A big white elephant sale, perhaps the second biggest one in Princeton, took place at Princeton Airport on October 1 and 2, when volunteers from the Princeton Healthcare System peddled furniture, bric a brac, and you-name-it to add to the hospital’s coffers, a sale that takes place every year.
Meanwhile the medical center plans to sell its six-story building on Witherspoon Street. Will this turn out to be, after all, the biggest white elephant sale of the century, or does it represent the opportunity of a life time for Princeton?
Either way, the medical center’s move is arguably the biggest Princeton real estate story in 20 years, and it is part of a trend as well. Along with the Princeton Healthcare System’s proposed relocation to an as yet unannounced location, Capital Health System plans to move its Mercer campus six miles up the road from Bellevue Avenue in Trenton to the Princeton Pike area.
This year Jersey City Medical Center left an aging facility built in the 1930s to a modern facility just a couple of miles away, and four Cumberland County hospitals closed two of four older buildings and built one brand-new facility. "We are in the most active period of hospital building and reconstruction in the last 50 years," says Rick Wade, communication vice president for the Washington-based American Hospital Association. "Many hospitals have reached the end of their useful life. They are landlocked, or the communities have changed so drastically they can’t stay in the space they used to be."
In addition to the obvious questions of what will happen to the old buildings, and where or when the new structures will be built, is the hidden question: Where will the doctors settle? Before the ink is dry on the Princeton hospital’s contract, the doctors will be scrambling to find new, modern offices close to the new medical center.
Medical office moves are accelerating nationally, says Jerry Fennelly of NAI Fennelly, in part because of federal Healthcare Insurance Portability and Accountability Act (HIPAA) requirements for a separate, lockable room for patients’ files and ADA requirements for handicap-accessible bathrooms. "It is almost easier to move than to modify your space while you are in it," says Fennelly.
Doctors have had to adjust to the 1990 healthcare reforms, which took away at least one-third of their income and changed the way they were doing business, according to Fennelly. And those who graduated from medical school two decades ago are ready for a change. "They have hit the age where they are actually doing very well," says Fennelly. "They have been practicing for 20 years in the same space and they want a more modern office."
Even before Capital Health has obtained its "certificate of need" which would grant permission for its move, doctors are already moving to the Princeton Pike area, where medical space is hard to find. "But Princeton’s doctors are on hold," says Fennelly. "For a year and half they have delayed their moves because they don’t know where they want to go.
In hearing after hearing and workshop after workshop, all the opinions about what to do with the hospital’s property have been put on the table, and still some of the neighbors are not mollified. The big Witherspoon Street building, with its two six-story towers, totals 510,00 square feet, and the neighbors think the allowable square feet should be cut. Opposing them are those who believe the hospital needs to maximize its current real estate investment. If the new owners can get the property rezoned for 510,000 square feet, they promise, the town will gain a significant number of affordable housing units.
At the vortex of this controversy is what’s known as "the Hillier plan." The Princeton Healthcare System turned to the Hillier architecture firm to propose reasonable and appropriate uses for the 10 acres on Witherspoon Street, the nine acres on Bayard Lane that now house Merwick, and the two-acre parking lot behind the hospital on Franklin Street.
Franklin Street is already zoned R4 residential, says architect Bob Hillier. As for Bayard Lane, he suggests its future owner could do a land swap with the Princeton YMCA/YWCA, which would improve the Ys’ oddly-shaped piece of land and allow for townhouses to be built across the street from Palmer Square’s future townhouses. To make this happen, Chambers Street would be extended.
For the main campus, Hillier says the towers should remain. A public community zone on the ground floor could have cafes, restaurants, retail stores, and a community room. The upper five floors could be one-bedroom and two-bedroom condos, with 20 percent reserved as affordable housing.
The emergency room and the service areas (the cafeteria and the laundry etc.) are at the back of the hospital, across from the garage. Under the Hillier plan, they would be torn down and replaced by townhouses and apartments circling an inner courtyard. "It would be so low that you couldn’t see it from Harris Road," says Hillier.
The newer surgical building at the corner of Witherspoon and Henry streets would remain.
Anticipating objections to the "big block" that exists now, Hillier recommends one pedestrian crossway, with benches, that would traverse the block from Witherspoon Street to Harris Road. and a second that would go from Franklin Street to Henry. Hillier calls them linear parks. "People have been concerned about the building looking like a big block, but you don’t want to put roads through it," says Hillier. "That would just be eating up real estate for cars."
Anticipating objections to the towers that many say are "too tall," Hillier would raze the old office buildings along Witherspoon Street and turn them into a public park or plaza. Some kind of one-story architectural device could hide the tower from the sidewalk and bring it down to the scale of the two story houses across the road. In the Hillier illustration, shown on page 14, this device is a block-long trellis.
Anticipating complaints about traffic, Hillier cites studies showing the traffic will be reduced by one third if the building is used for residential purposes. "It’s a quieter operation. Right now the hospital gets 50 trucks plus 40 ambulances a day. A condominium apartment would have maybe two trucks a day," he says.
"At the end of the day, we would have 510,000 square feet," says Hillier. Of that 44,000 would be in the office building (the recently built surgical center), and 35,000 feet in retail/commercial/community space on the ground floor. The residential component would include the newly built townhouses and apartments plus from 225 to 280 rehabbed apartments, averaging 1,200 square feet, plus some meeting rooms and a health club for the residents.
Hillier’s firm was paid for the planning work, but from his own perspective as a community supporter and developer (he has successfully turned an old garage and an old school into viable Princeton housing and is rehabbing a hotel in Philadelphia’s Rittenhouse Square, among many other conversion projects), he gave the hospital some pro bono real estate advice: Keep the towers. "As the towers stand there, gutted, they are worth $75 per square foot. If you raze them, you are starting at a negative $35 million. It’s not necessary," he says. Renovation would cost $125 per square foot, and the average condo in Princeton is selling for $350 per square foot."
"They need to realize the cash out of the old hospital," says Hillier, "and they are talking to developers with a good track record and with ‘patient’ money, meaning they can buy it today and wait until the hospital builds."
One consultant estimated that the hospital needs to realize $65 million from the sale of its three properties. Matt Malatich of Preferred Real Estate suggests the Witherspoon Street building alone might sell for $45 or $50 million.
Not much is known about the bidders. Princeton University has said it bid on Merwick and on the Franklin Avenue lot but not on the Witherspoon building. Preferred Real Estate Investments (which owns the former Rhodia site and the American Standard building) put in a bid but did not make the short list. Barclay Knapp’s effort to create a continuing care retirement community (CCRC) on either Witherspoon or Bayard has also been rejected as not competitive, but he is undeterred.
"If someone outbid us that is fair and square. But as a citizen, I see a ground swell of feeling that these sites are a once-in-a-lifetime opportunity. The town is rezoning and is perfectly able to create incentives," says Knapp, who has in mind the kind of incentive that allows a greater or lesser density depending on the use. "The town should recognize the difference between an incentive-based structure and what the hospital would receive (at market rates) could be quite small and there might be ways to ameliorate the difference down the road. No one wants to disadvantage the hospital, but a more holistic approach could get the hospital and town what they want and end up with an outcome that is positive for all."
The Regional Planning Board is honing in on the zoning changes for Witherspoon Street but has barely begun on the changes for the rehabilitation center, Merwick. A public hearing on the Witherspoon Street rezoning is tentatively scheduled for Thursday, October 20. The Master Plan Subcommittee is still working on the wording for the Bayard Lane site changes and its next possible meeting time, subject to change, is Tuesday, October 18.
It is even possible that, before the zoning changes get made, the hospital will select its buyers. Supposedly it has narrowed the bids to three and will make its choice soon. "We hope to make a decision regarding a developer within the next month," says Carol Norris, Princeton Healthcare System spokesperson.
Says Hillier: "The hospital has taken great pains to gather community input in several meetings during the last year as it has explored its options and what we have put forth is a balance between the community’s and the medical center’s best interests. We have striven to enhance the character of the neighborhood, and meet Princeton’s need for senior and diverse housing while providing enough return for the medical center to realize its goal of creating a new medical center that will provide state of the art medical care to the Princeton community."
How will the two hospitals’ moves affect the surrounding real estate? One real estate expert, Bryce Thompson, owner of Thompson Land, thinks a hospital move-in won’t enhance residential real estate prices. "Most people put proximity to schools and transportation on their list, not proximity to a hospital."
But commercial property is a different story. "In the immediate area, the hospital’s move will have a very positive effect," says Al Toto of Commercial Property Network.
Doctors and dentists often like to own their own space, and they can’t necessarily move into office buildings occupied by lawyers and accountants. Sometimes health practices are not welcome tenants because they draw more traffic. And not every office building is suitable.
It costs $40 to $50 per foot to build a regular office from "shell space," and from $70 to $75 per foot to fit out a medical office, says Fennelly. The extra money goes to the plumbers and electricians. Dental offices require an extra sum, from $250,000 to $500,000. Healthcare offices require at least five parking spaces per 1,000 square feet, big elevators, and sometimes even doors wide enough for a gurney.
On the mechanical side, most multistory buildings shut down their central heating and air conditioning at night and on weekends. Because doctors may have office hours on Saturdays and in the evenings, they need separate HVAC systems.
Leaving aside Princeton’s move for the moment, Capital Health’s proposed move can be expected to squeeze an already tight market. Like Jersey City Medical Center, Capital Health has said it needs to move in order to survive. "New Jersey’s population is becoming more suburban; now tens of thousands of people are living in former wheatfields." says Ron Czajkowski, vice president of the New Jersey Hospital Association.
Capital Health has an option on a total of 42 or 43 acres that front on Princess Road and back up to I-295. Most of that area is already built out, according to Richard Krawczun, Lawrence township manager. Just one other lot is available for development that could include medical offices.
Many doctors have already chosen to settle in the Princeton Pike area because it is close to hospitals in Trenton. They have set up along Franklin Corner Road, in the buildings south of Lenox Drive, and in the six two-story buildings that comprise the 266,000 square-foot Princeton Pike Office Center. "I have very little space available," says Stacy Jingoli Markowitz, whose family, the Jingoli Group, built the center.
Markowitz sees no problems in mixing office and medical tenants: "We haven’t seen any tension between office and medical users because we have so much parking and we keep the buildings really clean, so you can’t tell how much traffic there is. All but two buildings have elevators, and they will soon have lifts."
Brandywine Realty, which owns much of Lenox Drive, could theoretically develop medical buildings; it has approvals for another 330,000 square feet of space.
Robert Marek of Larken Associates, owners of the 47,000 square feet on Princess Road, says his property is fully leased. "We’re pleased and hopeful that Capital Health is successful in obtaining its approvals and are certain that it will add a lot of value to the street." He points out that an age-restricted residential development recently opened Princess Road, which had had only one entrance on Princeton Pike. Now it goes through to Franklin Corner Road.
Much more volatile will be the relocation of doctors who want to follow Princeton Healthcare. This hospital will surely build its own medical arts building to accommodate those doctors who are now along Witherspoon Street. Everybody else is waiting for the final choice. Reportedly the choices have been narrowed to two, Carnegie Center West and the Forrestal Center. Bystanders are betting that the Forrestal Center has taken the lead.
The Forrestal Center site offers 260-acres adjacent to and north of Princeton Forrestal Village, with 110 acres in Plainsboro and 160 in South Brunswick. It is part of the Princeton Nurseries land that the Forrestal developers bought in 1986, and it has more than enough space for the hospital and any medical buildings that might be needed.
If the Hospital Goes North . . .
Since the Gale Company just got through rezoning Princeton Forrestal Village to accommodate more professional office space, you’d think the Village would already have plenty of doctors and dentists, but no. "Doctors are clearly a market segment we reached out for, but we don’t have any doctors now," says Frederick Knapp of the Gale Company. "We have talked to three or four medical groups and continue to reevaluate the opportunity."
Not many healthcare providers will be able to sign up at the Village in the future. Gale has just signed a contract with a very big tenant, a fitness center and spa, that preempts all but 70,000 square feet of professional space. Eight of the food businesses in Market Hall (Valentino’s, Boardwalk, Teriyaki Boy, Subway, Chinese Chen, Underground Potato, Ben and Jerry’s, and American Muffin) will move to the first floor of Rockingham Row, the pedestrian-only street, where they will have about the same amount of space as they did before. The newly redecorated food court will feature plasma screen TVs and will be closer to the parking lot than before.
The 11,000 square-foot second floor on one side of Rockingham Row is occupied by the offices of Clique Communications. Gymboree will move from Market Hall to a first floor space across from Princeton Dance and Theater Studio, leaving only one 4,300 square-foot space vacant on Rockingham.
As for office space, 85 percent of the 350,000 square feet of office space at the Village is leased, and just 60 percent of retail has been leased. So Gale’s current focus is to switch its 150,000 square feet of retail space from discount to upscale. Still to come are two restaurants with liquor licenses.
If the hospital moved adjacent to the Village, the Gale Company’s Knapp points out, that the benefits would be mutual: "Princeton Forrestal Village has tremendous benefits to the hospital’s employees, guests, and visitors, offering a place to shop, to go to the food court, and the Westin Hotel."
On the other side of Route 1, more than 500,000 square feet is available on College Road, Independence Way, and Research Way, according to the survey printed in this issue, but not much of that is open to medical use. Tom Stange of National Business Park notes that NBP, one of the big developers at the Princeton Forrestal Center, has not focused on medical offices.
But if the hospital moves across Route 1, Stange says his firm might pursue medical tenants. For instance, NBP has approvals for College Park II fronting Schalks Crossing Road that could hold three one-story buildings, each 60,000 square feet, plus two midrise buildings at 75,000 square feet. Two months ago South Brunswick approved College Park III on the other side of Schalks Crossing Road, up to Ridge Road, for up to 640,000 square feet.
Medical users require considerably more than standard office buildout, says Stange. "But we have a number of very high tech specific laboratory use requirements within College Park, and we are not averse to extraordinary requirements."
On November 1 Patrinely Group will have finished the shell for the first of five buildings on 80 acres at 1100 Campus Drive in the Forrestal Center, but it is not zoned for medical offices. Patrinely’s regional vice president Tom Bermingham says he is focused on leasing the 167,000 square foot building and has no current plans to make a zoning change.
Nevertheless, Bermingham will soon host an expert from Patrinely’s health care group to survey the Princeton marketplace. Patrinely had participated in the bidding to buy the "old" hospital properties but dropped out. "As we studied it we didn’t think we were the right company to handle it," says Bermingham, "but we are interested in the Princeton marketplace long term."
. . . If It Goes South
The other potential choice for the hospital is 75 acres at Carnegie Center West, north of Carnegie Boulevard, across from Bank of America. This site has approvals in place to build 1 million square feet of office and hotel space, and it would have to be rezoned.
Hilton Realty’s five-story class A office building, now under construction at Carnegie West, is not a candidate for medical offices, but other possibilities are 100 Canal Pointe, Princeton Commerce Center, or any of the buildings along Alexander Road. Al Toto of Commercial Property Network suggests that, as leases come due at Princeton Commerce Center, the single story buildings could be
retrofitted into medical space. "Medical and dental offices require 3,000 square feet, and they like to look at longer term leases. Their leases are tied to the CPI index and give stability to the complex."
Fennelly points to 100 Canal Pointe, a low rise building bordering the MarketFair parking lot, as an ideal candidate for medical offices. The 47,000 square foot complex at 693 Alexander Road, built some years ago by Compass Development and never occupied, might possibly be fitted out for medical use as well. He also believes that a new building at Princeton Overlook could be redesigned for medical use.
Wherever Princeton Healthcare decides to go, you might hear the theoretical clashing of swords as it competes with its neighbors to the north (Robert Wood Johnson in New Brunswick), to the east (Robert Wood Johnson at Hamilton), and to the south (St. Francis and the Capital Health System).
As the NJHA’s Czajkowski says, "We aren’t living in Kansas, so we don’t have to travel 50 to 60 miles to get from one hospital to another. Patient populations in New Jersey overlap, which makes it very competitive."
Speaking of competition, Robert Wood Johnson at Hamilton has just thrown down the gauntlet to Capital Health System by opening an outpatient center in the heart of the Capital Health’s territory, Ewing. To be open seven days a week, the center has an occupational and corporate health services department and a rehabilitation service department, which will take advantage of advantage of the Pennington-Ewing Athletic Club (PEAC) facilities next door. An urgent care center, to open Monday, October 17, will help patients avoid a trip to the emergency room.
RWJ at Hamilton opening in Ewing could not have been a good surprise to the Capital Health System. But, as Czajkowski says, "We aren’t living in Kansas."
Princeton HealthCare System: University Medical Center at Princeton, 253 Witherspoon Street, Princeton 08540. Barry S. Rabner, CEO. 609-497-4000; fax, 609-497-4991. www.princetonhcs.org
Capital Health System: Mercer Campus, 446 Bellevue Avenue, Trenton 08618. Al Maghazehe, CEO. 609-394-4000; fax, 609-695-8865. www.capitalhealth.org