By the end of the third quarter, Allergan is set to occupy its new 431,500-square-foot headquarters at 5 Giralda Farms, following a high-profile lease last year with Lincoln Equities Group. This rendering by HLW International shows the interior of the property. — Courtesy: Courtesy: Lincoln Equities Group
(Editor’s note: This story originally appeared in the June issue of Real Estate NJ has been updated to reflect Lincoln Equities Group’s recent sale of a large industrial development site in Piscataway.)
By Joshua Burd
During his more than 25 years with Lincoln Equities Group — including a full decade as its top executive — Joel Bergstein has seen plenty of changes in the commercial real estate sector.
Developers and owners have grown more sophisticated, he said, as have tenants. Lending markets are different and development costs have risen.
And like many other industries, there is now a vast amount of information that is readily available, allowing for a better “collection of data in order to help you make decisions as to where you’re going.”
But when it comes to new development, that data can only take you so far.
“If I wear my developer hat, you need to be able to see a little bit further down the road than your competition,” said Bergstein, president of the East Rutherford-based firm. “That’s where the data and the information doesn’t really help you. That’s where your experience is really the key thing in terms where you think growth is going to go.
“So while there’s more science that has come to the field of real estate, there’s still a certain amount of art on the development side.”
Bergstein and Lincoln Equities Group, or LEG, have used a combination of both to maintain an edge as a commercial real estate owner, developer and investment manager in the Northeast. The firm remains a key player in what has long been its core business, the office sector, evidenced by last year’s blockbuster deal that will bring Allergan to 5 Giralda Farms in Madison. Construction is well underway on a new 530-space parking structure that was central to the 431,500-square-foot lease, Bergstein said, and the pharmaceutical giant is slated to move in by the end of the third quarter.
But Lincoln Equities is also “looking at all of the food groups,” he said. In the residential sector, the firm is preparing to design and seek entitlements for a mixed-use multifamily project at 18th Street and Jersey Avenue in Jersey City. In New York City, it is spearheading a $1.5 billion, 2,400-unit residential development in the Astoria section of Queens known as Hallets Point, with one building under construction and another set to break ground. All that comes as LEG expands its footprint in the industrial market. The firm and a joint venture partner, Real Capital Solutions, recently sold a 228-acre development site in Piscataway for $57 million to Rockefeller Group, which now plans to start construction this summer on the first pieces of a 2.2 million-square-foot warehouse and distribution complex.
“This property closes at an important time for the state’s I-287 corridor, which is now seeing significant interest from industrial developers due to its proximity to Newark’s airport, port and rail stations,” Bergstein said earlier this month. “We purchased the site at 171 River Road three years ago when most developers were focusing on the I-95 corridor, and we’re fortunate to anticipate where the state’s next wave of development would take place.”
To talk about the high-profile Allergan deal, the state’s largest office lease of 2016, as well as the firm’s growth in other asset classes, Real Estate NJ recently spoke to Bergstein. Below are excerpts from the interview.
Real Estate NJ: You mentioned that your core business is still the office sector, so let’s start there. Tell us about how you go about finding value in a market that has had its share of struggles in recent years.
Joel Bergstein: If you look at the overall Jersey market and you look at the 20 percent vacancy factor, everybody looks and says it’s a terrible marketplace. The fact of the matter is if you scrub down a little bit deeper and you look at certain pockets of the market where things are relatively tight — such as the Morristown market, Metropark market, Short Hills, Jersey City — the markets look fairly good. You look at some of the data and see deals are getting done. If you look at some of the more secondary markets … they’re facing more challenges from an office tenancy point of view, because tenants today want state-ofthe-art buildings in locations where they can attract employees.
We continue to look for office properties in the market. I call it my ‘New Jersey tomato theory.’ If you stop by the farm stand during tomato season and you buy the basket of tomatoes, there will be surely a couple of soft tomatoes in the basket. If you handpick the tomatoes out of the larger bin, you assure yourself that you’re going to get good tomatoes.
It’s the same thing with office buildings today. If you throw the baby out with the bath water and you say it’s just not a favored asset class amongst the institutions, I think they’re wrong. So you need to handpick those buildings and still get a very good yield and a good basis — and an opportunity for capital appreciation as well as cash flow.
RENJ: Is it fair to say that’s what you found with 5 Giralda?
JB: Yes. You’re watching companies repurpose parks, offer more amenities, and when I bought 5 Giralda Farms, it was a big bet. We knew that we had best in class in a good location, and we were confident that if we had patience, we’d be fortunate to land a big tenant, which is always what we had hoped.
RENJ: As we now know, a big part of luring Allergan was this $9 million investment in a new parking structure, which will add 530 spaces to the existing surface lot of about 1,200. Just how important was it to add parking?
JB: It was critical and we worked very closely with the borough of Madison. They recognized that parking needs have changed since the time that Giralda Farms was developed, and this will be the first above-grade parking facility that has ever been permitted on Giralda Farms.
RENJ: Your plans for 5 Giralda Farms also included a rebranding campaign that called for tenants to ‘breathe it in’ and pushed this health and wellness concept. What role did that play in the deal?
JB: For companies like Allergan, attracting young professionals is very important, so they were looking to create a state-of-the-art environment with a lot of light and air. And this campus setting offered them an opportunity not only to do that, but in addition, take advantage of the bike trails, the walking trails and the campus setting. We are less than five minutes away from the Madison train station and probably less than 10 minutes away from Morristown, so we’re drawing on a workforce that would be in the area as well as those that might look at the train as their means of getting to Giralda Farms. And there will be a shuttle that will be connecting the train station to the campus.
RENJ: Let’s shift to the industrial sector, where there’s no debate about the health of the market. Tell us more about this project in Piscataway and why you like that opportunity.
JB: There are limited opportunities on the Turnpike until you really start to push down to Exit 7. And we have the opportunity to bring 2.5 million square feet of development — one large building of 850,000 square feet, plus multiple buildings of 250,000 to 300,000 square feet — into a market that continues to have demand. Clearly, pricing is a little less expensive on the (Interstate) 287 corridor than it is on the 95 corridor, but the bigger question is having new state-of-the-art buildings. That’s really the attraction to the site.
RELATED: Piscataway site sold for $57 million, setting up 2.4 million sq. ft. industrial development
RENJ: We’ve been hearing more and more about this submarket lately as an alternative to the Turnpike. How much time are you really giving up by being on 287?
JB: When you take a look at the distance, even though we’re at Exit 10, you’re closer in Piscataway than you are at Exit 8A. And it’s not a toll road.
RENJ: Besides that, you’re also ramping up your residential pipeline with the projects in Queens, Jersey City and elsewhere. What brought about this shift from focusing on a single asset class to becoming a player in multiple areas?
JB: When you go back to the ’80s, the firm started off as an office developer and, really, straight through the ’90s, we were almost exclusively office — either developers or redevelopers. And what’s happened is the firm has broadened its reach into industrial as well as residential.
The broadening in earnest really started probably about 12 years ago.
RENJ: We’ve noticed that you’ve also broadened your investor base. How has this expansion to other asset classes coincided with the capital partners you’re finding?
JB: We fit our capital partners to the project. For a long time, we had one capital source that did most of our deals with us. But now what we do is really try to match up capital with specific projects. It’s very unusual to have one capital partner that can span all of the food groups that is willing to do development and willing to buy existing, so we spend a lot of our time trying to marry the right capital to the right project.
In the pipeline
When it comes to New Jersey’s office market, Joel Bergstein sees a future in regions such as Princeton. It’s why Lincoln Equities Group is not only staying bullish on its 550,000-square-foot Princeton Forrestal Village campus, but seeking to broaden the property’s appeal as a mixed-use destination.
The firm plans to bring about 400 residential units to the campus in Plainsboro, which also includes hotel and retail components. Bergstein hopes to get started on the residential addition by the end of the year.
“That really is the direction that things are going,” he said. “And we think well-selected office buildings in certain markets will continue to thrive.”