Exclusive: Rejected NJ Transit HQ option was $111M cheaper than what agency chose, doc shows

A February 2023 report produced by Savills, the real estate brokerage firm hired by NJ Transit to help analyze its Newark options for a new headquarters, identifies the Panasonic building as being more than $100 million cheaper, more efficient and more secure when compared to 2 Gateway, where the agency ultimately decided to move.

The report echoes previous reporting by NorthJersey.com that there were less expensive options to choose from than 2 Gateway — a decision which comes at a critical time with NJ Transit facing a $120 million operating budget deficit next year and nearly $1 billion budget gap the year after that, and the agency weighing service cuts, fare hikes and layoffs to stave off those deficits.

Despite that, the agency signed the lease for up to 431,000 square feet of space in 2 Gateway last month with Onyx Equities, LLC, a company co-owned by John Saraceno, who was in talks with NJ Transit officials about moving to 2 Gateway as early as 2021, well before the agency even went out to bid, and discussing details such as board room options, according to emails obtained exclusively by NorthJersey.com.

The lease was for well more than the 350,000 square feet maximum the agency sought in the original request for the proposal.

Asked at an unrelated press conference Friday about criticisms over the lack of transparency regarding NJ Transit's decision to move, Gov. Phil Murphy said, "I'm a big believer in transparency, so I hope that they are, that they have been and will continue to be transparent. I've got no insight because it was an NJ Transit board decision.

"I'll leave it to them to discuss the lease," Murphy said.

Legislators seek to hold hearings

Meanwhile, Senate Republicans are leaning on Senate President Nicholas Scutari to hold legislative hearings over the lease decision and seeking more documents from the agency about how the decision was made and why cheaper alternatives weren't chosen.

"The Savills report makes it clear that leasing Gateway Center would be significantly more expensive than the other finalist option considered by NJ Transit. That leads to more questions about the decision-making process that seemed to ignore the growing budget deficits the agency has going forward. It really looks like they are burying their heads in the sand," said Anthony Bucco, the Senate minority leader.

The presentation, obtained by NorthJersey.com through a public information request, was dated Feb. 8, 2023, the same day NJ Transit Chief of Staff Justin Davis recommended that the board allow the agency to negotiate and execute a lease with 2 Gateway for around 400,000 square feet, which was unanimously approved.

Just days before that, board Vice Chair Cedrick Fulton resigned, citing concerns at the agency over a lack of transparency over this issue and because he was concerned about NJ Transit's fiscal health, and because he "began to get the sense that others did not" share his concern.

More: NJ Transit produced its lease for a pricey new HQ — but isn't revealing the total cost

More: NJ Transit has had many fiscal crises. Here's why the one that's looming will be worse

The report largely focuses on an analysis of what it would take to move employees in their current building while some $120 million in renovations took place, and compared two short-list options for a potential move: 2 Gateway and the Panasonic building. Some information, though less detailed, was also provided about three other bidders.

The agency sent out five requests for proposal, but narrowed it down to two before a presentation to NJ Transit's board in November 2022, one of the reasons board members were dismayed that they had not been more involved in that process or aware of the decision to move headquarters before then.

New emails obtained by NorthJersey.com also show that shortly after that November board presentation, Saraceno emailed NJ Transit President Kevin Corbett thanking him for choosing 2 Gateway, a detail later negated by now-former CFO Bill Viqueira who said it was the "preferred option" but "no finalist has been selected."

Saraceno apologized for the misunderstanding after saying the broker indicated they were the finalist. The February presentation from Savills doesn't provide a recommendation.

Here's an overview of Savills' analysis of each option, which had to account for fitting 2,225 employees.

1-2 Penn Plaza East

Staying at NJ Transit's current headquarters, a building they took full ownership of last year that NJ Transit CEO Corbett has said was not well kept by its previous owner, appeared to be the cheapest option.

The estimated costs to stay were around $269 million over 25 years, which included $118 million in capital improvements over six years. Of that, $58 million would have been for deferred maintenance like replacing elevators, HVAC and electrical generators, and $60 million — at $5 million a floor — was for workplace renovations.

In order to fit 2,225 employees, the agency needed 400,000 square feet, had 120 free parking spaces and a board room already included.

The downsides, Savills' authors point out, were keeping up with maintenance of a 30-year-old building, "significant employee disruption" over six years for the capital work, and the issue that construction had not been programmed. The consultant also preferred leasing over owning because it offered the lowest net present value cost, which refers to today's dollars not future value, and lowest upfront capital costs.

Panasonic versus 2 Gateway

The Panasonic building, which is at 2 Riverfront Plaza, offered a far cheaper alternative to the other finalist site, 2 Gateway.

Over a 25-year lease, the costs to move to Panasonic were around $503 million (or in net present value figures, $176.5 million). At 2 Gateway, it was estimated at $614.3 million (or $233.4 million NPV), differences of $111.3 million and $56.9 million, respectively, when compared to Panasonic.

In order to fit 2,225 employees, Panasonic required 337,543 square feet; 2 Gateway required 402,668 square feet. In other words, Panasonic's office footprint was about 20% more efficient than 2 Gateway and about 32% more efficient dollar-wise, according to the presentation.

Panasonic also checked all the boxes on a seven-row chart safety assessment conducted by the NJ Transit Police Department, which was included in the report. 2 Gateway was also the only option that required a "nominal additional cost" to use a board room.

Other alternatives

By the time this report was presented, offers presented by 3 Gateway Center, 80 Park Plaza (the old PSE&G building) and 3 Penn Plaza East (the Horizon building) were not in the running, and the analysis on their offers are not as in-depth, according to the presentation.

However, all three could fit 2,225 employees in less than 384,000 square feet, with 3 Penn Plaza East the most efficient at 361,599 square feet. That building also offered the most parking out of any option with 362 spaces. They all also included board rooms at no additional cost.

Why these buildings were dismissed has not been publicly discussed.

NJ Transit's decision

Tacked on to the bottom of the presentation are four pages on NJ Transit letterhead — not Savills — that offer a "spatial evaluation," highlighting that 2 Gateway, when compared to Panasonic, offered more "flexibility to contract and expand," which it says is constrained at Panasonic. It does not, however, address why the other bidders were not considered even though they could fit more people per square foot for less money and also had square footage available to expand.

Another plus 2 Gateway offered is the connectivity to Newark Penn Station and new amenities from its $60 million renovation in 2021. The cons cited are the higher costs, security challenges by sharing the building with other entities and older building design that restricts natural light.

The pros for Panasonic, they note, are occupying the entire building, lower costs, newer building design and LEED Gold standard. The cons were the ability to increase their footprint and concerns about space efficiency that could break up business units.

This article originally appeared on NorthJersey.com: Report shows Panasonic was $111M less than Gateway for NJT HQ