Value Driving Deals in Down Market

The force that is driving deals these days is value. Tenants are looking for value any way they can get it. The value begins with pricing, but goes beyond that. Value can come through, build-out, availability of furniture, term, in-house services provided, etc. Owners need to incentivize tenants by much more than pricing these days in order to get space leased. We have seen firsthand how deals either make or break in this market based on value and ease of the transaction that the Landlord can provide.


We currently represent the office portion of First Industrial’s Montville Business Center. We have approximately 43,000 SF of first class office space available for lease with an asking price of $15.75 per SF gross in a market where the average asking price is still around $25 per SF. Owners need to keep realistic expectations or else they will not have the ability to make deals. First Industrial’s sound history and full understanding of the market give them a distinct advantage over other landlords and buildings in the area when it comes to getting deals done. Our goal at the Montville Business Center is to offer tenants a great space, price and Landlord. With First Industrial as a Landlord, we can provide full in-house services to help ease the deal and move for tenants. We offer tremendous flexibility for growth and have a track record for tenant retention. We feel that all these factors will add up to successfully leasing our available space. We have had remarkable activity on the available units at First Industrial’s Montville Business Center and anticipate the signing of a few leases in the near future.

To further show that value is a driving force in the market, we recently represented a sublet space in a building that has an asking price of $26.50/SF. Our Master Tenant (who was consolidating locations) was practical and simply wanted out. Understanding that timing was vital in this transaction, we agreed to offer the space at $19/SF. There was a great demand for the space due to pricing, availability of furniture and considerable amount of term left on the lease. The amount of activity and offers we received proved that tenants are willing to move when they feel they are getting a great value. The eventual sub-tenant survived a bidding war and got into Class A space, long-term at a great price and everyone was happy. We achieved an average rent above $20/SF while only having the property listed for 2 months. This transaction could not have happened if we didn’t have a Master Tenant who understood the market conditions, a willing and able Sub-Tenant looking to take advantage of a down market (while securing a long-term lease in a quality building), and pricing that undercut the market.


Even as we seem to be sitting at the absolute bottom of a down market, deals are still out there and they are still getting done. However, it requires a lot more effort and creativity to see them through. As we already said, tenants in today’s market are looking for “value” one way or another. We think that these trends will continue moving forward and are the real basis for getting leases inked. Without the availability of these services, you will just be another building in the marketplace. The more services that a Landlord can offer, the better the chance he or she has of getting the deals.

Click on any picture to view our marketing flyer for Montville Business Center.

First Hand Look at the Market

Depending on what newspaper, website or tv channel you choose to get your news from, you will hear very different reports on our current recession and when a recovery will occur. Being commercial real estate brokers in these times we get front row seats to the havoc that this current recession is wreaking on large and small business in all sectors. In the last few months we have canvassed the majority of the office buildings along the Route 80, 46, 10, 280 and 287 corridors in Morris and Essex counties. Through our canvassing efforts we have seen what we perceive as the “actual” vacancies and after speaking with business owners, we have heard and seen their dilemmas first hand.

Costar reports a vacancy rate of 19-20% for these markets, but having been through about 60 office buildings in the recent weeks, it seems to us that that number is off by as much as 5%. This claim is based on how many vacant spaces we saw in buildings compared to the Costar reports we ran prior to canvassing. We often walked through buildings (specifically the B/C grade buildings) that had only one or two tenants occupying only a portion of one floor while the rest of the building sat vacant.

As we visited and spoke with tenants that were still in existence in this market, we noticed many common signs of stress and activities businesses were taking to stay alive. We would estimate that almost half of the tenants that we visited had let go of their receptionist, leaving only an empty desk in the front of the office to greet us. Most companies that we canvassed could be efficiently operating in half the space they currently have due to layoffs and consolidating employees’ responsibilities. Some tenants that were in obvious trouble had expressed to us that they had already spoken with their landlord about lowering their rent or else they would have no choice but leave the building or go out of business. One tenant in particular had a bullpen area of about 20 cubicles, of which only a handful were occupied. The businesses that were still treading water and had leases coming due expressed that they wanted to wait out the market with a short term renewal, citing moving costs and unpredictability of the economy as their excuses for not moving or looking at space in the market. Empty parking lots, deferred maintenance and “dark” office units, and sometimes even hallways, were also tell tale signs that this recession has deeply affected the commercial real estate markets.

For businesses, both large and small, the only thing that matters is the bottom line and surviving this difficult and unprecedented market. For the few tenants that are in the market for new space, it all comes down to price. Low rents and favorable lease terms supersede other typical concerns such as amenities and an “A” location. Efficiency of the space and total savings is what drives deals today. If a deal isn’t attractive enough for a tenant to move in today’s market, they will simply renew for the short term and wait for this economic climate to improve. This recession’s affects will no doubt be felt for some time before things get “back to normal” and as brokers we have to work harder and be more creative to keep our deals alive and tenants moving in this marketplace.

Close Up TV News Report on NAI James E. Hanson - Click on this link to view

Click on the link above to view Close Up TV News' report on NAI James E. Hanson. In this report you will hear from President Bill Hanson, Chairman Peter Hanson and other Senior Vice Presidents of our company.

Healthcare Industry Remains Strong in Struggling Economy

The medical industry in New Jersey has always had a demand for quality medical office space. Specifically, the demand for medical office space in Morris County continues to be active and steady because of both the demographics and the number of hospitals/medical service providers that service Morris County. Morristown Memorial and Saint Clare’s Hospital are the largest hospitals in Morris County while others such as Atlantic Rehabilitation Institute, Chilton Memorial Hospital, Greystone Park Psychiatric Hospital, Kindred Hospital at Morris and Kessler Inst. for Rehabilitation call Morris County home. With the number of medical facilities coupled with the large population of Morris County, it’s no wonder that doctors prosper here and establish growing practices in all fields of medicine.

One reason that suggests that the healthcare industry will see sustained growth is the aging of the generation known as the ‘baby boomers’ (loosely defined as the 78 million Americans born between 1946 and 1964). It is widely recognized that this is one of the largest generations we have seen and experts predict that total US healthcare spending will double to just over $4.3 trillion by 2017- or nearly 20% of the nation’s gross domestic product. Even if the industry does not grow to the level that most experts are predicting, we all agree that the ‘baby boomer ‘generation will have a profound impact on the healthcare system as we currently know it. These are just some of the reasons medical buildings are considered solid long-term investments and very much sought after properties.

Even in these trying economic times, the medical industry continues to hold its own and thrive. Not all medical practices fare these hard times as well as others, but in general, the medical industry is one of the few industries that bring positive movement to today’s office market. We see this first hand through the constant stream of calls & traffic we receive on the various medical buildings we represent. In one of our recent transactions, at our exclusive listing at 3219 Rt 46 in Parsippany, we represented an OBGYN and placed the practice in 2,210sf for a 10 year term. We were able to achieve an average price in the upper $20 range. This is due to the demand for a true medical facility and the Landlord’s (Larken Associates) ability to design and build the space with the tenant’s willingness to commit long term. Last year, Larken Associates further solidified the building (which is 92+% leased) when an ENT group moved into the building from Denville.

Another one of our medical listings is at 199 Baldwin Road in Parsippany. We have a great unit that has seen a large amount of activity while marketing it. One of the positive attributes of this space is that it is fully built-out from the former doctors and with some simple paint and carpet, it’s ready to go. It offers 8 exam rooms (6 of which have sinks and all have cabinetry), two interior bathrooms and two waiting rooms, one for adults and one for children. The asking price for this unit is $28 full service gross. On the negative side, we have competing uses in the building which has limited the type of medical practices we consider acceptable.

History indicates many doctors express an interest in owning their own real estate. This is and has been a trend over many years. We see a continued interest in purchasing smaller free-standing buildings or condominium type arrangements, particularly with smaller practices (1-3 doctors). With the lack of medical condos (or the small medical buildings) in the market, they are extremely hard to find and typically do not last very long. In addition, with the amount of interior improvements involved for generic medical space, the tendency is to commit to a location on a long-term basis, therefore making ownership a more attractive option for most doctors.

Aside from the Morris County medical properties noted within, we have medical listings throughout Bergen, Essex, Passaic, Somerset and Warren Counties. Even in today’s market, all have seen a steady stream of traffic and interest from the medical community. Although we have seen a decline in the activity of the general office market, we see the healthcare industry remaining constant through the economic downturn. As we perceive it, as the demand for medical attention rises, so will revenue streams for doctors, again solidifying our sentiment that the medical/healthcare industry will only continue to grow.



-Rob Borny & Greg Reid

Morristown Redevelopment Projects

We sat down with Michael Fabrizio, the Executive Director of the Morristown Partnership, which is a Morristown based non-profit group responsible for the revitalization and general upkeep of the town's central business district. We spoke with Michael about the two main redevelopment projects that are occurring in Morristown (40 Park and Transit Village) and how the projects are surviving these difficult economic times. Below is the Q&A we had with Michael Fabrizio:

How has the current economic environment affected the redevelopments in Morristown?

Despite the recession and negative impact on housing the two key projects remain under construction and are continuing to experience sales. In fact, at a recent redevelopment conference, Morristown was recognized as one of the only places where construction is continuing. This is a tribute to our marketability and the strength of the redeveloper.

How has the retail activity been?

Generally speaking, local retail sales were sluggish in 2008. Some sectors experienced downright ugly losses. Interestingly enough, though, our office has worked with four boutique-style, locally-owned retailers who are looking to open in Morristown and three are soft good retailers. We also have quite a bit of food-related interest. In fact, the four most recent leases were food.

What types of tenants have shown an interest?

We’ve had quite a bit of food-related interest but also several locally-owned retail establishments, as well as, a gym.

What are the expected completion dates for the redevelopments currently underway (Epsteins and Transit Village)?

40 Park (Epstein’s) should be open in about 12 months and Transit Village should begin leasing over the summer with some occupancy possible this year.

What impact do you see the redevelopments having on the town?

Naturally, they represent more disposable income for the downtown businesses, more retail space for a broader retail mix, as well as, new revenue from ratable properties.

When do you foresee construction beginning with the proposed redevelopments on Spring Street and Speedwell Ave?

Don’t know. Possibly smaller sections could begin within the next 18-24 months.

How has the town been through the redevelopment/approval process?

Each redevelopment zone is independent and has to follow the process of review, acceptance/denial of the area as being in need of redevelopment, the governing body accepting the planner’s recommendation, and if accepted, the creation of a redevelopment plan that then must be accepted by the governing body. All of the current sites have been or are in that process.

Are there any concerns with regards to traffic flow and/or parking?

Parking is substantial in Morristown (over 7,000 public spaces). I am not concerned in that regard. With the types of redevelopment (mostly residential/retail) traffic should not be dramatically affected. It’s office use that drives the most traffic throughout the day and we don’t see any plans for a significant amount of new office space. In addition, some realignment of roads will occur and that will definitely help traffic flow.

What is unique about Roseland Properties that has allowed them to proceed with these projects given the current economic climate?

They are a solid developer that has a proven track record of success. The fact that they could even finance the projects is a tribute to both the town’s marketability and the strength of the developer. We are fortunate that they were the developers here when the economic downturn occurred because I often wonder if these projects would have been stalled had it been someone else.

For detailed information about the redevelopment projects going on and planned for Morristown please visit http://www.townofmorristown.org/. For more information on the Morristown Partnership please visit their website http://www.morristown-nj.org/partnership.html. The links are also on the side of this blog page.