McCarter Says There's No Place Like Home

NJBIZ, May 14, 2007 by Lee, Evelyn

NEWARK

Delays in a $500 million complex cause the big law firm to stay put

Stung by delays in a construction timetable, McCarter & English, the state's largest law firm, has abandoned a move to a proposed riverfront office tower seen as part of the city's downtown renaissance. McCarter & English will instead remain in its current location at Four Gateway Center near Newark's Pe nn Station.

The firm's decision to keep its headquarters and about 225 attorneys in place stalls a key part of the Matrix Development Group's $500 million, mixed -use complex along the Passaic River waterfront that would include a 150-room hotel, 500 residential units and a parking garage.

With McC arte r's current lease set to expire next February, a critical issue was whether Cranbury-based Matrix could deliver a new 14-story Class A office tower called Two Riverfront Center on time. McC arter was to have anchored the tower, which was planned as a companion to the nearby One Riverfront Center.

But the overall project, hampered by complications in gaining approvals and permits, has suffered significant delays. The law firm had expected construction of the tower to begin no later than last summer in order for the building to be ready for occupancy in early 2008. "It became clear that the Matrix building could no tbebuilton schedule," says Lois Van Deusen, managing partner at McCarter & English.

McCarter's departure means that Matrix must now put the tower on hold until it secures a new anchor tenant. Matrix, which received approval for the project at the end of last year, "continues to aggressively market the building to a variety of New Jersey/New York metropolitan area tenants," says Richard Johnson, Matrix senior vice president of development.

"Nobody in Newark under today's market conditions is going to put up a building without a tenant commitment in place," says Mark Yeager, president of Gale Real Estate Services Co., which owns One Newark Center across from both Four Gateway and the site for Two Riverfront Center. "It's just too expensive to build in the city right now."

McCarter has signed on for 15 more years at Four Gateway, where it has been a tenant since 1988. It plans to refurbish its nearly 20 -year-old offices, which occupy 143,000 square feet of space on floors 10 through 15 at the center, even though the firm had initially decided to relocate partly out of concern that a renovation would disrupt its operations.

McCarter had considered relocating to New Brunswick, Metro Park and elsewhere before committing to the Matrix building. Van Deusen says Newark won out for a number of reasons. For one thing, McCarter has long-standing ties to downtown Newark, where it has been based since 1865, and is actively involved with community organizations.

Many McCarter clients, including Prudential Financial, Public Service Enterprise Group and Horizon Blue Cross Blue Shield of New Jersey, are based in Newark, and the city's transportation network provides easy access to McCarter's headquarters and to its offices in New York City, Boston, Philadelphia and three other cities in the Northeast.

All of this left McCarter's present location as the firm's best option. "There certainly are other development opportunities within Newark," says Bryn Cinque, senior vice president at real estate services firm GVA Williams NJ in Pars ipp any. "However, [McCarter] would have had the same time issues they had with the Matrix site." Moreover, "there were really not any viable existing properties that could accommodate McCarter & English's requirements."

Newark's total office market encompasses nearly 14 million square feet of space, according to Cinque. The largest sub market, which comprises the buildings immediately surrounding Penn Station, makes up approximately 6 million square feet, with vacancies at an all-time low of 4.5 percent, he says. The Washington Park submarket, where a number of other prominent Newark office buildings are, has about 3 million square feet and an 11 percent vacancy rate, down from 22 percent last year.

Yeager says higher rent at Two Riverfront Center may have helped persuade McCarter to stay put. The firm would also have had to pay a share of construction costs for the new space.

Still, relocating to the Matrix building would have offered a multitude of benefits to McCarter, says Yeager. Aside from getting new space and a new image, he says, McCarter could have boosted employee efficiency and attitude with a move. "But those things are hard to measure," he adds. "The out-of-pocket dollars are easy to measure."

Renovation of McCarter's space at Four Gateway will occur on a floor-by-floor basis and begin with the lobby this fall. A key component will be prominent new signage for McCarter, says Jeffrey Greenberg, principal of Heritage Management in Ridgewood, which purchased the building in a joint venture with Montvale -based Ivy Realty last November.

"They're going to walk in and they're going to feel like it's their building," Greenberg says. "The law practice now involves a lot more branding than it used to. I think we're really giving them an opportunity to brand themselves with the building."