VOLUME 27 NUMBER 1JANUARY-MARCH 1997

RETAIL

NEW COMMUNITY NEIGHBORHOOD SHOPPINGCENTERNEWARK, NEW JERSEY

PROJECT TYPE

A 55,000-square-foot shopping center located in the central ward, an inner-cityneighborhood of Newark. The Pathmarksupermarket, which anchors the center, is the first to be built in the central ward sincecivil disturbances in the summer of 1967.Pathmark owns one-third of the joint-venture market and operates it under amanagement agreement betweenSupermarkets General, the parent companyof Pathmark, and New CommunityCorporation (NCC), the nonprofit developerand sole owner of the shopping center.Franchises of several national retail establishments have located in the center.

SPECIAL FEATURES

Joint venture involving a nonprofit developer and a supermarket chainInner-city retail developmentLand assembly issuesAdaptation of store prototype to a small site

DEVELOPER/OWNER

New Community Corporation 233 West Market Street Newark, New Jersey 07103 201-623-2800

ARCHITECT/PLANNER

Bomad 47 Newark Street Hoboken, New Jersey 07030

BUILDER

Turner Construction Company 265 Davidson Avenue Somerset, New Jersey 08873 908-627-8300

GENERAL DESCRIPTION

Like the phoenix rising from the ashes, the New Community Neighborhood Shopping Centerhas risen out of the devastation of the central ward of Newark, New Jersey, that resulted fromcivil disturbances in the summer of 1967. The 47,000-square-foot Pathmark supermarket thatanchors the shopping center is the first major supermarket to dot the landscape of the centralward in more than 20 years. Lack of supermarkets is not a problem in suburban America,where competition for the food dollar is fierce. However, in the inner cities the existence of amajor supermarket is nothing short of a miracle. For residents of the predominantlylow-income, African-American central ward, the miracle occurred on July 26, 1990, at thegrand opening of the supermarket. Jack Kemp, then Secretary of Housing and UrbanDevelopment, was one of many politicians on hand for the ribbon-cutting ceremony.

Other mainstream businesses found in abundance in suburban America occupy the remaining8,000 square feet in the New Community Neighborhood Shopping Center. Dunkin' Donuts,strategically located on the southeast corner of the shopping center, is open 24 hours a day,selling doughnuts, pastries, cookies, muffins, croissants, sandwiches, and beverages to a largeclientele. Mail Boxes, Etc. provides postal, business, and communications services toconsumers and small businesses, with 24-hour key access to mail boxes. With itsstate-of-the-art equipment, NC Print & Copy Shop helps individuals and small business ownersproduce stationery, invitations, flyers, brochures, booklets, and business cards. The need fortransportation in a neighborhood where only one in three residents owns a car is filled byGrocery Delivery, a van service that transports customers, their packages, and often theirchildren home. The World of Foods has fostered NCC businesses with its Southern Kitchen andNew Community Bakery. In 1996, Pizza Hut, Taco Bell, Magic Fountain, and Nathan's wereadded to the World of Foods. Despite the growing list of national franchises, the crown jewelof the center is undeniably the Pathmark supermarket.

THE NEW COMMUNITY CORPORATION

The civil unrest of July 1967 strengthened the resolve of a handful of residents who alreadyhad begun meeting in Queen of Angels Catholic Church to discuss methods of breaking thecycle of abandonment and decay plaguing their neighborhood. In January 1968, the residents,led by Father William J. Linder, a priest at the church, officially incorporated as the NewCommunity Corporation (NCC), a nonprofit community development corporation. Today, NCChas assets in excess of $300 million, with a 1996 cash flow of $200 million. Since itsinception, NCC has formed many unique public/private partnerships, including ones with HartzMountain Industries; Bellemead Development Corporation; Pathmark Stores, Inc.;Colgate-Palmolive Company; Ford Motor Company; United Hospitals; Bloomfield College;Essex County College; Seton Hall University; Fairleigh Dickinson University; RutgersUniversity; and all levels of government. These partnerships, together with the tenacity ofNCC's grassroots board of directors, have made many of the accomplishments possible.

Improving the neighborhood's quality of life has been the driving force behind all the projectsundertaken by NCC. Responding to the desperate need for good-quality, affordable housingthat broke the typical public housing mold, NCC developed its first housing units in October1975. Against all odds, NCC convinced local politicians and influential business and communityleaders that families should not be housed in towering high rises, which can become breedinggrounds for crime. Consequently, the 120 units were contained within five-story buildings.Each unit has an entrance fronting on an elevated walkway. Since 1975, NCC has built ormanaged over 3,000 units in 18 housing developments in Newark, Englewood, Eatontown,and Jersey City, housing more than 7,000 residents.

In addition to housing, jobs were desperately needed. In 1968, NCC's goal was to create1,100 jobs in 20 years, based on the number of households in the central ward on welfare.Since then, NCC has created 1,500 permanent jobs for former welfare recipients of the centralward and other areas. NCC also provides job training and employment services, placing morethan 1,000 clients in jobs annually. In addition, NCC manages its own properties, employingmany more individuals. NCC is now one of Newark's largest employers, one of only tenorganizations and companies in the city that employ more than 1,000 people. NCC also has its

own security force, which grew out of the need to provide security services for its manyhousing complexes; the security force now provides protection for the patrons of NewCommunity Neighborhood Shopping Center and other NCC facilities.

The creation of jobs and training opportunities for central ward residents reinforced the needfor daycare for children of the large number of single mothers who now looked to jobs, notwelfare, for their future. Today, Babyland Family Services, Inc., provides daycare to some 700infants and toddlers at affordable rates. The aging of central ward residents gave rise to theneed for geriatric care and assisted living. The New Community Extended Care Facilityprovides first-rate care for elderly residents who might otherwise be forced to live in nursinghomes far from their friends and neighborhood, as well as adult medical daycare and in-homeservices. NCC also offers short-term transitional housing for the ward's homeless population.Its credit union has over 2,000 members and assets of $2.7 million. St. Rose of Lima School,another of NCC's network partners, offers an alternative to the troubled public school systemfor educating children in kindergarten through the eighth grade.

It was the desperate need for high-quality, affordable food that gave rise to the NewCommunity Neighborhood Shopping Center. The Pathmark supermarket has meant not onlyaffordable food but also jobs with a career path for nearly 250 employees, most of themNewark residents.

LAND ASSEMBLY AND ACQUISITION

Land assembly is a difficult process in the inner city, where ownership of land typically isfragmented and absentee landlords are common. Assembling the parcels for the NewCommunity Shopping Center was no exception. Between 1980 and 1984, NCC assembled landfor the shopping center. The site comprised 62 parcels, 15 of which were owned by the city;25 others had buildings on the property. The relocation of owners who were willing to relocaterequired extensive research and negotiation on the part of NCC.

Land acquisition was another hurdle to be overcome. In 1985, NCC began to buy individuallots for the site, acquiring 56 lots without resorting to condemnation. Condemnation of theremaining six parcels was sought because of the extremely high sales prices asked by theirnonresident owners. In May 1985 the board of the New Jersey Housing Mortgage FinanceAgency authorized the New Jersey Attorney General and Department of Transportation toproceed with the condemnation of the lots. However, the New Jersey Superior Court issued adecision favorable to the six property owners and several months later dismissed the agency'scomplaint that it needed to acquire the property for a public purpose. That decision wasoverturned by the appellate division of the superior court, which determined that thecondemnation powers of the agency are valid when public benefit prevails, as it did in thecase of the shopping center. In March 1987, the property owners filed notice of appeal to theSupreme Court of New Jersey to stay the condemnation process, but in a final ruling in May1987, the supreme court denied the property owners' request that the court review the casefurther.

The zoning also had to be changed before breaking ground for the new shopping center. InOctober 1987, the board of adjustment voted unanimously for NCC's right to build thesupermarket. One final holdout of the original six filed a complaint against the board ofadjustment and NCC to have approval of the variance and site plan overturned; the courtquickly dismissed the challenge.

The site is located at the intersection of South Orange Avenue, a main east/west artery, andBergen Street, a main north/south artery; the shopping center faces South Orange Avenue.Across Bergen Street to the east of the shopping center is the University of Medicine andDentistry of New Jersey and University Hospital. Small-scale commercial development largelycharacterizes land uses to the east and south of the site. To the north and west, uses areprimarily residential.

OWNERSHIP, LEASING, AND FINANCING

Finding the supermarket anchor proved less problematic than the land assembly andacquisition process. In the early 1980s, Father Linder approached Supermarkets General, theparent company of Pathmark, about the possibility of locating a store in the central ward.Pathmark, which remained a strong partner throughout the ten-year development campaign,agreed; it looked like a good business proposition, given the population density and lack ofcompetition in the area. A 1980 study commissioned by NCC showed that, with 93,000residents within a one-half mile radius, the site was a virtual mecca for shoppers, givenappropriate commercial development. At the time, more than 90 percent of these residentsshopped at lower-priced supermarkets outside Newark.

Pathmark also benefited from the site's location in an urban enterprise zone, which allowsPathmark to charge half the state sales tax and eliminates the sales tax on the store'sequipment purchases. The company was also entitled to $1,500 tax credit for each hiree fromNewark who had been unemployed for three months. Pathmark's commitment to revitalizingthe central ward was sustained during its leveraged buyout by Equitable Life, Inc., andMerrill-Lynch. In fact, one of the terms of the transaction was that Supermarkets Generalcontinue to work with NCC to bring affordable food to the residents of the central ward.

In August 1987, NCC and Supermarkets General ironed out the ownership and leasearrangements. Under the terms of the agreement, NCC owns two-thirds of the joint-venturemarket, which is managed by Pathmark, ensuring that it will be run like any other in thechain. Supermarkets General owns one-third of the market. Community SupermarketsCorporation was formed to be the decision-making entity. It meets monthly to discuss issuesaffecting the community and to decide how to respond to the community's changing needs.The corporation consists of four NCC members and three Pathmark members. NCC is the soledeveloper and full owner of the shopping center. The satellite stores are mostly national chainfranchises that are owned and operated by NCC.

The search for financing began in earnest in 1983. The first financial boost came as a seedloan for $275,000 from the New Jersey Department of Community Affairs. In May 1984, theNew Jersey Housing Mortgage Finance Agency approved the withdrawal of $130,000 from acommunity development escrow account to partially fund development costs, land acquisition,and technical fees. In January 1989, NCC began intensive negotiations with lendinginstitutions. Nearly 10 percent of the total development cost of $12,860,000 was funded byNCC itself. Fifty-six percent of the total cost was funded by a loan from the PrudentialInsurance Company. Fourteen percent was funded by the federal government through theurban development action grant and community development block grant programs. Nearlyone-fifth of the total cost of development was funded by the state of New Jersey, throughvarious programs.

DESIGN

The focal point of the New Community Neighborhood Shopping Center is the Pathmark store,which accounts for 47,000 of the center's 55,000 square feet. NCC did not design thePathmark supermarket, it had the Pathmark store built to Pathmark's specifications. Theprototype of the Pathmark store is Pathmark 2000, the model for all Pathmark stores; thedesign had to be adapted slightly because the New Community store is somewhat smallerthan Pathmark's suburban stores. Pathmark originally thought that perhaps it could dowithout the fresh seafood and deli departments, but community surveys indicated that thesewere precisely the departments in which the residents were most interested. Today, the freshseafood department is thriving, just as the surveys predicted. Unlike its suburbancounterparts, Pathmark does not have an on-site bakery. Pastries, cakes, and the like can bepurchased at the center's New Community Bakery, which is owned and operated by NCC.Pathmark constantly evaluates product sales and adjusts its stock accordingly. For example,the fresh flower and plant department was eliminated after several months of lackluster sales.

The design of the remainder of the shopping center was dictated largely by the designrequirements of the Dunkin' Donuts and Mail Boxes Etc. franchises, but the natural limitationsof the site also played an important role. At only 3.3 acres, the site is smaller than the five toeight acres typical of many such centers in a suburban setting. Due to the slope of the site, a

retaining wall was needed on the west side, also limiting the design of the center. At thesouthwest corner of the site, there is an anomaly reflecting the final holdout to the land sales.Because the owner wanted more than $1,000,000 for the small parcel, NCC determined that itwas nonessential and decided to build around it. The only impact on the design was areduction of about ten parking spaces and a rather oddly shaped site.

Security is an increasingly important issue for shopping centers, in both the inner city and thesuburbs. At the Pathmark store, security costs constituted about 1.4 percent of operatingexpenses in 1996. As in most supermarkets, customer safety is maximized by a sophisticatedin-store surveillance system. The entire center is protected around the clock by at least threeNCC security guards, one of whom is stationed in a security booth at the east entrance of theparking lot; in addition, at least one Newark city policeman is always on duty. The parking lotis illuminated by extra outdoor lighting and is completely fenced, making for very limitedaccess to the center. Access is further limited by geography and traffic patterns. But the mostimportant feature of the shopping center's security system is the watchful eyes of its patrons.It had taken nearly a decade to make the shopping center a reality; patrons are determinedto protect their Pathmark from petty theft.

EXPERIENCE GAINED

Federal, state, and local government agreement with NCC that high-quality, affordablefood was desperately needed in the central ward led NCC to believe that there would befewer obstacles to the shopping center's development than are typically encountered bycommercial development projects in general. This wide-eyed optimism led todisappointment as NCC encountered one obstacle after another. The land assemblyprocess, plagued by multiple absentee landowners, took from 1980 through 1984. Theland assembly hurdle was cleared, only to be followed by the protracted condemnationprocess, which lasted for another two years.

Commitment and the ability to roll with the punches are key to realizing commercialdevelopment in inner-city neighborhoods. Construction on the New CommunityShopping Center was expected to begin in fall 1984. In fact, ground breaking did notoccur until May 1, 1989—nearly five years later.

The joint venture with Pathmark was a critical element in the success of the center. Inaddition to contributing one-third of the working capital, Pathmark brought managementexpertise, which provided a well-merchandised, customer-driven store, and its expertisein store design and layout. It also brought previous experience in a successful jointventure with a nonprofit community organization, the Bedford Stuyvesant RestorationCorporation in New York City. That experience taught Pathmark about retailing in theinner city, which differs from retailing in the suburbs. For example, sales volumeskyrockets twice a month, coinciding with the receipt of welfare and social securitychecks. By recognizing the different sales patterns and buying habits of inner-cityresidents, Pathmark could plan for the increased volume.

The economics must be favorable in order for a retailer to come to the inner city, nomatter how strong the retailer's commitment. This joint-venture supermarket has beenan unmitigated success for Pathmark. Its initial sales projections have been farsurpassed, and sales per square foot have catapulted the store to the ranks of the top10 percent of supermarkets in neighborhood shopping centers throughout the UnitedStates.

The success of the shopping center and the Pathmark supermarket has come fromlistening to and responding to the needs of the community. Pathmark undertook severalsurveys of central ward residents to determine what products they wanted. The ethnicityof the neighborhood is reflected in many products that are not sold at suburbanlocations. Moreover, even before the electronics benefit transfer (EBT) system was putin the store so that welfare transactions could be carried out discreetly, Pathmarkaccepted food stamps and cashed customers' welfare checks at no charge.

PROJECT DATA

LAND USE INFORMATION

Site Area: 3.3 acres Gross Building Area (GBA): 55,000 square feet Gross Leasable Area (GLA): 55,000 square feet Number of Levels: 1 Parking: 227 surface spaces

LAND USE PLAN

Use Acres Percent of Site

Buildings 1.5 45

Parking Structures 0 0

Paved Areas 1.8 55

Total - 100

RETAIL TENANT INFORMATION

Classification Number of Stores

Total GLA

Food 1 47,000

Food Service 2 6,000

Personal Services

2 1,950

Major Tenants Space Occupied (Square Feet)

Pathmark 47,000

Dunkin' Donuts 2,000

Mailboxes, Etc. 1,400

NC Print & Copy 550

World of Foods 4,000

Length of Lease: 1 to 20 years Typical Lease Provisions: Triple net lease Annual Rents: $18.00 per square foot

DEVELOPMENT COST INFORMATION

Land Acquisition $1,574,780 Demolition $672,462

Site Improvement Costs

General conditions $433,500

Earth work 342,000

Site utilities 496,595

Site improvements 440,000

Total $1,712,095

Building Construction Costs

Concrete 757,000

Masonry 440,221

Structural steel and miscellaneous iron

461,100

Carpentry 61,500

Moisture protection 20,000

Roofing and skylights 293,850

Doors, frames, and hardware 162,600

Drywall 235,500

Finishes 154,330

Metal ceilings, loading dock 7,000

Canopy 47,000

Metal screens 28,800

Miscellaneous specialties 47,700

Plumbing 204,000

Sprinkler 99,000

HVAC 203,000

Electrical 476,000

Total $3,698,601

Professional Fees

Architectural/engineering 350,000

Surveying 12,500

Legal 125,000

Accounting 20,000

Other professional fees 30,000

Planning and development 110,000

Total $647,500

Financing Costs $199,600

Construction Interest $600,000

Real Estate Taxes $12,000

Contingencies $642,962

Equipment $1,900,000

Working Capital $1,200,000

Total Project Cost $12,860,000

ANNUAL OPERATING EXPENSES FOR 1996 (ANCHOR TENANT ONLY)

Total Labor and Store Direct Expenses $4,895,916

Total Advertising and Promotion 487,476

Total Maintenance 242,165

Rent 591,996

Real Estate Taxes 148,000

Utilities 251,600

Insurance (non—labor-related) 204,425

Other Expenses Net of Other Income 613,693

Total Operating Costs $7,435,271

FINANCING INFORMATION

Source Amount

Prudential Insurance (permanent) $7,200,000

New Jersey Local Development Finance Fund 1,380,000

Urban Development Action Grant 1,530,000

New Jersey Office of Community Service 500,000

Community Development Block Grant 300,000

New Jersey Economic Development Authority 717,000

New Community Corporation 1,233,000

Total $12,860,000

DEVELOPMENT SCHEDULE

Planning Started: March 1979 Land Assembly: 1980 through 1984 Condemnation Process: 1985 through 1987 Approvals Obtained: 1987 Construction Started: May 1, 1989 Project Opened: July 26, 1990

DIRECTIONS

From Newark International Airport: Take Route 1 & 9 North to 78 West (local lanes). Exit atClinton Avenue. Stay on Hillside Avenue to end (Avon Avenue). Make left at light. Turn righton Irvine Turner Boulevard. Proceed north to South Orange Avenue. Turn left on SouthOrange Avenue; proceed west to Bergen Street. Turn right to entrance to New CommunityNeighborhood Shopping Center, located at the northwest corner.

Driving Time:20 minutes in nonpeak traffic.

The Project Reference File is intended as a resource tool for use by the subscribers in improving the quality offuture projects. Data contained herein were made available by the Development team and constitute a reporton, not an endorsement of, the project by ULI - The Urban Land Institute.

Copyright 1997, 1997, by ULI - the Urban Land Institute1025 Thomas Jefferson Street, N.W. Ste. 500w, Washington, D. C. 20007-5201

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