Huge buildings can be a behemoth to renovate, particularly when they're a century old and in need of repurposing. But the 1-million-square-foot, 1915 General Electric factory in Bloomfield, N.J., was a diamond in the rough that offered the area a new housing option and locally based real estate investor/developer Prism Capital Partners a great return on investment.
After GE relocated the manufacturing of its electric switches for fan motors and boilers to Texas, the building became office quarters but never worked well in that role. Its enormous square footage required many tenants, and the neighborhood looked like an industrial area in flux, making leasing difficult.
The building sat like a beached whale waiting to be rescued, with a big for-sale sign with phone number posted prominently on its façade. In 2005, Eugene “Gene” R. Diaz, Prism’s president, took a closer look. “If you grew up in Jersey, as I did, you were always passing by this building. It occupied a huge presence in the skyline. I finally drove around it and understood its surroundings,” he says.
With a quarter century of experience in adaptive-reuse work, Diaz envisioned the building for rentals. “We’ve been turning sh— into Shinola, and creating value again and again,” he says, adding: “An old building like this—with brick exterior and capitals—was unique and can’t be replicated today from scratch, unless you’re a fool with money.”
He wasn’t and purchased the building for $20 million in 2005. “You could never buy the land alone for that price,” Diaz says.
Diaz had a strong hunch that gentrification would occur because the site had also become a transit-oriented hub with a commuter rail 300 yards away, the Garden State Parkway within a stone’s throw, and Newark International Airport just 15 minutes away.
Attributes Aplenty
Unlike many other rehabs, the project offered better potential for conversion and ROI than anticipated. Diaz and New Jersey architect David Minno of Minno & Wasko demolished one-third of the six-story building to gain space for a three-level parking deck and 160 for-sale townhomes and transformed the remaining 365,000 square feet into 361 loft-style rental apartments.
Minno found the structure offered several inherent assets: Its 75-foot width permitted a corridor to be run down the middle, between existing 25-foot-high columns; its 12-foot 6-inch windows admitted tremendous amounts of light; the existing elevator and stairwell locations offered safe egress; and 17-foot-high ceilings permitted a seventh floor to be inserted as a new second level. An eighth floor with balconies was added atop the roof, and space remained for ground-level parking.
The bigger hurdle was securing a construction loan because of the neighborhood’s transitional condition, planned adaptive reuse, and lack of available comps. “U.S. Bank gave us our construction loan in 2011, but not many others were interested," Diaz says. "When everyone asked for comps, we said, 'We have none,' and pointed to the train line, high ceilings, apartment void, and our prior successes.”
Making the Numbers Work
Diaz knew his firm had to cater to the right tenant mix to make the numbers work. He thought young, professional, middle-market renters would be the prime target, as more were priced out of increasingly expensive Jersey cities like Hoboken and Jersey City to the north, and Manhattan, 25 minutes away. But he also thought the units might appeal to downsizing empty-nesters who didn't want to buy again.
To achieve a high ROI, Diaz and Minno included as many units as possible and repeated layouts for each-size unit—studio, one-, and two-bedrooms—rather than reinvent the wheel. High ceilings and big windows offset the smaller footprints.
The large number of units also made top finishes and appliances and a full amenity package economically feasible: a two-story lobby, 5,000-square-foot fitness center, 24-seat theater, billiards/party room, and furnished roof deck with Manhattan-skyline views. Besides each unit having its own washer–dryer, each floor contains a shared laundry with institutional-size equipment and rental storage lockers.
Sustainability was another of the team's goals. More insulation was added to the building’s already tight package, and a high-efficiency heating and cooling system was installed. Designer Rosalie Nunez of Spice House Design in Hoboken reclaimed some of the building’s original wood for decorative finishes. She also played up the structure’s industrial vibe with polished-concrete floors.
“It still feels like an old factory but is much more hip,” Nunez says. T&M Associates from Middletown, N.J., planted hearty, ornamental shade trees and shrubs that complement the building’s semi-urban architecture.
Happy Developer, Happy Mayor
Since the units became available last December, 123 have been leased. “The ROI has been a strong 8 to 8½ percent, while competitors are realizing a lower, 6 to 6½ percent yield on cost,” Diaz says, which he attributes to a superior product, rent from so many units, the ability to allocate amenity costs against more units, and the building’s original, intact condition. The future construction of the townhomes will improve ROI further, but not “overdensify” the site, Diaz says.
Mayor Michael Venezia is extremely pleased. “The developer has done an unbelievable job in saving and refurbishing a building and spurring other residential and commercial development. What was a run-down, blighted area is seeing millions worth of private redevelopment,” he says.
Lessons Learned
Keep deep pockets. Because the existing building housed tenants, Diaz helped relocate them by buying another building. “Fortunately, we were underleveraged,” Diaz says.
Take your time. For the highest ROI, the developer and architect carefully weighed layouts and amenities. “We started our initial study in 2005, began working with the architect the next year, and didn’t finish until December 2013,” Diaz says.
Manage the construction. Being able to fill this role itself rather than having to hire an outside general contractor made change orders and utilities relocation less expensive for the developer.
Choose the right size and price. The 361 units include 111 520-to 700-square-foot studios, at rents of $1,450 to $1,750; 146 790- to 1,000-square-foot one-bedrooms, some with dens, for $1,800 to $2,400; and 104 1,100- to 1,208-square-foot two-bedrooms at $2,500 to $3,600 a month.
