn’t have done nearly as well as we did. The time to prepare for a full recovery is now.”
Hilton Realty is one company taking the kind of risk Fennelly talks about, with the construction of a 88,274-square-foot Class A office building at 300 Carnegie Center.
The building is the only spec office building being built in Princeton region and the first since the completion in 2007 of 902 Carnegie Center (140,000 square feet), also developed by Hilton, and 1 University Square (302,000 square feet), built by Reckson Associates. Both buildings are almost fully leased, but took about two years before they saw significant leasing activity.
Hilton is confident that despite the current slow market there will be a lot of interest in the property.
“Typically, a developer of a building of this size would pre-lease 50 percent of the property before starting construction,” says Matt Malatich, Hilton assistant director of leasing. “That means new buildings are usually leased by large users and smaller companies do not get the opportunity to lease space in the newest buildings.”
As it did with 902 Carnegie Center, Hilton is planning to market the property to smaller, high-end users interested in leasing Class A space. “We believe the economy will continue to improve and there is enough demand for new, high-end space that this project will be successful,” Malatich says.
When Hilton purchased 301 Carnegie Center from BPG Properties in 2007, it included the rights to build the 300 building on the adjacent 8.2-acre parcel fronting on Route 1 south. The purchase price was “in the low to mid $20 million range,” according to Malatich. Before Hilton purchased the property BPG had acquired all land use approvals for the building and in depth engineering and architectural work had been done, says Malatich.
Still left though was the lengthy process of obtaining permits before construction finally started. Work is expected to be completed in mid to late 2013.
“We believe that the timing is right and that when this building comes online we are going to have good interest,” says Malatich. “A lot of the product in this market is nice, but the buildings are 15 to 20 years old.”
“We feel very good about the building,” says Mark Hill, Hilton director of leasing. “It’s being built with the highest quality materials, and the design is really very different. We’re going to have a fountain in the center that’s quite remarkable, and a two-story vaulted lobby.”
The building, which is the first in the area to receive LEED-CS Silver certification, will also offer a fitness room and showers. The rent is expected to be around $36.50 per square foot. In-house listing agents for the building are Hill, Malatich, and Jon Brush, assistant director of leasing.
According to Hill, there are three active prospects that Hilton is talking to about leasing space in the building. “The building is going to be even more beautiful when it’s filled with people,” he says.
Meanwhile, the fact that the building sits in the center of the Princeton office market gives it a good chance for success.
“There’s a barometer here for our economy that differs from others,” says Fennelly. “We have five colleges, four or five hospitals, and a diverse population that has wealth and supports labor. We’re at the center of the universe. You can drive an hour in either direction and target 20 million people.”
“You watch CNN or the other news networks and they use words like ‘fiscal cliff,’ or ‘world disaster’ — the kind of things people use on television to get headlines. But overall I think our economy here looks good.”
He says that more companies expanded than contracted and home values are increasing. “Residential values moving up is a bonus for us. Consumers feels like they’re wealthy again. Therefore, their confidence level goes up, it rips through the economy, and people want to do things. They start spending.”
And there’s never been a better time to buy or rent commercial space. Prices are low and interest rates are low. “Owners are motivated to make deals,” says Fennelly. “If you want to buy something, do it now. If you wait two years then it could be too late. Buildings are starting to sell again and financing is inexpensive. If you can get money for four or five percent on 25-year loans that’s great. You can do a lot of damage with that kind of money.”