In NJ Transit Lease Controversy, Developer Fires Back

As controversy erupts over NJ Transit’s lease of 407,000 square feet in Onyx Equities’ 2 Gateway in Newark, the landlord is playing offense.

John Saraceno Jr., managing principal of Onyx, spoke at length to ROI-NJ about NJ Transit’s 25-year, $440 million deal, shunning the industry’s usual playbook of lying low until public outrage passes.

The deal sparked headlines and warnings from politicians because it was expensive, was kept under wraps for a month and cost more than two other options on the table for the financially troubled agency.

Saraceno said NJ Transit drove a hard bargain, securing a generous tenant improvement package on Onyx’s dime. “Talk to any landlord — $135 a foot or $58 million for improvements has never happened before,” he said. “They kicked my ass.”

That was on top of $15 million Onyx will spend on demolition, a new HVAC system and reconfiguring the space, offsetting some of the reported $39 per square foot rent.

Saraceno said the primary competitors for NJ Transit’s headquarters relocation either didn’t offer enough space or didn’t allow the agency to move in quickly enough. He expects NJ Transit will move into 2 Gateway in 14 months, enabling the agency to quickly exit and sell 1 and 2 Penn Plaza East rather than spend an estimated $118 million to upgrade them.

“The idea that they don’t have to spend the $120 million fixing their building, which they’re now going to sell and make money when they move in here, is incredible,” Saraceno said.

For the record, NJ Transit on Monday reiterated its statement in a press release last week that the disposition of those properties was still being deliberated. But that surely factored into the agency’s thinking. NJ Transit did not immediately return a request for comment from The Real Deal.

The Gateway Center deal is Newark’s largest office lease in years. Even with advantages at the property, however, the decision by an agency facing massive budget shortfalls to pick a more expensive option made for bad optics, exacerbated by a lack of transparency and a report of discussions between Onyx and NJ Transit officials before bidding began.

— Holden Walter-Warner