More than 30 years ago, iStar’s Jay Sugarman decided to take a date to explore New Jersey’s Asbury Park. It didn’t go as planned, but it sparked a long-term relationship with the city.
“It was a ruin,” he said. “It was beautiful, but like a lost city. You could see the bones … you could see pieces of it. But it was the wrong place to bring a date.”
Now, iStar — the publicly traded real estate investment trust that’s closed more than $40 billion in deals — is tasked with transforming a 1.25-mile stretch of the beach town’s waterfront.
The firm owns 35 acres of land in Asbury and is spearheading a $1 billion-plus redevelopment there. The city of fewer than 20,000 residents, made famous by Bruce Springsteen, still has a relatively high poverty rate. Sugarman and his 190-person company plan to add more than 2,000 homes and 300 hotel rooms to the city over the next decade as part of a master plan that some fear could drive prices up and displace longtime residents.
The redevelopment includes a mixed-use hotel, condominium and retail project dubbed Asbury Ocean Club, an additional 110-room hotel, a 34-unit condo building and the conversion of the historic Asbury Lanes into a modern-day music venue and bowling alley.
During a tour of the under-construction Ocean Club, The Real Deal got a glimpse of the building’s $6 million penthouse and its deck, which overlooks the boardwalk and offers a panoramic view of the city. While navigating around wooden beams, Sugarman and his associates pointed out the surrounding parcels they own and even identified a few sites they are eyeing.
So the date was your first time in Asbury, in college? That was my first time in Asbury. I had a roommate [at Princeton] who played Bruce Springsteen every minute of every day, so I was somehow subconsciously being drawn to Asbury Park, but I didn’t know it.
How did you go from a bad date to becoming the waterfront’s master developer? It was not entirely obvious that you could bring the city back. Multiple people tried — people who probably saw the same things we did — but they tried to do it with one project. You can’t overcome the weight of the past with one building. We backed somebody who was doing a project here in 2006 or 2005, and they, like all others, couldn’t make it work. Our opportunity came after the recession to really look at it with fresh eyes. Asbury Park was something that should happen. It should be great again. It should be this beacon for people anywhere within a couple hours of here. But it wasn’t.
How do you deal with some of the criticism that goes along with trying to preserve the past while also trying to introduce something new to the area — as was the case with Asbury Lanes? We are somewhat unique in that we took a very long view. This was not build once and get out of town. We have fairly deep roots now. We’ve been through multiple governing bodies, so we’re becoming constants in town. And it’s incumbent on us to be respectful of that past, respect what’s special about this community, but also help it move forward. At Asbury Lanes, we preserved things: old bowling balls, old stickers, old benches, old graffiti, and then incorporated those into a building that is now structurally sound. It has the most advanced music system money can buy. Those things don’t have to be in conflict with each other; they work together well.
How do you address concerns about displacement and gentrification? We’re not displacing anybody because there’s nothing here. This is not Brooklyn, where you are taking one type of residential property and upscaling it. There’s no tax base, there’s no revenue going to the city. The infrastructure didn’t exist. So, I think in a very real way, this is completely different. We’re taking a blank page and turning it into something. What’s great about that is that it ends up lifting all boats. Beach revenue, parking revenue, the incremental tax revenue all give this community a chance to start really building all the pieces of the puzzle together. Whether it’s affordable housing, parks, infrastructure or schools, that’s the government’s job. Our job is to give them resources.
Why do you think there’s been some skepticism that a $6 million penthouse can sell in Asbury Park? Human beings aren’t that different, wherever you go. If you give them a great design, and a beautiful environment and a wonderful city and an incredible lifestyle, think about what that would cost you in New York or Montauk or the Catskills. The relative value of Asbury Park is very high. The nominal price may seem high, but what we’ve brought here is something that exists in a lot of other places at multiples of the price. We’ve suffered from headlines that say we’re selling $6 million condos. They don’t mention the $400,000 townhouses and some of the other projects we’re bringing. But this has to be aspirational.
Do you think part of the response is due to overall sentiment surrounding New Jersey? New Yorkers tend to have uncomplimentary feelings about the state. I never really understood that because I moved around so much. Every place has its great things, and every place has its challenges. So it kind of rolled off of me, but I sense there is a deep-rooted thing about saying the words “Jersey Shore.” And so, we don’t really say that. Asbury Park is of its own. There’s nothing else like it that I’ve seen in a long time. So we really want people to take all your prejudices and biases and come here and experience it.
Where did you grow up? I was born in Houston. [My family] moved to London when I was 8 and we moved to Pittsburg when I was 11. I went to nine schools in 10 years.
What did your parents do? My father was with an oil company, Gulf Oil, so we moved around. But when I found New York as a freshman in college, I knew I was a New Yorker. I’ve been a New Yorker ever since.
What were you like as a kid? I was always fascinated with business. I was always fascinated by why the world works the way it works. When I was 10 years old, my father would bring home these business opportunities that he was supposed to evaluate. He’d talk to me, and I’d go, “Why do you do it that way? Why didn’t you charge this much?” So I got a very early taste of how … you can always make things better. You can always be more efficient.
What was it like moving from school to school? That was interesting. You’re a new kid, so you always had to figure out how to get inside. These people have all been together their entire lives, how do I connect with that really quickly? So you become incredibly observant. You watch first, and try to figure out where’s the power? Where’s the code? How do I crack this? How do I get in with the people I want to be friends with? And you’ll always be a little bit of an outsider. You’ll never be part of the history. So you have to be a little quirky, you have to be a little different so people go, “That’s interesting.”
In what way? When I lived in London, I was a big “Monty Python” fan, so I had that kind of quirky, British sense of humor. Don’t drink, don’t smoke, don’t swear, don’t do any of that, so immediately you’re an outsider. But that also gives you a chance to observe people and see what makes them tick and be friends with them in maybe a different way. Kind of quirky, kind of different, and I think that’s continued my whole life. That’s kind of what we do here: Normally people do it this way, but what if you turned it this way? I think that’s what drives me.
How did you get into real estate? Around 1990, I was working for two high-net-worth families, trying to find ways to invest their capital with a partner. We both looked in the Wall Street Journal for two weeks in a row, and every headline was “Real estate is the worst business.” I knew nothing about real estate. But when you see something for two weeks be absolutely thrashed in the media, and you realize that it’s the largest part of the capital markets in the U.S., you sort of sense that there’s an opportunity. So we decided we needed to start a real estate business right then and there.
In 2017, you launched another publicly traded company, Safehold, which is focused on ground-lease deals. Why this shift? So, three years ago, I had gone to our shareholders and said, “We’re going to find the next big thing.” And they said, “What is it?” I said, “No idea. We’re going to set up a company to find it.” So we’re a little bit of a black sheep, a little bit of an outsider. That’s not what the REIT analysts want to hear, not what traditional shareholders can get their hands around. So we’re going to take all we’ve learned over 30 years, and we’re going to find some big inefficiency and we’re going to become the best at fixing it. We’re going to deliver a better mousetrap to the real estate industry. Two years ago, it was almost one of those eureka moments. I was sitting with one of our largest investors, and in my right ear he was talking about efficiencies and customer experience and what investors are looking for, and the other side of my head is going: “I have the perfect idea. We’re going to reinvent the ground-lease business.”
What makes your approach so different? There have been some high-profile cases recently involving ground leases struggling because they are overleveraged. The key is they have to be properly sized and they have to be properly structured. And more than that, you have to have done enough of them to know where the sharp edges are that you have to smooth. Most of the historical and archaic ground leases were done at a time when there was no modern capital market in real estate. So all the provisions in them are wrong; they are all value-destroying, they create uncertainty. You had these fair market resets — the blow-up on the Chrysler Building and Lever House. Well, we’ve been a lender [for more than two decades]. We’re also an owner and operator of real estate. So we look at that dynamic and go, what should a ground lease look like to be value-enhancing? And we just created it.
How would you describe yourself: a developer, financier… I hate the word “developer,” please don’t write the word developer about me. We’re trying to create moments and experiences and lifestyles. I want to be a creator. I want to be an innovator. I want to make things better. Whatever that is, whether it’s the finance world [or] the hotel we’re working on, I want to make that the best it can be.
This interview was condensed and edited for clarity.