In the middle MAS Development Group and Faros Properties are rebuilding midtown Elizabeth

When Sal Garcia, principal at MAS Development Group, began working in the city of Elizabeth in 1999, he was following in the footsteps of his father.

“My father was a carpenter, he was a framer and he was a man of all trades,” Garcia said. “He was also a mechanic; he did everything and anything he could to provide for his family.

“I started out in construction in 1999 doing renovations and additions and small projects. Over the years, it expanded into a development company.”

MAS Development has maintained a strong footprint throughout the city and Union County since, developing over 250 residential units.

His biggest project is now coming to light.

MAS Development Group, in partnership with Faros Properties, has been selected to redevelop Midtown Elizabeth, a $55 million renovation directly across from Elizabeth Station that will bring more than 500 luxury residential units and 33,000 square feet of retail space to the city.

The project, which will be spread out over five acres and across two parcels in the heart of the city, could be transformative.

For that reason, Garcia said, he is glad to have Jeremy Leventhal, a managing partner at Faros, on the team.

“I needed to have a partner who I believed had the experience and knowledge to do something of this size, which is larger than anything I had done alone,” Garcia said. “I wanted to make sure that it was done right and to the high quality and luxury that I wanted it. I believed (Faros) would be the best partners.”

The redevelopment of Midtown is merely one of the many ways in which Elizabeth is changing and growing.

Midtown Elizabeth: A look at the project

An attempt to triple one’s residential inventory in a single project is an ambitious endeavor, to say the least. But Sal Garcia, principal at MAS Development, said the firm is hoping to do just that with the help of Faros Properties.

The developers are on target to deliver an estimated 525 units and 30,000 square feet of retail at a project they are currently calling Midtown Elizabeth.

“I believe in this city very much,” Garcia said. “As soon as we brought (Faros) here and showed them what our capabilities were, the train station and everything else, they saw my vision and they were happy to come in and invest their money.

“Their family has developed a large part of Boston over the last 50 years. I hope that what they’ve done to Boston they can do to Elizabeth.”

Jeremy Leventhal, partner at Faros Properties, agreed. He said the combined expertise of both companies makes them an ideal team for the project.

Faros has developed a significant footprint in Boston, Pittsburgh and New York, and sees this as the ideal opportunity to not only enter the New Jersey market, but do so with excitement.

“I met Sal through a mutual acquaintance, mutual friend, and we became friendly,” he said. “… We stayed in touch, Sal brought it to my attention when the city made a request for proposals for the development in downtown Elizabeth. We discussed it, we both got excited about it and we submitted a proposal for the city and we’re ecstatic that we were selected.”

The team just recently received its final approvals in March, and hopes to break ground in the first quarter of 2018. The project will deliver 30,000 square feet of retail space along with luxury amenities for its residents.

“It’s just a tremendous location for residential,” Leventhal said. “You’re right across from the train station. You are in the heart of downtown Elizabeth. This project will be a defining project in helping to create a really vibrant downtown Elizabeth which we are excited about.”

Right across from the project, the Elizabeth train station has been approved for a $55 million renovation. Leventhal and Garcia both said they hope to attract a mix of tenants, including those who have been priced out of New York City, Hoboken and Jersey City.

Leventhal said he expected the two-phase project will cost over $100 million per phase. The joint-venture partners are still finalizing vendors, but have worked with Gallin Beeler Design Studios so far.

Consider:

•  Pointe-Grande Plaza, a retail center at the corner of East Grand Street and Division Street, opened earlier in May;

•  Elberon Development, longtime developers in the city, will deliver another warehouse on Julia Street this summer;

•  And the Mills at Jersey Gardens announced it plans to expand by adding almost 400,000 square feet of leasable space.

Garcia said these projects will rebuild the city in ways he couldn’t imagine years ago.

“Elizabeth should be the city of entrepreneurs,” he said. “It’s always been that way, and it continues to be that way.”

And unlike cities such as Newark or Camden, the city’s growth has not been precipitated by many outsiders or the Economic Development Authority, but rather, by locals who have continued to see the opportunity in Elizabeth.

Gordon Haas, CEO of the Greater Elizabeth Chamber of Commerce and chair of the city’s planning board, said it is the cooperation from the city with businesses that makes Elizabeth attractive to them.

“We get developers because the city is willing to talk to the right developer depending on what it is with (payments in lieu of taxes) and tax abatements,” he said. “If you’re in the business of import or export, or anything related, you’ve got an engine here that is going to produce so much activity by the seaport, by the airport.”

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The city’s proximity to the port and airport have allowed it to grow in the industrial and retail sectors. Ironically, however, that also has made land scarce.

As Dave Gibbons, CEO and president of Elberon Development, puts it: “There is significantly more demand in Elizabeth for industrial if you can find the land to build,”

Elberon is currently on track to complete 94,000 square feet of warehouse space on Julia Street, a two-building project approved back in 2014.

Gibbons said rents have risen for over six years now, and show no sign of slowing down. NAI James E. Hanson’s Russ Verducci, vice president, agreed, and said that, with the raising of the Bayonne Bridge and the rise of e-commerce, new construction, or knocking down an existing asset to build new Class A space with higher ceilings, may be justifiable.

“If there was ever a time to do it, I think right now is the best time to do it,” he said. “It has more to do with the basis into your building than anything else. The people that can do it have been doing it in the recent past.”

Elberon has completed five different ground-up constructions in the last seven years — some of which involved knocking down an existing structure to create additional parking or to deliver Class A, e-commerce-ready assets with higher ceilings.

“It takes about 18 to 24 months to deliver a project, so whenever you start a project, in some sense, you have to project 18 to 24 months, which is not an exact science, for sure,” Gibbons said. “If we had land, I would be comfortable starting a project now. Based on what I read and hear, I think we’ll continue to be in a good market for another 18 to 36 months.”

Pointe-Grande Plaza: A look at the project

Jacobs Enterprises and Pierson Commercial Real Estate working in the city of Elizabeth for the first time is an example of all layers of government, from local to state, coming together to answer an unmet demand for convenience retail.

George Jacobs, the president of Jacobs Enterprises, said the project was only feasible through the collaboration of the city and state. Jacobs said he has tried to work with tenants at Pointe-Grande to give back to the city.

“The supermarket has hired 50 people by itself, maybe more,” he said. “Almost all of our tenants agreed to give preferential hiring interviews to Elizabeth residents.”

The $17 million project delivered 55,000 square feet of space over three buildings to Elizabeth at the intersection of Division Street and East Grande Street. Jacobs Enterprises said it is the only retail space east of Route 1 to serve over 50,000 shoppers.

Jacobs began talks for the project five years prior.

“The construction project is taking us two years, which is longer than we thought it would,” he said. “The preconstruction contract, negotiations, sale was probably two years, also. We’re about 85 percent preleased, pretty much on schedule. I had hope we would be at 100 percent preleased, but I’m delighted we’re at 85 percent.”

The project’s tenants are currently Sonic Suds, Dollar General, IGA Supermarket, Cricket wireless, Subway, a Spanish restaurant and Popeyes.

Jacobs Enterprises has market the property jointly with Pierson Commercial Real Estate.

“It’s the first project we’ve done in Elizabeth,” Jacobs said. “We’re based in New Jersey. We own and manage close to a million square feet of principally retail space and decent size portfolio of apartment units. We’ve been in business since 1990.”

Pointe-Grande opened May 5.

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Cities such as Elizabeth tend to present a challenge to retailers by the mere lack of available space.

Elizabeth officials have seen the need for more retail space, and have allowed Jacobs Enterprises and Pierson Realty to move into the market.

George Jacobs, president of Jacobs Enterprises, saw this opportunity five years ago, but acknowledged it took a multilateral effort to bring about its latest project, Pointe-Grande Plaza.

“This project is the beneficiary of a variety of government incentives, which were needed in order to make this project viable,” he said.

“The city loaned us $2 million. Different sources in the city, between the Elizabeth Development Corp. and the city itself, granted about $1.4 million in grants. The state of New Jersey gave us an Economic Recovery Grant, ERG recipient, and loaned us $1.27 million in a new project called the Project to Impact Fund. All of which was designed to make the project feasible.”

Pointe-Grande, a $17 million, 55,000-square-foot retail center, has brought IGA Supermarkets, Dollar General, Sonic Suds, Subway, Popeyes and even Pierson Commercial Real Estate to the city.

“This will be the only shopping center east of Route 1 and 9 servicing this entire community that lives within this neighborhood,” Ryan Starkman of Pierson said.

Jacobs and Pierson had the project 85 percent leased before it opened.

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The multifamily market tenant base in Elizabeth has continued to be strong, said Steven Tragash, senior vice president of Gebroe-Hammer Associates. In the last five years, the city has added nearly 600 apartment units with an increase in its quality.

“It is difficult to convince sellers to sell their buildings in such a strong market,” he said. “I just sold a 106-unit portfolio that was owned by the same family for over 40 years. There is a flood of new capital, especially for the older buildings that were built in the ‘50s and ‘60s.

“There’s a lot of capital looking to buy from longtime owners and looking to upgrade and try to fill the gap between what the current rent on the buildings is and what some of the newer buildings are getting for rent.”

And this is not to say that the city is booming on all sectors. Demand for office continues to be low in the city, which, according to Haas, may have something to do with its next-door neighbor, Newark.

“Newark gets the office space for the reason that, while we have good transportation, Newark has a little bit better because the light rail in Newark, because of the PATH, because of Penn Station, the bus services, all of that may make it more attractive,” he said.

Elizabeth’s lack of a huge corporate entity, such as Newark has with Prudential Financial, also could be affecting the office space, Haas said. But as of now, it doesn’t appear to him like the city is actively pushing to attract corporate entities of that size.

“You’ve got to remember that our downtown near the train station is a national historic district in the National Registry so that every building in that area has a historic connotation to it,” He said. “To tear those down or to rearrange is just very difficult.”

But despite the lack of demand for office, Elizabeth has shown MAS, Elberon and now Faros and Jacobs that it is hoping to meet its demand and rise like its neighbors along the waterfront.

“I believe Elizabeth has a lot to offer,” Garcia said. “It is probably one of the most business-friendly cities in the state. It is affordable to live here. It is close to New York City, it is close to all the major highways. Elizabeth has some of the best community people in the state. Everybody comes together.”

925 Julia St.: A look at the project

Whether it is from the rise of e-commerce or the raising of the Bayonne Bridge, no market is hotter in Elizabeth right now than industrial.

Elberon Development’s CEO and president, Dave Gibbons, said rents in Elizabeth have been rising steadily for over six years now, and show no signs of slowing down.

“Form a broad standpoint, and we’re all affected by the broader industrial market,” he said. “E-commerce has been a big driver in the last two, three years because, as big buildings get leased and smaller buildings get leased by e-commerce users, that takes more space off the market, which allows landlords to get firmer with their rents and allows for some rental growth.

“The market in Elizabeth is strong, has historically been strong and is expected to remain strong for a lot of factors. The port and Newark Airport are right there. There’s also two exits to the New Jersey Turnpike, and there’s also a really good labor force in Elizabeth and the surrounding area.”

Despite this, however, Elberon, and most industrial developers in Elizabeth, are running into a different problem: They are running out of available land to build.

“What we’ve really done is ground up construction through five major projects in the last seven years,” Gibbons said. “We’ve actually demolished a building to create additional parking, which can help the overall property and asset.”

Elberon has delivered five new properties in the last seven years. Gibbons said the company is scheduled to deliver 925 Julia St. in July of this year, but has no other construction coming up for the rest of the year due to the lack of land to build.

“We have no other new construction projects right now,” He said. “Ongoing or planned for this year right now.”

Elberon has fully leased 925 Julia St. — which will deliver 90,000 square feet of space and was originally planned as spec space back in 2014 — to two tenants.

More broadly, Russ Verducci of NAI James E. Hanson said this lack of available space in Elizabeth drives rental prices further as far south as Edison.

“You can draw a ring or you can start to look as you move down south on the Turnpike, every couple of exits or every exit, you can start to take multiples off of that real estate number,” he said. “What happens is, the guys that can’t afford Elizabeth anymore, they go to Linden.

“As the prices rose so much in Elizabeth, the guys that were in Linden, those guys are moving also. A lot of these guys are chasing rents and maybe 10 years ago, they were guys in Elizabeth and have just moved south with the rent.”

The impetus, Verducci said, is Elizabeth.

“The real driver is Elizabeth,” he said. “They set the high mark and then everyone fills in below it. They’re always going to be a function of some fraction of Elizabeth.”

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