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Business Officer Magazine

West Side Story

New Jersey City University is taking steps to expand its urban campus and, in the process, is defying stereotypes.

By Howard Buxbaum and John Gibb

New Jersey City University (NJCU) is aggressively challenging each of these myths. The university is in the initial stages of developing a 21-acre site, known as the West Campus, which will more than double the size of its existing campus and support more than 1 million square feet of development. In doing so, not only will the university grow, it will revitalize itself, add green space, and above all, give students an excellent reason to come to the city.

A Snapshot of the Space

Founded as a state institution in 1929, NJCU has grown from a single Gothic building to an 18-acre campus (excluding the new development). The university enrolls more than 10,000 Students and has experienced an enrollment growth rate of 8 percent over the past five years. More than 95 percent of the students are commuters. A long-term objective of the university has been to provide more on-campus housing, a goal which will be met with the new development. A major academic need tied to the physical plant is to provide state-of-the-art facilities for NJCU’s thriving performing arts program. As on all urban campuses with a large commuter enrollment, parking is at a premium.

NJCU is located on the west side of Jersey City. Unlike the east side, which faces Manhattan across the Hudson River and has received the moniker of the “platinum coast” for its upscale office and retail development, the west side is in a transitional state. The area nearby the campus includes low- and moderate-income housing, an aging regional mall, several small, poorly maintained retail establishments, and a well-worn municipal facility. However, changes are occurring. Within recent years, a terminal on the light rail was established in close proximity to the university, a Home Depot was built next to the West Campus, and an upscale housing development was constructed.

Drivers for Developing the West Campus

Jersey City has had a longtime interest in developing its west side. Historically, the area was home to industrial concerns and the numerous immigrants who found employment at the manufacturing plants. In its early years the city flourished because of its connections to the waterfront and rail yards. Several firms were sources of pollution for the nearby Hackensack River and the Morris Canal, which ran north-south through the city. Gradually, as the industrial concerns diminished, the demands for land use were altered. Urban renewal was now needed to transform the area into a better economic engine to generate tax revenues for the city. To spur the effort, the City of Jersey City; the Jersey City Board of Education; New Jersey Transit; several universities, including New Jersey Institute of Technology, Rutgers, and NJCU; and the land-use planning firm of A. Nelessen and Associates collaborated on an urban planning study that encompassed two square miles on the west side. The study solicited citizen and local official participation and produced various recommendations, including emphasis on smart-growth principles, transit-oriented development, and a better street grid to encourage residential and retail interaction. The university’s West Campus is at the center of the two-square-mile area targeted for redevelopment, and the city is strongly supporting the development of the campus as a first step in stimulating an economic revitalization of the West End.

The university had several motivations for developing the West Campus, most of which helped dispel the urban myths that challenge many city colleges. First, it saw a unique opportunity to greatly increase the size of its campus in a landlocked urban area. Second, NJCU recognized the potential to improve the area close to the campus by creating a more attractive and safer environment. Finally, NJCU saw the development as a recruitment and retention tool by which it could add to its student housing and integrate retail, athletic facilities, and other amenities lacking on the existing campus.

Acquiring Additional Acreage

The university owned approximately 14 acres, in addition to the main campus, which it had assembled in several acquisitions during the 1990s. The acreage fronts on State Route 440, the major highway running north-south along the west side of Jersey City, and provides surface parking for students and faculty as well as maintenance facilities for the campus. In 2002, the university initiated discussions with DuFerco Steel to acquire its plant, which sits on seven acres and borders the university’s 14 acres on the south. DuFerco had closed operations at the plant, and it was market knowledge that the company intended to dispose of the real estate. The university recognized that adding the DuFerco property to its holdings would create value by obtaining broader frontage on Route 440. DuFerco decided to offer the property to several retail developers and NJCU, knowing the competition would increase the price. While the university did not submit the highest offer, it provided the strongest arguments that it would be in the best position to close the sale, and DuFerco decided to sell the property to NJCU. Following a 120-day due diligence period in which NJCU performed extensive environmental, geotechnical, title, and economic analyses, the university completed the purchase in December 2003.

Even before it entered negotiations with DuFerco, NJCU recognized that the site contained chromium contamination from industrial pollution unrelated to the steel plant. Legal liability for the chromium contamination had been assigned to Honeywell, and the corporation was court-ordered to clean it up.

Handling a Contaminated Site

NJCU entered into an agreement with Honeywell to remediate the site to meet standards established by the state’s Department of Environmental Protection. State approval for contamination cleanup is slow and can be subject to changing standards. Recently, the state decided to change its standards for chromium remediation, which has slowed progress in initiating campus development. Nevertheless, by quantifying the cost of environmental remediation and understanding the legal remedies before purchasing the property, NJCU mitigated the risk of environmental liability.

Developing a Site Plan

The original site plan—which was created by KSS, a Princeton architectural firm—was a collaborative effort among university personnel, citizen groups, local officials, and land-use planners. The plan included office space and student housing on Route 440, retail scattered throughout the site, parking garages to service the retail, and large, open green space not integrated into the development.

Since retail was expected to be an economic driver for the development, NJCU sought feedback on the plan from developers and retailers. The retailers were blunt: The site plan would not attract national retailers if stores were scattered throughout the development. Retailers would need to be visible from and accessible to Route 440. While parking structures to service shoppers were commonplace in urban areas, retailers considered the west side of Jersey City to be suburban and would not be attracted to a development where customers did not have easy parking access to stores. Green space was beneficial but needed to be incorporated in the development to create energy. And, unlike the east side of Jersey City, no office market had yet developed on the west side.

The university modified the site plan with KSS several times to respond to market concerns. Approximately 30 percent of the space is now allotted for retail, primarily on Route 440; 30 percent for academic space; 20 percent for housing; and 20 percent for parking. The result? Land-use design met real-estate reality.

Funding the Infrastructure

Look Ahead to Prevent Pitfalls

While New Jersey City University will continue to gain experience as the development of the West Campus progresses, those involved have already learned some valuable lessons.

  1. Pick an experienced team. NJCU has engaged a number of professionals to date: a civil engineering firm, architectural firm, real- estate advisor, real-estate counsel, environmental engineering firm, housing specialist, geotechnical engineering firm, and market research firm. Given the complexity of the project, it was necessary to select a team that would work well together, whose experience would prevent major mistakes from occurring, and whose participation would give the project credibility.
  2. Pay attention to the market. The university appreciated the need for consensus among the academic community, local citizen groups, and local officials, and attempted to align them as best as possible in developing the site plan. However, it would have been shortsighted to complete the plan without paying attention to the concerns of retailers and retail developers. The university was sensitive to seeking their input and responding accordingly, even though it meant redesigning the plan.
  3. Don’t underestimate approval times. Approval times, especially with a brownfield site (a term used by the EPA to denote a property that contains a hazardous pollutant or contaminant), can be lengthy, and the university needs to anticipate delays and bring patience to the project. While developers need a return in a timely manner, universities exist in perpetuity.
  4. Complete thorough due diligence before purchase. The institution used its due diligence period to thoroughly understand the issues associated with acquiring the DuFerco Steel plant. Would the university obtain clear title? How much chromium and non-chromium contamination was there? How much would it cost to remediate? Would the soil support a development? These types of questions needed to be satisfied before the university felt comfortable proceeding to the next level. In the long run, the added advance effort will pay dividends through reduced lost time and expense and will support the business decision to acquire the land.

NJCU recognized that it would need to fund significant infrastructure costs such as parking, utilities, streets, and non-chromium contamination. To ease the burden on university resources, NJCU and its real-estate advisor, The Staubach Company, convened a task force to explore state sources of funding. An outcome of this effort was that NJCU was able to identify low-interest-rate loans (approximately 1 percent) through the New Jersey Environmental Infrastructure Trust to fund a large portion of costs. NJCU continues to explore other sources of financing such as tax increment financing and grants through the New Jersey Department of Transportation.

The Staubach Company also prepared market and financial analyses to determine the demand for retail, the types of retail tenants who would be attracted to the development, and the economic return the institution might expect to receive.

Four ownership structures were evaluated: 1) ground lease to a retail developer; 2) ground lease to a developer with a participation interest in net operating income; 3) joint ownership with a developer; and 4) sole ownership of the retail development. The analysis stress-tested a model using factors such as retail rents, construction costs, interest rates, and vacancy factors under the various ownership structures. The model established a framework for negotiating with retail developers, facilitated an analysis of the “risk versus reward” tradeoff for different ownership structures, and provided the university insight into how much revenue it could anticipate to fund infrastructure debt service. Although a final decision has yet to be made, exploring each of these four structures has been a valuable exercise as the university considers retail feasibility.

Putting the Pieces Together

NJCU has several remaining major tasks before it can initiate development of the West Campus. It must confirm the new chromium regulations with the New Jersey Department of Environmental Protection; finalize its redevelopment plan with Jersey City; identify additional sources of funding for infrastructure costs; and select and negotiate an agreement with a developer for the retail and possibly the student housing. Nevertheless, the university has made great strides. It has succeeded in assembling the parcels it needs for its West Campus, developed a site plan through a collaborative process, identified a major source of low-cost funding for infrastructure development, and enlisted strong participation by both state and city governments.

As the university prepares to celebrate its 75th anniversary, it eagerly looks forward to the next 75 years and the opportunity to transform a brownfield site into a multipurpose campus while spurring a renaissance on the west side of Jersey City. In doing so, NJCU is writing its own West Side Story and dispelling many of the myths that keep city campuses from realizing their full potential.

Author Bios Howard Buxbaum is vice president for administration and finance at New Jersey City University, and John Gibb is senior vice president at The Staubach Company.