Thor Equities recently started construction in its plan to overhaul 95 Greene St., a 350,000-square-foot building in Jersey City, where it aims to attract life sciences users. Those plans include extensive upgrades to mechanicals, HVAC, vertical conduits and a new rooftop generator, along with a new prebuilt lab suite on the third floor, which it will deliver by late this summer. — Courtesy: Thor Equities/JLL
By Joshua Burd
Speaking during a recent webinar, Gene Diaz recounted a call he had received only a day earlier from a prospective tenant. The user, a small life sciences company, asked if Prism Capital Partners had any vacant laboratory space at its ON3 campus in northern New Jersey.
Prism, of course, has long since leased up its existing buildings at the property. And as Diaz noted, the developer is “maybe two years away from delivering something — assuming I could go and do it on a spec basis.”
It highlights a growing challenge for New Jersey: While it’s still a major draw for pharmaceutical research and development, speed to market has become increasingly important to life sciences users. That means the state’s lack of move-in-ready lab space — and its lengthy approval process for new construction — puts it at a disadvantage to competing markets.
“Time is one of the all too important considerations — time and ease — for people to establish these businesses,” said Diaz, a principal partner with Nutley-based Prism. He spoke during a Feb. 23 virtual forum hosted by NAIOP New Jersey, noting that even sites with the proper zoning in place are prone to delays, the kinds that can lead a tenant to look elsewhere.
“The fact that you have to go through a year or more of a process with a project that’s as of right is an absolute nonstarter for anybody in the business world that’s considering New Jersey,” he said. “And that is one of the major impediments we’ve got to growing the life sciences industry here in New Jersey.”
Diaz said the pandemic has highlighted the state’s continued strength in health care and medicine, citing New Jersey’s role in research, testing and developing treatments for COVID-19. It’s a reminder that the state “remains a powerhouse of intellectual talent” across the private sector and its network of hospitals and universities, which dovetails with its location and its access to the capital markets.
But demand for lab and R&D space was on the rise even before COVID-19. Dan Loughlin, a broker with JLL who specializes in pharmaceutical and biotech clients, pointed to eight legacy life sciences properties in the state that had little to no vacancy, while highlighting more than 1 million square feet of tenant requirements in the market.
Those users ranged from generic drug makers to medical device companies to those involved in cell and gene therapy. But capturing much of that demand is difficult without turnkey spaces, according to Loughlin and others who discussed how to help New Jersey leapfrog other markets.
“Some of the companies that are coming out of incubators or innovation space don’t have the time to wait for a new lab … to be designed and permitted and then to be built,” said Loughlin, a vice chairman based in JLL’s Parsippany office. “They’re going to focus on existing prebuilt space that they can move into on a timely basis.”
JLL said its client, Thor Equities, is “trying to get in front of that market by building out some prebuilt space” at 95 Greene St. in Jersey City, a 350,000-square-foot building that the firm is retrofitting to suit R&D users. He also noted that other life sciences firms are “in a better planning cycle” and can wait a year to 18 months to develop a new lab space, which he believes New Jersey can also accommodate.
“We’re trying to address both of those demand issues out in the market right now,” Loughlin said.
Options such as 95 Greene are in especially short supply in New Jersey. Tim Sullivan, the CEO of the state Economic Development Authority, said the lack of turnkey life sciences space is especially glaring in urban or high-density settings, where there is a mix of other uses such as residential, retail and office.
He pointed to The Hub in downtown New Brunswick, a sweeping research, business and retail campus being planned by the New Brunswick Development Corp. The first piece of the project, a 10-story, 210,000-square-foot building across from the city’s train station, could break ground this summer after securing commitments from four of the state’s largest institutions in health care and higher education.
“We don’t have enough of those kinds of places that are as dynamic as they need to be,” Sullivan said during the NAIOP program. “So we need to have more mixed-use, R&D-centric places developed in and around transit or with good transit access.”
Sullivan noted that, “at some point those market dynamics either work or don’t work” with respect to building those facilities. So the state’s new incentive programs could play a role in coaxing developers to create space that is plug-and-play or at least closer to delivery.
To be sure, developers say it’s all but cost-prohibitive to build new, ground-up life sciences facilities on a speculative basis. Peter J. Cocoziello Jr., a principal with Bedminster-based Advance Realty Investors, noted that such projects typically have specialized dimensions, higher floor loads and robust HVAC and utility requirements, among other needs, which could raise construction costs to some $500 per square foot.
“So the best thing to do is try and find something that was typically built by a large-scale pharmaceutical company or a corporate-owned facility,” Cocoziello said. “And you’ll find that those older buildings were typically built much better, they had narrower footprints, they were in clustered communities — multi-building campuses — and those sort of users always thought about the future.”
Advance did exactly that with a former Sanofi U.S. research complex in Bridgewater, which it acquired in 2014 and subsequently repopulated with new tenants such as Nestle Health Sciences. The company then sold part of the campus — namely, a 783,500-square-foot portfolio of high-end lab and office space — to Thor Equities in 2019 as the latter looked to grow its life sciences portfolio.
Thor is looking to capitalize on an existing robust utilities infrastructure at 95 Greene St. in Jersey City, a former Colgate-Palmolive manufacturing plant. It recently launched base building improvements including extensive upgrades to mechanicals, HVAC, vertical conduits and a new rooftop generator, along with high-end amenities and common spaces.
Its plans also call for a new prebuilt lab suite on the third floor, which it will deliver by late this summer, but that wasn’t always part of Thor’s strategy. Melissa Gliatta, an executive vice president with the Manhattan-based firm, said it originally envisioned completing part of the infrastructure upgrades and then doing individual lab spaces as it signed leases.
“Now we’re looking at doing build-outs because it’s become about timely delivery,” Gliatta said, while also citing the time lost due to the pandemic. “We’ve got to catch that back up somehow.”
Diaz and other panelists lauded the new state incentives that will be available under the recently adopted New Jersey Economic Recovery Act of 2020. But he argued that “part of the solution here from an economic development standpoint” should also be reforming the state’s Municipal Land Use Law to help streamline local approvals, especially for so-called as of right projects.
“New Jersey, to me, is in an absolute perfect position to attract the best of the best,” Diaz said. “We’ve got to speed things up. Our speed to market has to change dramatically.”