If you took a trip to the Ironbound section of Newark, the largest city in New Jersey, you'd see a 100,000 sq. ft. shopping center rising. No big deal, you might think. But you'd be wrong.
Making Ferry Plaza happen was as complicated a deal as we've ever been involved with. Indeed, the pre-development process took more than three years of negotiation and structuring before the property acquisition could be closed, allowing for the construction of the $13 million project.
AFC's role was long and complex. In simple terms, we acted as the "financial architects" behind the deal on behalf of a development partnership we organized. The challenging opportunity was to assemble a 10-acre infill site in a fully developed, under-retailed, economically vibrant, densely populated urban location. It involved: intricate site acquisition negotiations; arranging for $13 million of project debt and equity financing; solving the site's difficult environmental problems; negotiating a lease with Pathmark supermarket, the anchor, and other tenants; and qualifying the project to meet the requirements as an urban renewal entity, which led to significant real estate and sales tax abatements.
The environmental issues were monumental. Under New Jersey law, sites like ours had to be cleaned of any contaminants before they could be redeveloped. Before making the deal, we insisted that the previous owner of the site, Georgia-Pacific Corp., clean the area thoroughly, in addition to demolishing the structures dotting the area. The cost to Georgia-Pacific was substantially more than the $4 million acquisition cost.
We arranged to buy the site based on the cleanup, and we ended up spending $250,000 in legal and engineering fees to analyze the situation and ensure the problems could be solved. We had to make the banks feel comfortable in order to arrange the financing.
When we found the site in 1991, an antiquated Pathmark was the main tenant on an adjacent parcel. We approached them and asked if they would be interested in moving to our site, and they agreed. But it required a great deal of negotiation.
Meanwhile, we needed to arrange $13 million of debt and equity financing for the project. But it was a tough sell for several reasons. First was Newark's poor image. Secondly, Pathmark had been through a leveraged buyout, its credit rating was below investment grade, and the financial community was less than sanguine about it. Finally, of course, the site had been environmentally "dirty," making investors and lenders wary.
To overcome resistance by equity and debt investors, we made the following points: despite Newark's image, the Ironbound section was a solid, thriving community of Spanish, Italian and Portuguese families; as a retailer, Pathmark had a favorable reputation unparalleled in the industry; the site had undergone an extensive environmental cleanup, meeting all governmental standards; and we were an experienced development team. As it turned out, decontaminating the site cost fully 21/2 times the sales price. With a strong retail location, we were able to raise $3 million from a group of investors with experience in shopping centers.
In addition to having to "sell" equity and debt investors, we also needed to get approval from the community. As it turned out, we received support from both the elected officials and people living in the neighborhood. When we had our first town meeting, 700 people came. Because of their comments, we altered our design significantly, especially in terms of security, fencing, sound barriers, truck access and landscaping.
The confidence expressed by our lenders, investors and tenants is in great part attributable to the strong development team. Our partnership team included architect Planned Expansion Group, financial adviser DKH Group, general contractor Eastman Construction Co. and Perlmutter Properties for leasing. AFC handled debt and equity financing in addition to its role as developer.
Leasing at Ferry Plaza has been strong, with full occupancy expected by the time the new center opens this autumn. The Pathmark lease calls for 63,000 sq. ft., with leases with a number of other regional and national tenants.
As we said at the outset: It all looks so simple. It was anything but.