(Bloomberg) -- The nascent recovery of Newark, New Jersey, has gotten a boost with a deal to transform an outdated downtown office complex with high-end shopping and lively public spaces.
A group of five investors bought Gateway Center, near the Penn Station rail hub, for about $300 million, according to a person with knowledge of the matter. The 5-acre (2-hectare) complex was conceived more than 40 years ago as a way for visitors to enter the blighted city, conduct business, and walk within its concourses and skyway -- all without encountering street life.
“The Gateway complex is many people’s first experience of this city, and for so long it’s been under-invested, under-maintained, unpleasant,” said Ommeed Sathe, vice president for impact investment at Prudential Financial Inc., one of the partners. “It actually had a chilling effect on the market, a downside reminder of a time when Newark was so blighted, it was built to disengage visitors from the city.”
The deal is a bet that a long-hoped-for recovery is finally taking hold in Newark, which was devastated by riots in 1967 and has struggled to overcome its reputation for crime and poverty. Now, an influx of real estate investment is remaking swaths of the city, an effort that landed the former shipping hub on Amazon.com Inc.’s shortlist of 20 cities for its second North American headquarters.
The partners bought the towers known as Gateway One, Two and Four and the concourses that link them and provide a conduit between Newark Penn Station and the city’s increasingly bustling downtown.
About 60,000 people either work inside or walk through the Gateway Center each day, arriving by Amtrak, New Jersey Transit or the Port Authority PATH tube linking the city to New York. The complex is within a 10-minute walk to the headquarters of Panasonic Corp., the Prudential Center arena, Seton Hall and Rutgers University law schools, the New Jersey Performing Arts Center, the city’s historic Ironbound section and thousands of units of newly built housing units.
The recent developments in Newark -- whose population peaked in 1930 -- are built upon a decade of political leadership that has gained the trust of the city’s business community, said Sathe of Prudential. The Gateway partnership expects to attract tenants from within New Jersey and others drawn to the area as a cost-effective alternative to New York.
The buildings are about 70 percent occupied, with tenants including the law firm McCarter & English and Broadridge Financial Solutions. It also houses a Hilton hotel.
The partners intend to invest about $35 million sprucing up Gateway’s moribund concourse, fixing its frequently broken escalators and revamping its lighting. Plans also call for new street access, public outdoor spaces and retail offerings and eateries. Currently, the complex has two of each Dunkin’ Donuts and Subway sandwich shops.
When the concourses and public spaces are transformed, the partnership expects the area to gain new amenities -- shopping, entertainment venues, restaurants -- to serve the additional pedestrian street traffic. There are no public or government subsidies associated with the purchase, Sathe said.
“This will be a sizable, tangible benefit knitting adjacent neighborhoods together with the train station,” he said. “There will be a huge economic multiplier.”
The complex suffered from fragmented ownership of each of its buildings, which suppressed investment and made decisions about improving common areas difficult, said Sathe, whose company in the past five years has invested more than $1 billion in the city where its headquarters is located.
One of the investments includes the makeover of the 107-year-old former Hahne & Co. department store, which opened in 2017 as a mixed-use project with apartments, a Rutgers-run arts, performance venue and media center and a Whole Foods supermarket at street level, a short walk from the Gateway complex.
Gateway “became dated, the experience of walking through the tunnels is disorienting, demoralizing,” Sathe said. “We intend to change all that, and create a different retail experience, with more connectivity between it and the street.”
The Gateway deal came came together in late December, with Prudential joining Garrison Investment Group, Axonic Capital and Taconic Capital Advisors of New York and Onyx Equities of Woodbridge, New Jersey. Onyx will manage the property, which has 1.1 million square feet of office space.
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