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NJ Transit is preparing to sign off on a 25-year commitment to lease a new corporate headquarters building — a decision that will have long-term effects on the quality of the work environment for the agency’s 2,200 headquarters employees and adds a new expense for taxpayers in the agency’s already strained operating budget.
Yet the agency’s board wasn’t told about the plan to move until November, just three months before the members voted to proceed with a new lease at the 2 Gateway building in Newark — and well after the process started in March 2022 to scout out a possible new headquarters location.
Agency officials waited to tell the board until after the analysis was complete so board members would have “all the information they needed and to allow time for their review,” said Jim Smith, a spokesman for NJ Transit. The lease at Gateway is still being finalized, he said.
The analysis also evaluated what it would cost to stay in the 330,000-square-foot space at its current headquarters, 1-2 Penn Plaza East, which the agency took over in April 2022 through a settlement agreement with Hartz Mountain Industries.
NJ Transit President and CEO Kevin Corbett said the building was not well maintained over the years by its previous owner and would require nearly $120 million in renovation and repairs over six years, and that staff would have to move to different floors while work was completed.
Three sources told NorthJersey.com it was apparent that from the beginning, the agency favored 2 Gateway, a building in Newark owned by Onyx Equities, LLC. The company is one of the largest commercial real estate firms in the state and is co-owned by politically connected donors of Gov. Phil Murphy.
Concerns about whether 2 Gateway is the best fit for an agency with an uncertain financial future — including a looming $842.6 million operating budget hole in 2026 and vast needs on its statewide network of bus routes and rail lines — have some inside and outside the agency questioning how this deal came together.
Micah Rasmussen, director of the Rebovich Institute for New Jersey Politics and former communications director for the state Department of Transportation, said competitive and transparent procurement is essential to safeguard taxpayer dollars.
“There are other good reasons that drive a more disciplined process,” Rasmussen said. “It pushes you to define your requirements and to understand your requirements so the final product meets those requirements.”
The other reason a transparent process is essential, he said, “is because it’s the public‘s business, and the public’s business ought to be conducted in public.”
NorthJersey.com spoke to seven people within and outside the agency who had knowledge of the bids, procurement process and board involvement with the new headquarters lease. The individuals declined to speak on the record because none were authorized to talk to the media about the subject.
The seven helped answer four main questions about the deal: why the board was kept out of the process until the very end; why the agency bypassed the traditional procurement process; which bid offered the best value; and why the agency is expanding its headquarters footprint while many entities are downsizing.
Why did the board play a small part in the process?
NJ Transit’s board was first informed of the agency’s interest in finding a new headquarters in November 2022, but multiple sources told NorthJersey.com that agency staff had been discussing a possible move for at least 18 months.
NJ Transit staff didn’t use a bid process when it hired Rutherford-based real estate consultant Savills in the spring of 2022. The firm then sought bids from commercial office building owners and narrowed a short list to two buildings, Gateway and Panasonic. Neither step took place with board consultation.
A presentation of Savills’ analysis, made to the board in November, explained the need for a new headquarters, provided an analysis of at least four buildings that had been under consideration, and made a financial comparison that showed moving to Panasonic could be about $20 million cheaper over a 20-year lease than the Gateway option. Several board members requested time to review the materials, ask questions and be more involved in the process.
Although some additional information was provided after the November presentation, the decision to pursue a lease at Gateway was made with little input from the board. One board member resigned over the opaque nature of the deal. The others, except Evan Weiss, who was recused, voted unanimously in February to approve the lease with the owners of 2 Gateway.
Board member James D. Adams was recused from the Savills presentation in November because the engineering firm for which he works is at 2 Riverfront Plaza, also known as the Panasonic building, one of the other sites under consideration. Smith, the agency spokesman, said the recusal was done “in an abundance of caution.”
Adams, who had a track record of asking challenging questions during board meetings and voting against administration proposals more often than others, was replaced on the board before the February lease vote.
Carlos Medina, whose first meeting as a board member was in February, was not recused from voting even though he is a board member at Horizon, one of the office building owners that pitched having NJ Transit move to their building. Medina was not recused because that building was no longer under consideration by February, when the vote took place, Smith said.
How has this process played out at other state agencies?
The New Jersey Turnpike Authority used a far different process when considering moving its headquarters in 2017.
The Turnpike Authority issued a bid request in November 2014 to hire a real estate consulting and brokerage firm to find a new headquarters, according to board documents. It received eight proposals, an evaluation committee conducted oral interviews, and ultimately the board approved the hiring of Iselin-based Savills Studley for $100,000 plus commission.
NJ Transit hired the same firm, now known as Savills, to help with its headquarters hunt but did not use the request-for-proposal process. Asked why, Corbett, the agency’s CEO, didn’t directly answer, except to say that “there’s a lot of qualitative elements, so it’s not a meeting spec or lowest-price-bid kind of a thing.” Smith said the agency used the “appropriate procurement guidelines for professional services for a contract of its scope and cost.”
About nine months after hiring Savills Studley, turnpike officials presented the board the “lowest cost alternative,” based on a quantitative and qualitative analysis, and asked the board to approve a lease at the former Hess building in Woodbridge, with an option to purchase the building at a later date.
A 1,000-word summary of the work Savills Studley did was provided in materials available to the public, which included:
- an explanation about why it didn’t make fiscal sense to retrofit existing buildings owned by the turnpike.
- five reasons why moving to the Hess building made sense.
- an explanation of the terms of the lease, including the annual rent, and the option to purchase for $25.9 million, which officials estimated would save the agency $100 million over 30 years.
“Savills and NJTA staff made several presentations to the [board] commissioners about the options they studied and the properties they visited in the months between when Savills was engaged and when the board approved the deal for the property,” said New Jersey Turnpike Authority spokesman Tom Feeney.
By comparison, NJ Transit did not keep the board informed during the analysis for its headquarters move and provided no details in public agenda documents about the steps it took to assess the options in Savills’ report. Agency officials also did not provide any written details about where the lease would be, how much space the agency would occupy, how much it would cost and how long the lease would last.
Some of that information was read aloud before the board approved the lease at Gateway, and Corbett later told reporters the annual cost of the lease was still being negotiated.
The Turnpike Authority ultimately bought the Hess building in June 2017 for $30.7 million from O&R Woodbridge Office, LLC, a subsidiary of Onyx Equities, the same company in negotiations with NJ Transit over a lease for headquarters space at 2 Gateway. The turnpike paid nearly $5 million more than what the original “lease-to-purchase” agreement said and more than double what Onyx paid for the building, having bought it from Hess Corp. for $14 million in 2015.
In addition to the Hess and Gateway deals, Onyx landed a valuable joint-venture development deal at NJ Transit’s Metropark Station in October 2022.
Is Gateway the best choice for NJ Transit?
Among the biggest questions about NJ Transit’s headquarters deal is whether it is making the most fiscally and operationally prudent decision by going to Gateway.
The owners of at least four buildings responded to Savills’ request for bids: the old PSE&G building at 80 Park Plaza, the Panasonic building at 2 Riverfront Plaza, the Horizon building next door to NJ Transit’s current headquarters at 3 Penn Plaza East, and 2 Gateway.
In addition to the cost per square foot, there are myriad factors used to determine the net value and sweeteners that could be offered by prospective landlords to draw in new tenants. They include:
- months or years of free rent.
- the annual increase to the rent.
- whether there is adequate parking and proximity to public transportation.
- flexibility to downsize or upsize their footprint.
- whether the space requires reconfiguration or renovation and if those costs are covered by the landlord.
- amenities, like a gym or cafeteria.
Here were some of the qualities weighed among the buildings under consideration.
- Owners of the Panasonic building, among the newer office buildings in Newark, offered NJ Transit use of the entire 14-floor building, according to letters obtained by NorthJersey.com, but there were concerns about flexibility and upsizing at that space, which is 338,000 square feet.
- The Horizon building, according to its website and LoopNet, has at least 462,000 square feet available on 10 floors, a gym, parking, fully furnished office space, a 150-person board conference room and on-site Walgreens and Dunkin. But because it’s next door to NJ Transit’s current headquarters, there were concerns it wasn’t enough of a move.
- The Gateway building’s owners spent $50 million on upgrades recently to construct a ground-floor atrium and offer more restaurant and retail space in the building. It also has parking and a covered corridor with access to Newark Penn Station. But it’s one of the more expensive commercial office buildings in the area.
- The old PSE&G building has nearly 1 million square feet and several amenities, including a gym and a modernized workspace, but it is limited by parking and infrastructure issues and, according to LoopNet, has only 120,364 square feet of currently available space, so it would have to take back space from PSE&G to meet NJ Transit’s expectations.
Two sources confirmed to NorthJersey.com that the request for bids Savills sent to office building owners required that they could accommodate a 20-year lease for between 300,000 and 350,000 square feet with an option to increase or decrease the footprint by 15% during the lease.
Yet the lease NJ Transit is in the process of signing with Onyx is for 400,000 square feet for 25 years at 2 Gateway.
Asked why the agency changed its lease term from what was listed in the original request for bids, Smith said, “350,000 square feet was the minimum we were looking for in order to be considered as part of the analysis,” which is contrary to what sources told NorthJersey.com.
Asked why NJ Transit pursued a lease at Gateway even though it was the most expensive option, Smith said, “NJ Transit determined that Gateway 2 was the most operationally efficient; it’s closest to Newark Penn Station, it’s completely renovated, and it can be built to suit our custom specifications. For example, it’s the only option with 400,000 square feet available, which provides NJ Transit the ability to expand and contract as needed.”
But sources told NorthJersey.com that at least two other buildings were considered more operationally efficient than Gateway and that Gateway was not the only option with 400,000 square feet available.
Why does NJ Transit need more office space when others are downsizing?
In addition to raising the amount of space it initially sought from prospective landlords for its new headquarters, NJ Transit’s impending lease agreement for 400,000 square feet is an increase from its current office space of 338,000 square feet for its roughly 2,200 headquarters employees.
Currently, some agency employees are allowed to work from home up to two days a week as part of a pilot program, Smith said. “This is a long-term investment (25 years), so this decision can’t be made on current work-from-home policies,” he said.
NJ Transit’s interest in increasing its footprint runs counter to what many companies and state agencies are doing.
Senate President Nicholas Scutari, who chairs the State Leasing and Space Utilization Committee, which approves leases for most state agencies, said he wants to see the state reduce its office space, given the change in work patterns because of the COVID pandemic, according to the New Jersey Monitor. NJ Transit is exempt from having its leases approved by the committee.
“If you are going to allow people to work from home, then I think we have to reinvent what an office space looks like and save taxpayers money by not having these huge offices,” Scutari said.
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