NJ Transit signs controversial lease with Onyx for pricey new HQ

NJ Transit has signed a controversial lease with Onyx Equities, LLC, to move its headquarters to the 2 Gateway building in Newark, NorthJersey.com has learned.

The lease for 407,000 square feet — more than previous estimates — was confirmed by a Q2 real estate report published by commercial real estate firm CBRE, but other information has been minimal.

Controversy over the deal has been building since February as reporting from NorthJersey.com has revealed that the Onyx building was the most expensive option on the table, and emails reveal discussion about a possible move to Gateway a year before the agency started to solicit bids.

The agency chose the more expensive option even though it faces large fiscal deficits in the next two years. A board member resigned over the lack of transparency with the decision to move.

The agency has not responded to a public information request submitted on June 20 for the signed lease and a number of questions about the lease.

Jim Smith, an NJ Transit spokesman, said the request for the lease is still being reviewed.

NJ Transit is a public agency that receives a large amount of its funding from taxpayers and rider fares. A lease is a document that should be readily available for public review under the state's Open Public Records Act.

Among the outstanding questions about what is expected to be one of the largest real estate deals in the state this year are:

• When was the lease signed?

• When does the lease begin?

• What is the total value of the lease over 25 years?

• How much is it estimated to cost due to any construction to make the space fit the agency's needs? How much of that is NJ Transit paying for? How much of that is Onyx paying for?

• Will the office space NJ Transit is occupying include a boardroom? Or is that separate outside of the footprint? If separate, how much will that cost?

• Did the state Office of the Comptroller sign off on the lease?

• When does the agency plan to move in?

• Details of the rental terms under negotiation were disclosed in a previous document provided to the Legislature's budget hearing committees in May. Have any of these terms changed? Starting rent is $39 per square foot, with one year of free rent and 2% annual increases in rent starting in month 37.

• Is the disposal of 1-2 Penn Plaza East, NJ Transit's current headquarters, part of this deal?

In February, the public became aware of the agency's decision to move and lease 400,000 square feet of space at 2 Gateway, 0.3 miles away from 1-2 Penn Plaza East, a building NJ Transit owns.

News of the decision to move was immediately contentious after NJ Transit board Vice Chair Cedrick Fulton resigned, citing this decision as the final straw after months of complaining about the lack of transparency and opaque deal-making going on without board knowledge.

Days after his resignation, the board unanimously authorized Kevin Corbett, the agency's CEO and president, to begin negotiating a contract with Onyx, whose co-owners have donated to Gov. Phil Murphy's campaigns.

'A shot to make something happen'

Emails obtained by NorthJersey.com revealed that Onyx co-owner John Saraceno sent an email to NJ Transit Chief of Staff Justin Davis and Deputy Chief of Staff Matthew McHale on March 2, 2021, that read, "I have a good feeling that Gateway is the right spot for Transit and that with the team that is involved at this time, we have a shot to make something happen."

A month later, top NJ Transit officials, including Corbett, toured the building.

Corbett previously told reporters the settlement agreement of their current building in April 2022 triggered the agency to hire the real estate brokerage firm Savills to analyze its options and solicit bids for a new headquarters.

Asked about this discrepancy last month, Corbett said the 2021 tour of 2 Gateway was about redevelopment plans at Newark Penn Station, which a NorthJersey.com source with knowledge of the tour refutes.

Asked about Saraceno calling Gateway the right spot for transit in March 2021 — more than a year before the agency began soliciting bids for new office space — Corbett chalked it up to "marketing" and said, "There was no serious discussion or proposal on that."

A nearly $1 billion fiscal cliff

The decision to move to Gateway comes as the agency is facing a $118 million budget shortfall next year and a nearly $1 billion budget deficit in 2026. The agency is undergoing a restructuring that could lead to service cuts, fare hikes, layoffs or other corporate consolidation efforts.

That makes the move to Gateway even more striking, given that it was the most expensive option under consideration by NJ Transit. Corbett has said estimates to renovate its current building, which needed HVAC and elevator improvements, would cost $118 million and be disruptive to employees. Leases at other nearby buildings that answered the request for bids would have cost at least $100 million less than Gateway's lease.

At $39 per square foot for nearly 400,000 square feet of space, NJ Transit would also be paying more than other large tenants at 2 Gateway. WebMD signed a lease that began in January 2022 for 100,000 square feet starting at $34.50. Rent per square foot is just one factor in a commercial lease agreement, which includes annual rent escalation, free rent, tenant allowance for construction of new space, furnishing costs and more.

"This one transaction accounted for more leasing activity in the Newark submarket than the previous 10 quarters combined," the CBRE report said.

NJ Transit moved into its current headquarters in 1991 and consolidated about 1,000 employees from five locations, including its former headquarters on McCarter Highway nearby. Corbett has said the agency will dispose of the building on Penn Plaza East through a public process.

This article originally appeared on NorthJersey.com: NJ Transit signs controversial lease with Onyx for pricey new HQ