Developers are rushing to build four Jersey City waterfront office projects in an effort to take advantage of Manhattan businesses' burgeoning demand for space.

Developers are rushing to build four Jersey City waterfront office projects in an effort to take advantage of Manhattan businesses' burgeoning demand for space.

Two of them intend to start construction by this summer without signed leases in hand. The decision to go ahead is a gamble that New York companies that need room to expand or relocate will be forced to cross the Hudson to find economical rents.

"We believe if we build it, they will come," says Emanuel Stern, the president of Secaucus, N.J.-based Hartz Mountain Industries Inc., the developer of one of the speculative projects.

For Mr. Stern and his competitors, the new wave of Jersey City development means a chance to make money on office construction after years of recession-enforced abstinence. For Jersey City, it means drawing attention from high-profile prospective tenants like CBS, which is considering the area for 1 million square feet to replace its outmoded facility on West 57th Street.

"Jersey City will benefit from the fact that there isn't any trophy space left in Manhattan," says Joe Hilton, a managing director of CB Commercial Real Estate Group Inc.

But for Manhattan landlords, the new developments pose a threat to the vibrant recovery of the downtown office market, where the vacancy rate in Class A buildings has shrunk to 8%, the lowest in 15 years, and the average rent has topped $33 a square foot, the highest since 1990. Jersey City waterfront projects have traditionally found their tenants in companies leaving downtown.

"The irony is that the mayor's revitalization plan for lower Manhattan has been a huge success," says Carl Weisbrod, the president of the Alliance for Downtown New York. "Now the fear is that there may not be enough space for companies to expand downtown."

Mr. Weisbrod, whose chief concern is a dearth of big offices for financial services' expansion, says he will seek to work with the city to keep these firms downtown.

Across the Hudson River, Mr. Stern plans to start next month to tear up the black-topped parking lot that covers the site of his 420,000-square-foot speculative office building at 90 Hudson St. He expects to begin construction on the $70 million project by June unless local politics trip him up.

He is marketing a second building of the same size at 70 Hudson St.

Waiting for tax relief, tenants

The Lefrak Organization, based in Queens, vows to start construction on a 562,000-square-foot office building within 30 days of getting a Jersey City tax abatement.

The developer's plan to start work on Newport Office Center III hit an unexpected roadblock last month when the local city council shot down the abatement package it had proposed. Jersey City Mayor Bret Schundler says a majority of the members have assured him they will support the abatement when it comes up again later this month.

Mack-Cali Realty Corp. also intends to start construction on two separate projects but won't proceed until it can sign at least some leases.

The Cranford, N.J.-based real estate investment trust plans 3.9 million square feet of offices in five buildings at its Harborside Financial Center. As a first step, it intends to construct a 1,100-car parking garage as soon as it gets Jersey City planning board approval. The garage would replace a parking lot that covers its development sites.

The REIT plans to start office construction as soon as one of the proposed buildings is at least one-third rented, says John J. Crandall, a Mack-Cali vice president.

Mack-Cali also intends to line up some tenants before building 1.8 million-square-foot American Financial Exchange, a separate development it is doing jointly with Jersey City-based Garden State Development.

All these projects are competing fiercely for the same Manhattan tenants. Once construction gets under way, they'll have an easier time landing takers. "For tenants shopping for new offices, there's a risk associated with negotiating for what they can't see," says Lee Kosmac, the associate director of Insignia/ESG's New Jersey office.

Broadening NY's boundaries

Despite this drawback, the buildings are attracting interest beyond the back offices of downtown financial institutions, which already populate the Jersey City waterfront. Securities firms are talking about building trading floors there, and Manhattan-based companies are considering relocating their headquarters, which would notch up the areas prestige.

"The boundaries have changed-front-office users are looking at Jersey City," says Bruce Schonbraun, the managing partner of real estate consulting and accounting firm Schonbraun Safris McCann Bekritsky & Co. in Roseland, N.J.

Faced with lease renewals of $t60 a square foot, even some midtown money managers, brokerage firms and insurance companies are mulling moving their headquarters to MackCali's Harborside Financial Center.

"When they see that new buildings in Jersey City are available for half the price, it's very compelling," says Bradley P. Gerla, a senior vice president at Jones Lang Wootton USA, who is marketing the project.

Some high-profile companies are surfacing as prospective tenants. Insurer Cigna is one. Money manager Lord Abbett & Co., with headquarters at the General Motors Building in Manhattan, is another. It is eyeing 150,000 square feet at Mr. Stern's 90 Hudson.

There's also the tantalizing prospect of landing CBS, which has been scouting Jersey City for several months for a 1 million-square-foot location to replace its West 57th Street studios. The network is looking at Lefrak-owned land near the developer's planned office building as well as Mack-Cali's Harborside and American Financial Exchange locales.

Because CBS is simultaneously considering Donald Trump's Riverside South project in Manhattan, brokers believe the broadcaster is trying to provoke a bidding war between the two cities to get big financial relocation incentives.