In January, Governor Chris Christie authorized the rollout of a new program that aims to give suburban locales more of a fighting chance to retain and attract commercial property development. The sentiments of many suburban developers, landlords and legislators were rankled after a couple of giant—and controversial—Urban Transit Hub Tax Credit grants were awarded last year for projects in Newark.

In one case, Prudential was promised $250 million in credits and incentives if it proceeds with construction of a headquarters tower a few blocks from its home of 40 years in Newark's Gateway. Several Gateway landlords then sued the state Economic Development Authority, contending that the deal would have the opposite effect of what is intended by the tax-credit program and worsen the situation in Newark by hollowing out their landmark buildings. In another case, Panasonic received a $102-million credit to relocate from its nearly 40-year-old headquarters in Secaucus to a new tower that will rise next to Gateway Center. In that case, Hartz Mountain Industries, Panasonic's Secaucus landlord, filed a suit against the EDA. That suit was dropped, however, after the initiation of the suburban-oriented tax credit program.

The new program, Grow New Jersey, was created by diverting $200 million from the $1.5 billion set aside in 2008 for the Urban Transit Hub Tax Credit program. Grow NJ is targeted to smaller and not-so-urban projects. They can be located anywhere, whereas the parent program applies to only nine designated cities with redevelopment areas around railroad stations. A minimum of 100 jobs must be retained or brought to New Jersey for businesses to get credits equal to the full value of a capital investment of $20 million or more; under the UTHTC program, the minimum requirement is 250 jobs and a $50 investment.

Two of the first four Grow NJ grants for commercial property deals announced last month involve office properties: The generic drug maker Teva will be given a tax credit totaling about $15 million dollars if it builds a research/office facility in Morris County's Florham Park, adding 215 jobs, in addition to those that may be moved from other offices it currently occupies in suburban Bergen County. Also, Ascena, the parent company of Dress Barn, would get $32.4 million if it relocates its corporate headquarters as planned from Suffern, NY, to Mahwah in Bergen County, bringing more than 400 jobs to the state.

"Grow New Jersey is really going to hit home in the suburbs, where we have a large base of existing older buildings and high vacancies," says Michael McGuinness, who lobbies for commercial real estate interests as CEO of the state chapter of NAIOP. "We have so much invested in existing infrastructure in older suburbs, and we can hardly just walk away from that." McGuinness says his member companies are strongly in favor of re-upping the state's commitment to the program by $1 billion when the current allocation runs out, as proposed in a bill before the legislature. NAIOP also supports development of additional programs specifically designed to spur the retrofitting of older buildings to improve their energy efficiency.

"That's a great place for the administration to focus policies," says McGuinness. "If we can reduce energy costs in older suburban buildings through the use of renewable materials and installation of new high-tech sensors and energy-control devices—whether by mandates or by encouraging and incentivizing—those buildings will not only compete better in the marketplace, but the state also won't need to spend nearly as much on developing solar and other alternative energy generators."

One of the projects up for a NAIOP Deal of the Year award this year involves the transformation of an obsolete former Verizon office in Madison into an environmentally friendly, LEED Silver-certified headquarters for Realogy, now based in Parsippany. The Hampshire Cos. of Morristown is the developer and award finalist. Ivy Equities is also a finalist, for an adaptive re-use project in the Princetonarea suburb of Plainsboro. A 730,000-square-foot former Merrill Lynch facility there will undergo a state-of-the-art renovation and expansion to become the new world headquarters for pharmaceutical company Norvo Nordisk.

The Newark Panasonic project, for which ground will be broken in September by developers SJP Properties and Matrix, is also a finalist for one of three awards, slated at press time to be handed out May 17. That 14-story tower has been designed to meet the highest LEED ranking of Platinum, as certified by the US Green Building Council.

SJP's Jeffrey Schotz says his company is definitely not withdrawing interest in the suburban arena. SJP, led by Steven J. Pozycki, has developed and continues to own millions of square feet of suburban campus properties, including Morris Corporate Center in Parsippany. It has plans in the pipeline for an additional 1.5 million square feet to be added at various suburban campuses, "when the time is right," says Schotz: another 750,000 square feet at Morris Corporate Center, 250,000 feet at Somerset Corporate Center in Bridgewater; 300,000 square feet at the Warren Corporate Center in Warren; 295,000 feet at Metro Park Corporate Center in Iselin.

Elsewhere in suburban campus country, two pharmaceutical companies made recent commitments to relocate at landmark properties emptied in the wave of consolidations, contractions and closings that came with the Great Recession of 2009. Bayer HealthCare bought 95 acres of the 194-acre former Alcatel-Lucent campus in Whippany. After a renovation, it will consolidate its East Coast operations there starting next spring. Alcatel-Lucent consolidated its operations at its corporate campus in Murray Hill three years ago.

Despite this movement, "de-suburbanization" is still the presiding theme in the marketplace at large, according to Schotz. "We focus on meeting the demands of corporate real estate," he says. "Right now, the overwhelming majority of demand is coming from large users who are able to take advantage of the economic opportunities available to them—primarily the urban transit hub program."

Grow NJ is bound to start stimulating fresh churn in some suburban markets, Schotz says, but it's much too soon to predict exactly where, when and how much. "We don't think the suburban office is dead by any means," he says.

C&W's Gabriel notes that investors who truly believe in the "cyclicality" of real estate markets should be circling around suburban offices that appear on "absolutely no one's must-have list" at the moment. "Historic trend lines for sales value tell us that the best time to be a buyer is when no one wants the space," he adds.

Edwin H. Cohen, a principal of Prism Capital Partners, offers proof of life at a 40-year-old suburban office park: "Our BroadAcres campus park in Bloomfield had a very high vacancy rate when we purchased it six years ago. We managed to build up occupancy substantially, but then the economic downturn hit. A few mortgage companies we had as tenants went out of business, and the occupancy rate dropped precipitously again. Ever since a gasping recovery began, we've steadily built occupancy back up.

"We're not losing transactions to more urban locations," adds Cohen. To the contrary, he says the campus environment is the primary attraction for tenants at BroadAcres.

The Bloomfield site for four 95,000-square-foot buildings is not exactly bucolic; it's on busy Broad Street, a mile south of an entrance to Route 3 leading to the Lincoln Tunnel, and a block east of the Garden State Parkway.

But Prism has worked in the past three years to enhance the campus-like feel of the complex, installing a new landscaped courtyard with fountains and places to stroll or gather and sit. An onsite café and catering service is now open to tenants 18 hours a day.

Cohen says he has watched other suburban campuses deteriorate and flounder after being sold to multiple owners amidst changing economic conditions. "It takes a cohesive single entity controlling a park to be successful over the long term," he opines.

The fact that the state's urban markets are outperforming the suburbs doesn't necessarily mean they haven't been hurt in the downturn. In fact, the cities of the Garden State still have a long slog ahead toward stability.

Except, perhaps, the Jersey City waterfront area, which is tied by the giant umbilical cord of mass transit to Lower Manhattan. With a tightening office market in New York City, the vacancy rate in Jersey City was down to about 8% in the first quarter, according to reports.

At the end of December, C&W's Metropolitan Area Capital Markets Group accomplished the $285-million sale of a trophy building that helps define Jersey City's skyline. Canada-based insurance giant Manulife Financial bought the 30-story property.

More Manhattan-based financial institutions will invest in trophy properties in Northern New Jersey over the course of the year, predicts Marcus & Millichap. The firm's first-quarter data indicate that prices will remain low and cap rates will hover at around 6.5%.

Several Manhattan financial corporations including Citigroup and Fidelity leased office space in Jersey City recently. And last month, the LeFrak Organization started aggressively seeking a tenant at a new tower it wants to build at its Newport complex there.

Large companies eligible for urban tax hub credits could secure new-built offices for very low or even no rental costs for up to a decade, LeFrak pointed out. The Newport Pier 6 tower could rise as high as 16 floors, adding another element to the city's skyline.

On the flip side, no one's declaring a general turnaround has actually occurred in Newark, despite the Panasonic deal that developers and city officials say has incited queries from other large corporations about headquarters relocations. For one thing, there's the looming disruption at Gateway after Prudential moves; some market specialists think it could reverberate negatively throughout the downtown business district for as long as 10 years and neutralize much of the positive impact from Panasonic's move.

"No way," says Schotz, echoing Newark Mayor Cory Booker's confidence and optimism. "We think Panasonic is a game-changer."

Newark native David Stifelman, an executive director with C&W, wont declare the city to be securely on the comeback trail. Panasonic "took a huge leap of faith and produced a win for the city," he says. "But we need to see more and continuing velocity in transactions.

"The city has to keep on with the mission of reinventing itself, and it probably can't do that without the urban transit hub credits continuing to provide incentives for corporations," he continues. "The city has to make strides toward becoming a 24/7 environment, bring in more retail, create more places where people mingle and hang out while they're on their lunch hours or after work, before going home or on their way to an event."

Perhaps it should be noted (with a touch of irony) that the rehabilitation of the central square in the Military Park office district in Downtown Newark starts this spring, with improvements that mirror Stifelman's suggestions. The improvements, though, suggest a change to a more campus-like ambience; the restaurant kiosk and walking paths will be redesigned and upgraded, and new plantings and mobile furniture will be installed, along with free wi-fi service.

"We need both types of office space, urban and suburban, towers and campuses. We always have, always will," says Cohen of Prism. So does Stifelman. And Schotz. About this, there seems to be common ground.