Ken Pasternak is chairman of the KABR Group, a real estate development and investment firm based in Ridgefield Park. — Courtesy: KABR Group
By Joshua Burd
It doesn’t have quite the cachet of a new luxury high-rise near the Hudson waterfront. Nor does it come with the buzz of an up-and-coming neighborhood like Journal Square.
But building in a gritty, lesser-known section of Jersey City is still every bit as exciting to Ken Pasternak, who feels that a place such as McGinley Square has all the potential to capture the demand for walkable, urban living that has helped spark other communities.
“You have all of those touchpoints,” Pasternak, chairman of the KABR Group, said during a groundbreaking ceremony last fall for a new apartment building on Bergen Avenue in the city. “You have the proximity, you have the diversity here, you have this unbelievable backbone here that can’t be created — the way the streets lay out, the kind of buildings you have.”
For KABR, the 58-unit project in McGinley Square is part of a pipeline that includes projects of all sizes — from an eight-unit building to an ambitious, well-chronicled plan to build high-rises in Journal Square. It’s also proof of a steadfast belief in Jersey City and the surrounding communities, which is bolstered by the firm’s trust in the prospects of long-term, regional job growth and the future of its mass transit infrastructure.
All told, the firm owns or has a stake in enough property in the city to support around 4 million square feet of development.
As it looks to build out that pipeline, KABR and Kushner Cos. are retooling the plans for their most high-profile joint venture in the city, One Journal Square. The $821 million, 1,500-unit project faced a backlash earlier this year over its use of the EB-5 visa program and amid reports that Nicole Meyer, sister of White House adviser Jared Kushner, highlighted the family’s connections during a pitch to investors.
During a recent interview, Pasternak said the firms have engaged other parties “to make an equity investment and replace the EB-5,” which offers foreigners a path to a green card if they invest at least $500,000 in a project that creates jobs in targeted areas in the U.S.
“We decided because of the politicization of both Jared Kushner and One Journal Square that it got caught in a political storm,” Pasternak said from KABR’s Ridgefield Park headquarters. “We elected that it was just too much of a distraction to try to fight that.
“We’ve said on the record and the Kushners, I think, have said ad nauseam that they did everything correctly, and we certainly support them.”
To talk about it all — from KABR’s pipeline to the path forward in Journal Square — Real Estate NJ sat down recently with Pasternak. Below are excerpts from the interview.
Real Estate NJ: Let’s start with the big picture. We’ve heard you talk about the potential you saw in Brooklyn before the real estate boom there. How does that translate into what you now see in Jersey City?
Ken Pasternak: Some of our experience there was instructive in Jersey City, where we’re walking around parts of Jersey City and we’re saying, ‘We’ve seen this movie before.’ … Right now we’re very bullish on the (Jersey City) Heights, particularly near Congress Street, and the light rail stations. And we’re bullish on West New York, so we have started to buy assets near both the 50th Street light rail and the Heights. We own three or four assets in each of those locations. The challenge for us is mostly that the assets tend to be smaller. You can’t really buy a million-square-foot high-rise asset like you can in Journal Square. But as an example, we own an asset between 53rd Street and 54th Street in West New York that we’re in the process of entitling, similar in size to the McGinley Square asset — about 60 to 70 units in a five-story building.
We have those smaller, kind of neighborhood buildings as one of our strategies — to buy, entitle and build 50- to 100-unit buildings.
RENJ: What makes it worthwhile to do those projects when you’re also looking at building luxury high-rises in the area, and how are you able to have the flexibility to do both?
KP: It’s not that hard. We even buy some smaller buildings that are $2 million to $5 million that aren’t typically new construction. … We own 410 Central Ave., which is a three-story, 15,000-square-foot mixed-use building about three or four blocks from Congress Street that has eight units above three stores. So that would be really small for us, but if you want to invest in Jersey City, in the Heights, you really have to be willing to buy smaller assets because it’s not the type of neighborhood and zoning that will lend itself to large assets.
We have 40 employees here and we have different silos here that run different kinds of assets.
RENJ: Let’s talk about One Journal Square and EB-5. You’ve taken issue with the allegations of gerrymandering when it came to how the development team identifies high unemployment areas around your projects — 65 Bay Street, for instance — in order to get the financing benefits. Explain what you mean.
KP: We think the project was done correctly … And if you actually looked at what they (referred to) as gerrymandering, there is the light rail line. So the whole concept that you would hire people — let’s say a doorman or even a janitor — and he would live across the street from 65 Bay Street, that’s not the way it works. So it’s very common for the people who do the studies to look at the commutation lines and extend that to calculate the job impact along those commutation lines. In fact, if they would have done it all the way to Newark, it wouldn’t have been improper, but someone writes a newspaper article and makes it seem like a gerrymandered line. But a lot of those workers literally live in that line and they use public transportation to get to work, or certain highways, and that’s your pool of labor.
You can have positive impact in emerging neighborhoods with valuable job creation and it doesn’t have to be in a 10-block halo around the building. The program recognizes that and the Labor Department looked at our impact plan and they approved of it. And if you look at the impact plan of another 20 projects — call them gerrymandered if you want — they use ZIP codes to calculate where they think the employees that are going to work in the asset live.
RENJ: So if we shift to One Journal Square, what are you doing to fill in the financing gap now that you’re no longer using EB-5?
KP: There’s not that many projects right now where your returns and the projects are as exciting as One Journal Square. … So there’s lots of different tactics. We’re listening to them all. Some people want to come in and buy into the project. Some of that would depend on the terms.
We have our own money, too. We would elect, because of diversification, probably not to do the whole project on the balance sheet basis, but we could do the project either wholly or partially just from our balance sheet. … You need about $200 million, so it’s a lot of money, but it’s not a lot of money for a project like that.
RENJ: So you’re saying there’s more than one way to skin a cat.
KP: We’re looking at three or four different pathways. We’re quite far along on all of them and we’re getting very positive feedback from the three or four different pathways that we’re looking at. We’ve already committed to finish all of the architecturals and finish the design element. We’ve probably spent close to $10 million on preconstruction costs.
RENJ: Is it somewhat fortuitous that, in the interim, the market in Journal Square has been validated by other recent rental projects?
KP: I think everybody thought the market was there, but it wasn’t validated with actual rental comparisons. But now you have people getting north of $40 (per square foot). That’s kind of the magic number.
RENJ: Virtually everything you’re looking at in and around Jersey City relies on mass transit, which has been called into question in this region as of late. Do you get concerned about overcrowding and long-term infrastructure problems?
KP: The good thing about (the PATH train) is they’re going to put in longer trains as soon as they finish the Grove Street station … so PATH, of all the pieces of let’s call it the greater New York unscheduled train infrastructure, is probably in the best shape.
That’s why we’re stealing market share in Jersey City, to be honest, and because our light rail works. We have a light rail and nobody else does. And the PATH system has a very near-term pathway to increase capacity and deal with the evolutionary needs of what’s happening on the PATH lines. … At almost every stop you can see there’s a lot of additional usage, and just going to the longer trains is going to add about 30 or 40 percent, without having more trains, to the capacity. So the fix for PATH is actually both fairly cost-effective and imminent. And it’s not in New York City, for instance. … That’s the big advantage. But we also know that many people use the PATH as the first leg — or the last leg, if you’re talking about nighttime — in a two-trip or even three-trip commutation pattern. And we’re concerned about New York City. So if New York City grinds to a halt, just getting somebody to 34th Street when they need to get to 59th and Madison doesn’t solve the problem if the (N or the R) train doesn’t work.
RENJ: So how do you feel about the prospect of public officials addressing those needs?
KP: We need the jobs that are created by a vibrant New York City served by a vibrant transportation system, and we think the public policy leaders in New York realize that. Certainly Andrew Cuomo realizes that, so we’re pretty thankful there.
We think the administration (in New Jersey), both the legacy administration and, frankly, both sides that are running in the gubernatorial race understand that infrastructure here is a major, major political and operational challenge for the state. And I’m sure they’re going to make that a really high priority. We have to really spend a lot of money on our infrastructure to not only keep it running reliably, but increase its capacity so we can grow.
RENJ: Does it make you feel better that there is growth in Manhattan on the West Side or at the World Trade Center, which is fairly accessible from the PATH?
KP: There’s three kinds of people who (commute) from Jersey and I think we’re in good shape on two of the three. There’s actually quite a bit of job creation on the Jersey side, so that’s a big plus. While it might not be 5 or 10 percent a year, we do have job growth in Hudson County and on the waterfront, and it’s both quantitative and qualitative.
And then we have what I call the first stop, where you don’t have to go into the New York City infrastructure — particularly around the World Trade Center or Hudson Yards, the two most exciting (examples). So if you look at the next 10 years, you’re talking about close to 200,000 jobs just in those two venues alone. If you look at the 9,700 units that are planned for Jersey City against 200,000 jobs, you’d say that Jersey City’s future or Hudson County’s future is still looking pretty good.
The idea is to get in early — as KABR Group is looking to do in lesser-known neighborhoods in Jersey City and the Gold Coast — but Ken Pasternak is already encouraged by the changes he has seen in some of those communities.
Namely, he points to the “incremental” improvements in the retail offerings around its properties in Jersey City Heights and McGinley Square. Many spaces have turned over in recent years “to more entrepreneurial, better-financed-type of providers,” such as Choc-O-Pain, a Hoboken-based, French bakery and café that recently opened on Palisade Avenue in the Heights.
Another example is Wonder Bagels, a local chain that operates in a former bank building at Bergen and Fairmount avenues in McGinley Square. For Pasternak, the lunchtime crowds at the bagel shop are a source confidence, especially considering that KABR is slated to deliver 58 new apartments across the street by next spring.
“Those are usually markers for us, when all of the providers are starting to go there,” Pasternak said. “Sometimes they know more about who’s really moving there and what the market is than we do.”