May 4, 2017 3:06 pm

Every now and then we get to share some good news about New Jersey. Once is a decade or two, we might see some rather dramatic or even tectonic shifts in the foundations of New Jersey office space that can affect the office market and all its participants for years to come. What am I referring to, you ask? I am speaking about the return of the B’s. These B’s have nothing to do with the flowers of Spring. These B’s are known as Class “B” office properties, and you will find them all across the Garden State.

We all know about Class “A” office properties. They are the cream of the crop, the top of the line! Class “A” properties are known for their high end amenities. Things like underground parking, corporate cafeterias today with coffee bars and lattes, grand high ceilinged lobbies with settings of granite and other high-end materials, even granite building exteriors. These properties are populated by the top companies whose employees expect to work in a high class “image” environment. There properties are known for their superior environmental building systems and often come with high security protection, and even live security guards.

Lesser known are their cousins, the Class “B” office properties. These are the older more functional office properties. Often with a few less bells and whistles included, however, they are priced more attractively and thus are occupied by the less fashion conscious home grown entrepreneurial firms.

Over the past few decades, Class “A” properties were known to have a high occupancy rate, almost full occupancy in many areas, and seemed to be more in demand than their Class “B” cousins. This was largely because of the expansion of Big Pharma and other National Fortune 500 firms throughout New Jersey looking to attract the limited and highly competitive pool of high-end employees.

Today, the world has changed. Big Pharma’s leaving of the Garden State has left some huge holes to fill. This has led to a sudden change in the business model of the State’s largest Landlord, Mack-Cali. Mack-Cali has always had a big success with Class “A” properties. While Class “A” properties were in demand, they were able to establish an incremental approach to raising the rents of its Class “A” Tenants each year. The huge success in the leasing strategy of its Class “A” properties at times seemed to be at the expense of its large Class “B” portfolio. It was easy to incrementally move the rents of its Class “A” properties, but Class “B” properties are more price sensitive, and these Tenants were more resistant to the incremental model.

This led to larger vacancies in Mack-Cali’s Class “B” portfolio, particularly in areas like Parsippany.  In Parsippany, Mack- Cali had become the largest owner of both Class “A” and Class “B” properties. Here their properties were so densely populated that to a large extent they were forced to compete against themselves when showing space to tenants.

In this Newsletter we have been writing several articles about the sudden change in strategy at Mack-Cali, whereby the Company has decided to divest itself of its Class “B” properties to focus solely on its trophy collection of Class “A” properties.

This move has led to the acquisition of these unappreciated properties by a far better suited group of Landlords who specialize in the marketing and redevelopment of Class “B” properties. Companies like Berman Properties and the KRE Group are players that have been known for years to have developed a knack for the nuance of upgrading and repurposing older Class “B” properties. Their aggressive marketing and clever interior upgrades have been bringing new life to these older projects for a new generation of business entrepreneurs. The change along Century Drive is truly remarkable and the pace of tenant leasing is breathtaking.

So, don’t count New Jersey out. The one thing that is certain is that things will continue to change. With the return of the B’s, that change is a big positive for New Jersey real estate.

Lawrence Dickstein

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