Can a company move its office to a city and be rent free for 10 years?
It may sound too good to be true, but landlords such as C&K Properties beg to differ. With New Jersey's newly revamped business incentives, the owners of 2 Gateway Center in Newark say it's entirely possible — even probable — for a tenant that meets the right criteria.
"There's lot of boxes you have to check in between to get there," said Kevin Collins, C&K's managing director for asset management and finance. "But the reality is that there is a significant pool of money there that could completely cover a tenant's occupancy."
It's a best-case scenario, but it's also a glimpse of how the new subsidies can help fill vacant office space in the Garden State, where incentive programs have been better known for creating new buildings than helping existing ones. And that's not lost on owners and brokers as state officials prepare to phase in the Economic Opportunity Act.
"It's a tremendous help for generating interest in existing properties," Collins said.
The now 2-month-old law retooled the Grow New Jersey tax credit program, shifting the focus to job creation and shrinking the steep capital requirements of prior incentives. That means more smaller and mid-sized companies — inside and outside New Jersey — can reconsider their space needs without breaking the bank, experts say.
For projects involving office renovations, the program now requires tenants and landlords to spend a combined $40 per square foot to be eligible. Collins said that level of investment is "virtually nothing" given today's construction costs.
And the rate is achievable even at Class B or Class C office buildings, where improvement allowances are not as high, he said, "so it really doesn't disqualify any segment of the office market, which is a positive of this legislation."
In Newark, C&K hopes to leverage the incentives to fill 360,000 square feet of space, much of which will hit the market late next year when Prudential Financial vacates the Gateway complex. Dudley Ryan, the leasing agent for 2 Gateway, said the 18-story building already triggers many of the "bonus points" offered by Grow New Jersey, such as being near mass transit and in one of the state's designated "urban transit hubs."
In fact, Ryan and Collins believe new tenants could score high enough to effectively occupy the building rent-free for the 10-year term of the tax credit, they said.
The New York-based landlord has created an "incentives concierge" service to help would-be tenants understand their options. Overseeing the free consulting service is Ted Zangari, a Sills Cummis & Gross attorney who helped craft the incentives overhaul.
"Our goal is to make this as easy and confidential for any potential party or business that's interested in taking advantage of this," said Ryan, a senior vice president with CBRE. "To that extent, we are willing to do the legwork for them."
The overhaul has made the incentive programs more user-friendly, allowing brokers to build the tax breaks into their marketing platforms. Tim Greiner of Newmark Grubb Knight Frank said it's far easier to show that a fit-out has met the per-square-foot minimum than it is "to track every dollar spent on a $200 million construction project."
Newmark also is counting on Grow New Jersey to fill Three Gateway Center, another large space in Newark that Prudential will vacate next year. The brokerage team is thinking big when it comes to filling the 579,000-square-foot tower.
"The real play here … is for someone getting incentives for the whole asset," Greiner said, noting that in a full-building deal, a tenant would likely earn "mega project" status under the program. That means a maximum 10-year tax credit of $300 million — rather than $100 million — provided the applicant commits to at least 250 full-time jobs and a $50 million capital investment at the site.
And while the programs give great weight to cities, experts say the bonuses can still add up in suburban markets. Michael Allen Seeve, president of Woodland Park-based Mountain Development Corp., said one key driver is compensation for the long-term employees who occupy the space, which can trigger bonuses if it's high enough.
Companies are not likely to become rent free for suburban moves, but incentives are still available.
"If you're in the office business, particularly if you're in the high-end office business, in all likelihood you've got employees that are compensated in the higher end of the spectrum," Seeve said. "So ostensibly the incentives can become most generous for those kinds of employers."
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