BEACON OF HOPE

By Alyson Grala

Given the current economic crisis, the last thing one might expect to find is an on-track redevelopment project. But that’s exactly what’s happening at the former Jersey City Medical Center, a cluster of 10 art deco buildings set atop a 14-acre site on the Palisades Ridge near Journal Square in ]ersey City. Collectively dubbed the Beacon, this mixed-use community will ultimately house 1,200 luxury residences and 80,000 square feet of retail space, making it the largest historic renovation project currently under way in the country, according to officials with the National Park Service, which oversees the federal tax credit program for historical preservation.

The medical facility was completed during the Great Depression by then Jersey City Mayor Frank Hague. Accused of voter fraud, Hague helped to elect Franklin Roosevelt president and in return received federal money to build the hospital, which included such architectural and designer trappings as marble walls, terrazzo floors, etched glass, decorative moldings and sparkling chandeliers. Overbuilt and understaffed, the complex closed down in 2003, leaving behind one of the biggest white elephants in the country.

Enter New York Citv-based developer Metrovest Equities, which the city designated as the property’s redeveloper in 2003. Metrovest shelled out around $9.5 million to the city before the deal was officially closed in 2005. Today, the developer is well on its way to converting the federally landmarkecl buildings into a vibrant new community for an estimated $350 million.

Beacon developer and Metrovest president George Filopoulos presented a redevelopment idea to the City of Jersey City in 20O2, after driving by the buildings on the New Jersev Turnpike Extension. “My immediate thought was that this place is really unusual and would make a great residential development Situated eighty feet above ground level, I realized that these buildings would offer some fantastic panoramic views.” Filopoulos and his team began to develop a rough outline and presented it to the city. “They looked at the concept and asked us to provide more information. While there were no original drawings we could use at the time, we sent in a team and started to measure the buildings and came up with an overall concept that we thought made sense.” Fast-forward to 2003. The city said: ‘Okay, the idea’s good but let’s see if there’s a better one,’ so they went out and performed a national RFP which culminated with a design contest held at City Hall over two weekends,” Filopoulos recalls. Metrovest was ultimately selected to be the developer in September 2003.

The conversion of the first two buildings was completed in 2008, thanks to $105 million in funding from Fremont Tnvest-ment and Loan. The deal was arranged by Great Neck, NY-based GCP Capital Group, Named the Rialto and Capital after famous theaters, the buildings collectively offer 315 condominium residences and are situated adjacent to one another, joined by a two-story lobby and a 45,000-square-foot amenity core that features an indoor pool, state-of-the-art gym. Grotto lounge, a spa, screening room and a children’s playroom.

By early 2008, 90% of the Rialto and Capital units were sold, but then the credit crunch hit. “We lost roughly 50 units because our occupants’ financing had changed,” says Filopoulos, Because the firm didn’t sell anv units in bulk to investors, it was fortunate not to have more deals fall out, he adds.

Metrovest began reselling those units last September. Still. Filopoulos says. “it’s very hard work to get people to qualify for financing and to put them through the process.”

The firm has closed 10 units since September 2007. “We probably went to contract 20 times,” he says, “It’s a much more intense process. You need to work with even buyer and use a gamut of
tools either to assist them to qualify for a loan or to bring their interest rate down, lower their monthly payment or provide for a lower down pavment.” In some cases, Metrovest is utilizing a rent-to-own option, whereby back rent is credited toward the purchase price.

Eight additional buildings will be converted to residential and
retail use, including a rooftop bar/restaurant, a town center with retail shops and a gourmet market, an art deco independent movie theater, an art gallery and an early childhood learning/ daycare facility. The next residential phase—the Mercury—will open later this year and will offer 26 larger live/work lofts from 3,000 to 6,000 square feet, with $35 million financing provided by Capitol One Bank, FilopouIos originally had planned to build a 103-unit condo in place of the lofts, but ad-mits that given current market conditions, “there might be fewer buyers to go around this year than there were in 2006.”

As for other in-the-works projects, he says, “the Orpheum, which is attached to the Capital, is in pre-demolition now. It will have 150 residential units. We just closed the construction loan for the Paramount—with another $35 million from Capitol One Bunk—which features 270 units adjacent to the Mercurv, and three other buildings are under construction.” He adds that total project build-out will take roughly another five years.

While the Beacon’s financing is now on solid ground. Metrovest flirted briefly with the idea of switching to apartment rentals, before ultimately opting to stick with condos. The concept of applying for a new abatement came up in June 2008 when the sluggish housing market and subprime mortgage crisis made it very difficult to secure financing for future condominium development. “We like to be well into construction before getting our construction financing in place,” Filopoulos says. “We had actually started construction on the Mercury and were trying to close our construction loan in the heat of this market turmoil. At the time, the banks wanted the deal to pencil out as a rental, which meant they would have a fallback. So we did consider going back to change our abatement temporarily, but then decided against it.”

The existing abatements call for payments to the city of 12% of gross annual revenue for the next 30 years. The change to rentals would have yielded “a couple hundred dollars a year” less to the city, according to business administrator Brian O’Reilly.

For its part, Metrovest has worked closely with the state to bring this project to fruition. “Politically speaking, they want to ensure that the best work gets done here,” Filopoulos says. They gave us a great 30 year fixed rate lax abatement, which was the first time they’ve done that for a condo. In a nutshell, our taxes are about 60% lower than other condos on the market.”

With condo values in Jersey City expected to decrease this year at a rate of 9.2%, according to a recent report by Housing Predictor, sales are clearly an issue. As far as the Beacon is concerned, Filopoulos explains that pricing remains in synch with market fluctuations. “People have criticized us for lowering our prices from $750,000 to $500,000 for a two-bedroom, 1,200-square-foot space. But when the market was reallv strong we raised our prices four times. Obviously, now we have to lower our prices,” he says.

The Beacon also represents a massive recycling and adaptive reuse effort. According to the project’s restoration specialist Ulana Zakalak, the existing buildings are listed on the New Jersey State and National Register of Historic Places and are the largest concentration of an deco buildings in the state. Unlike other proposals, which called for the demolition of the buildings, Metrovest is instead doing everything possible to restore them to their original glory while: simultaneously creating a viable new use, she says.

To that end, Metrovest has assembled a team of craftsmen and historic preservationists to execute the restoration, which is being performed under the Secretary of Interior’s Guidelines for Historic Rehabilitation. This includes rebuilding and restoring the buildings’ entire facades using the strictest of methods and materials, and restoring the protected interior spares.

Ishmael Leyva Architects in New York City was in charge of the first phase, while Highland Associates is handling the retail building. “This is an entire recycling project. Just think about all of the embodied energy that are in these buildings,” Zakalak says. “Although it might not be recognized by the LEED council, we’re reusing existing historic buildings which in and of itself is green,” She adds that while the light fixtures are all original architectural features, compact fluorescent lights were used for the interiors.

“According to one of our consultants on the LEED side, we are getting a lot of points for the fact that we’re doing a restoration,” says Filopoulos, who adds, “it wouldn’t take much more to obtain a Silver certification, but at this point in time our contribution is the reuse of all this massive material,”

As it stands now, Metrovest is “in the ballpark* of its $350 mil-lion target price tag. “Most of the really expensive work was taken care of in the first phase, including all of the underground construction like water, sewer and gas and electric mains ” Filopoulos says, adding that if anything construction expenses have been greatly reduced in this economy.

Not onlv can developers reap the benefits of lower prices, so, too, can potential purchasers of the condos, he says. “Despite the economic turmoil, there are some really great opportunities for people who are equipped to buy today. The combination of price points and financing is something we’ve never seen before.”