In early April, New York City-based RCA listed the property on its "Troubled Assets Radar" report for the New York Metro area. Work has slowed considerably at the project, which occupies state-owned land in the Meadowlands Sports Complex, at the intersection of Route 3 and Interstate 95, across from the under-construction Meadowlands Stadium. Recently, a key tenant of the Xanadu complex, Nebraska-based sporting goods chain Cabela's said it doesn't plan to open its doors until late 2010.

But according to Richard Dressel, business manager of IBEW Local 164, which has been providing electrical installation services at Xanadu and the new Meadowlands Stadium since ground broke at both sites, Cabela's delayed opening isn't necessarily a bad sign. "It should give developer Colony Capital enough time to secure additional tenants," he says, adding that right now the complex is likely only around 50% preleased. However, according to published reports, Laurence C. Siegel, the former chief executive of the project's original sponsor, Mills Corp.--who remains the creative force behind the project as president of Meadowlands Xanadu--says that the project is 70% leased, although he declined to identify most of the tenants.

There's also hope that by late next year the economy will have moved into full recovery mode, thereby allowing Colony and the New Jersey Sports and Exposition Authority, which controls the site, to avoid sluggish store sales.

Tenant troubles aside, the Xanadu common areas are about 90% complete. And while the industrial-looking exterior has been widely attacked, retail specialists have praised the interior. The site is expected to feature shops, an indoor snow dome, a Muvico movie complex, bowling alley, restaurants and an upscale martini bar, along with clothing chains Zara, Mango, Forever 21, H&M, Children's Place; German footwear chain Deichmann; and a Zeytinia Gourmet Market.

Although Dressel admits scrapping the entire project had been proposed at one point, "it would ultimately cost more money to abandon Xanadu." Dan Fasulo, managing director and head of research for RCA, agrees, adding that Xanadu will eventually get built and be successful. "It's one of those projects that is too big to fail," he says. "The stakeholders have way too much capital at stake not to finish the project. That being said, it's one of those mega projects, like a Disney World, that might take many years for it to become profitable. But at some point, it will be a success."

One project that has remained on track is the Meadowlands rail station in East Rutherford, which opened to the public in late July. Designed by DMR Architects, the station is part of the larger Meadowlands Railroad and Roadway Improvement Project, a multi-agency cooperative effort to provide a mass transportation alternative to the New Jersey Meadowlands Sports and Entertainment Complex. The overall construction program includes both railroad and highway projects, with $180 million in funding for the new rail station and related work provided by the Port Authority of New York and New Jersey.

[IMGCAP(2)]The new two-mile long track system juts off the Pascack Valley Line, says project manager and senior designer for DMR Architects Kurt Vierheilig, who notes that pedestrian movement influenced the station's design and layout. "The pedestrian overpass connects several platforms and a pedestrian plaza along with a series of ramps that intersect the 950-foot-long station," he adds. The new station features oversized circulation stairs as well as overpass and ramp systems.

The station's main purpose, Vierheilig says, is to service Xanadu and the new Meadowlands Stadium, the latter of which is scheduled for completion in 2010.The train station will ultimately allow passengers to travel from Northern New Jersey, Midtown Manhattan and Long Island through Secaucus Junction Transfer Station to the stadium and the entertainment complex, but trains will only operate--at least initially--for stadium events that figure to draw more than 50,000 people, including Giants and Jets preseason and regular season games, major concerts and Gold Cup soccer matches.

But not everyone's happy that a $180-million project could sit empty for much of the year. Assemblymen Fred Scalera and Gary Schaer have been quoted as saying that officials could boost mass transit usage by turning the empty parking lots at the Meadowlands Complex into a weekday commuter park-and-ride.

According to a story in the Bergen Record, the seven-mile stretch of track will be closed 80% of the time. The lawmakers said operating regular weekday rush-hour service on the line would help ease more commuters into using mass transit, lessening congestion on roads east of the Meadowlands complex and ensuring a regular stream of riders into Secaucus Junction. For its part, NJ Transit has responded by saying that service will be expanded once Xanadu is complete.

The real question, though, is whether the rail line will drive tenant traffic here. "The availability of mass transportation is an important marketing tool and it certainly helps to close transactions," Milano says. "But I'm not certain it will bring tenants to the area." Still, he adds, it can't hurt.

However, all of this construction--from Xanadu and the mass transit site to Meadowlands Stadium--could put a damper on market movement. "If human resources departments are thinking about moving into the Meadowlands, or if they're already here and their leases are coming due, they need to consider the construction because it's not going to end soon," says Mark Trevisan, executive vice president of Cushman & Wakefield, based in East Rutherford.

But Milano disagrees, noting that the stadium will be completed on schedule and the games don't coincide with heavy commuter traffic times. "Plus, no one is certain that Xanadu will ever open and it certainly doesn't appear to be of any consequence to traffic and congestion right now," he adds.

However, the New Jersey Department of Transportation is close to commencing a three-year project on the Eagle Rock Avenue bridge, which runs over the Passaic River between Roseland and East Hanover. "That's going to create another nightmare for the Route 3 commuters, particularly those who head east in the morning," Trevisan says. "Employees will need to be cognizant of this as they drive from Cedar Grove, Montclair, Wayne or Fairfield into the Meadowlands each day."

To some degree, the Meadowlands office market has always played second fiddle to Jersey City, says Jeff Oram, senior associate at Marcus & Millichap Real Estate Investment Services in Elmwood Park. The availability rate in the Meadowlands is around 25%, "which isn't too far away from the 20% vacancy of its heyday," he says.And like Jersey City, the Meadowlands has benefited from some Manhattan migration since 2001, though not to the degree that was predicted. "Notwithstanding Midtown being at an all-time high in terms of vacancy, there's still a significant savings if you relocate five to eight miles outside of the city," Trevisan says. And the rents here have historically been less expensive than the Waterfront, with the Meadowlands posting a Q2 rental rate of $29.10 for class A space and the Hudson Waterfront coming in at $37.78, according to C&W.

[IMGCAP(3)]Still, the roughly 69-building market is a tough place to own office. "Year-to-date absorption has been abysmal, around 127,000 square feet in six months," Trevisan says. In fact, the last time there was positive net absorption in the Meadowlands was in 2007, also based on C&W stats.

The market is primarily controlled by Hartz, which has a 10-office portfolio in the Meadowlands. According to Milano, vacancy rates on the company's buildings are running around 4.5%, with Harmon Meadows likely showing the most velocity.Mack-Cali also owns a number of properties, thanks to its acquisition of the six-building Bellemead portfolio in Lyndhurst. Onyx Equities and CBRE Investors own significant square footage, with the latter recently picking up the 422,000-square-foot Metropolitan Center in East Rutherford from ING Clarion Partners.

However, the majority of Meadowlands buildings are B and C class, which suggests that they are 20 years or older. In many cases, Trevisan says, they're even older than that. Some exceptions are Hartz's Lighting Way product, which is class A, as is Onyx Equities' Meadows Office Complex. S.L. Green, meanwhile, recently gutted its 125 Chubb Ave. office and is repositioning it as class A. "But the Hartz Plaza Drive product, along with many of the properties on Meadowlands Parkway, is generally B and C class and 20-plus years old," Trevisan says.

For its part, C&W has noticed two trends when it comes to tenant behavior, both of which relate to creditworthiness. "Some tenants are concerned about their business, so they're taking advantage of current rental rates but only on a short-term basis. But those tenants that are stable are locking in low rental rates for the long haul."

Like most other markets, tenants here can essentially write their own terms within reason. "While a tenant relocation in a normal market might mean the landlord spends nine to 12 months looking for a replacement, in today's market it could take 18 to 36 months to fill the space," Trevisan relates. This scenario doesn't hold as much water if the tenant is leasing 5,000 square feet, but if the space is 20,000 square feet or more tenants can essentially play hardball.

Concessions continue to play a major role in the market. C&W is currently shopping around for 25,000 square feet for an unidentified client here. According to Trevisan, "landlords in the Meadowlands have offered to pay for our client's relocation allowance, 12 months free rent, an above market tenant improvement package and below market rental rates, and they've offered to pick up the termination penalty, which is a couple hundred thousand dollars."

Looking ahead, Trevisan hopes to see more positive absorption for the remainder of this year and certainly into next year as buyer confidence begins to return. "We could see more Midtown Manhattan tenants move their back-office operations out to the Meadowlands, but it's hard to predict."

[IMGCAP(4)]On the industrial front, the market is seeing mostly renewals. However, some larger deals have gotten done, including the Morris Cos.' 230,953-square-foot office/industrial building at 261 River Rd. in Clifton, which is being leased by International Paper. Dr. Pepper/Snapple Group, meanwhile, renewed its 125,366-square-foot lease at Hartz's 100 Electric Ave. in Secaucus.

But the real activity is with existing tenants in the marketplace, says Mike Fasano, vice president and regional manager of Marcus & Millichap's New Jersey office in Elmwood Park. To that end, electrical and telecommunications distributor Graybar is searching for 140,000 square feet and Williams-Sonoma is in discussions to consolidate several locations into a single one-million-square-foot space. Arizona Ice Tea has a contract on a 400,000-square-foot ProLogis-owned space, but "we'll see if that actually happens or not," says Fasano, and Taffy Paper is also in the market for 400,000 square feet.

In fact, the industrial market here has held up much better than in other parts of the state because most tenants looking for space in the Meadowlands have requirements of 50,000 square feet to 100,000 square feet. "That's generally where the velocity is," Milano relates. "There are very few requirements of 300,000 square feet and up, and most of those are going further south to Exit 8A and 7A."

The real message, though, is that the rents are off fairly significantly. According to Fasano, there's been around a 20% drop in rents here. "In the heyday, you'd be talking about rents around $6.50, but deals are now getting done in the $5s," adds Oram.The Meadowlands currently has an availability rate of 10.9%, which is up from historical averages in the 6% range. That said, a 10% vacancy on a multi-tenant industrial building is not going to cause distress in the asset, Fasano observes.

Part of what has helped this 97.7-million-square-foot industrial market to avoid a severe downturn is its diversified tenant base. "Most of the tenants service the local market, so they're here and they stay," Oram relates.

On the investor side, single-tenant industrial assets have become less appealing over the past few years. "If you have a 150,000-square-foot building and one tenant, investors are wary," Fasano says. "But take that same building with five tenants and there will be a line of six or seven investors who want to compete on it."

In fact, some well-capitalized tenants could start purchasing their own properties. "With some of the quality SBA loans, now is a good time to jump out of being a tenant and move into an ownership role," Fasano relates. "Even if a tenant only needs 25,000 square feet, they could purchase a 40,000-square-foot asset because the prices are at 2001 levels."

Ultimately, though, Milano believes there will be fewer industrial buildings in the Meadowlands. "The uses here are being upgraded so there will be a slow migration of the industrial space to higher and better functions." According to Milano, Hartz has cycled out nearly two million square feet of industrial space to studios and data centers. "Our industrial footprint has actually decreased because several properties were taken out of that portfolio and are now used for these other operations. I see that trend continuing."