Once it was clear that speed was key as Bayer HealthCare scouted its new East Coast headquarters, Vision Equities heeded the call: Less than 15 months after construction started at the Hanover facility, the first employees were moving in.
"They wanted to bring everybody together very, very quickly," said Sam Morreale, managing partner and chief investment officer of the Mountain Lakes builder, which developed the property with Rubenstein Partners.
Vision did so with a construction plan that called for stripping two buildings to their steel frames, then rebuilding them with new materials.
Developers have used a similar approach in at least two other New Jersey projects that were completed this year, and it may become a more appealing option as other firms seek efficient, cost-effective ways to modernize obsolete space.
"It's really a matter of the market, and there is some market for it right now," said Tom Walsh, principal and managing director of project management for Avison Young, in Morristown. The firm is evaluating rehabilitation projects for two clients in Morris County, one being a corporate user and the other a developer, he said.
For the latter project, the client recently acquired a 100,000-square-foot office building in Parsippany that's about 30 years old, Walsh said. One consideration is taking it down to steel and rebuilding, with a new façade, interiors and mechanical systems.
But in a lukewarm office market, such a project makes sense only when a developer finds value in the property, he said: "If you're taking something down to the steel, you'd want to feel like you bought it basically for its land value — and maybe the steel value."
The Bayer project, in Hanover's Whippany section, was as much about value as speed, Morreale said. Vision gutted, rebuilt and expanded two obsolete buildings at the former Alcatel-Lucent complex, saving more than 30 percent of the cost of demolition and ground-up construction, he said.
The German pharma giant was left with a new 700,000-square-foot building with energy-efficient mechanical systems and other modern features.
The formula has worked for other projects, especially for tenants demanding modern space. In Plainsboro, LCOR Inc. said it saved an estimated $100 to $120 per square foot by gutting and renovating a former Merrill Lynch building. The 770,000-square-foot office is now the headquarters for Danish pharmaceutical firm Novo Nordisk, which moved there in April from Princeton and occupies two-thirds of the space.
Kurt Eichler, LCOR's executive vice president, said the building "had so many great attributes to begin with" that it made sense to reposition it for the new tenant. He pointed to "mature, 30-year-old landscaping" that the company preserved, along with a sawtooth building design that created extra courtyards and perimeter office space.
"You couldn't duplicate that today," said Eichler, whose New York-based firm partnered with Ivy Equities and Intercontinental Real Estate Corp. in the redevelopment. If the structure had been torn down, "you would never be able to recreate that building, at today's construction costs, at a number that would make sense."
Eichler said it would be difficult to do such a project on speculative basis — but the risk has in some cases paid off.
The Hampshire Cos. was without a tenant when it started to renovate a former Verizon call center in Madison, but ultimately leased the 270,000-square-foot facility to Realogy Corp. Todd Anderson, Hampshire's executive vice president, said the firm followed a similar path around eight years ago, when it acquired the Parsippany building that would become the new headquarters for The Medicines Co.
To market a building that's being rehabilitated requires a developer to "have a clear vision and design" for prospective tenants, said Timothy Greiner, a Newmark Grubb Knight Frank broker who represented Hampshire in the Realogy deal.
Another key piece of the message "was when we could deliver, and promising we could deliver on a certain date — which was always going to be a lot faster than ground-up development," said Greiner, an executive managing director with the firm.
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