NJ Transit signs lease to move its HQ to Gateway Center in deal that could cost $400M

NJ Transit officials signed a lease that could be worth close to $400 million to move its corporate headquarters to 2 Gateway Center and out of a building it owns adjacent to Penn Station Newark.

The contract signing was confirmed by Kevin Corbett, NJ Transit CEO, who told NJ Advance Media it happened roughly a month ago. Interior architects are starting to design the agency’s new home, he said.

NJ Transit’s spokespeople refused to provide basic information about the deal and told reporters to file an Open Public Records request for the contract between the agency and Onyx Equities, Gateway Center owners. But some of the details were known in the real estate industry.

NJ Transit is leasing more space than originally planned, 407,173 square feet, according to a Cushman & Wakefield second quarter commercial real estate report that called it “the largest lease signed during the second quarter.”

NJ Transit had considered leasing 398,510 square feet of space, according to information provide to legislators in May.

NorthJersey.com was the first to report the increase in leased space, citing a different commercial real estate report for the second quarter of 2023.

At a rate of $39 leasable square foot, NJ Transit officials had estimated a $15.704 million annual lease cost in May for 398,510 square feet. Based on the additional space, that figure could rise to $15.879 million, at $39 for 407,173 square feet.

Over the lifespan of a 25-year lease, NJ Transit could spend a total of $396.99 million over 25 years based on the $15.879 million lease cost. The final, undisclosed figure could be different depending on the result of negotiations, an agency spokesman said in June.

The agency could receive 12 months “free rent.” After 37 months, lease rates could be subject to a 2% increase, according to information provided to the state legislature in May. NJ Transit could tentatively occupy nearly seven-and-a-half floors in Gateway Two.

The signing culminates a process started in February when NJ Transit’s board approved negotiating with Gateway owner Onyx Equities and bypassing two other offers that had a lower per square foot rate, including the building next to the agencies 1 and 2 Penn Plaza building.

The proposed move also comes at a time when NJ Transit is undergoing a “realignment” study announced in April that looks at cost cutting, potential changes to bus routes, possible fare hikes and other efficiencies to avert a predicted budget shortfall.

That shortfall is estimated by NJ Transit to be $119.4 million beginning in fiscal year 2025, growing to $917 million in fiscal year 2026 and hitting $957 million in fiscal year 2027 if there is no fare increase or an increase in state subsidy, promoting lawmakers to question the fiscal prudence of moving to Gateway Center, during budget hearings in May.

In February, NJ Transit officials justified the move from the agency owned building on Raymond Boulevard across from Penn Station citing “substantial capital investment, estimated at some $118 million,” that would be needed to remain at the Penn Plaza headquarters.

Needed work includes $58 million for heating, ventilation and air conditioning system replacements and deferred maintenance and $60 million for workplace improvements on the buildings 12 floors.

Doing that work would have to happen two floors at a time, causing disruption for employees who would have to temporarily be relocated.

NJ Transit occupies the buildings at 1 and 2 Penn Plaza east, opposite Penn Station Newark. Those buildings were constructed in the late 1980s and early 1990s. The 1 Penn Plaza building had been NJ Transit’s headquarters for decades. It’s the 16th tallest building in the city.

NJ Transit took ownership of 1 and 2 Penn Plaza East in May as part of the settlement of a complicated lawsuit against Hartz Mountain Industries.

The Gateway Complex was built between 1976 to 1986 and renovated in 2022 after Onyx acquired it in 2018. Gateway 2 is a 798,186-square-foot, 28-floor tower.

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Larry Higgs may be reached at lhiggs@njadvancemedia.com.