Russo Development, led by CEO Ed Russo, recently delivered the 280-unit luxury apartment project known as Vermella West at 135 Passaic Ave. in Kearny. The Carlstadt-based firm has built hundreds of new luxury apartments in Kearny since 2018 and is planning hundreds more through a series of projects in its pipeline. – Photo by Aaron Houston for Real Estate NJ

By Joshua Burd

With its plush tenant lounge and a two-story fitness center, the 9,000-square-foot clubhouse at Vermella West evokes the high-end amenity spaces often seen along New Jersey’s Gold Coast.

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Ed Russo knows that other developers would balk at building such a space in the historically working-class town of Kearny — which is far from a proven market for luxury apartments.

“Most people would say, ‘Why would you spend that kind of money in a moderate-rent, blue-collar town?’ ” said Russo, the CEO of Russo Development. “But our attitude was that we’re not building for today, we’re building for the area it can be five, 10, 15, 20 years from now.”

If Russo sounds like someone who is bullish on Kearny, he has the pipeline to prove it. The Carlstadt-based developer has completed 510 apartments across two projects in the Hudson County town since mid-2018, with another 268 under construction. The firm has also identified adjacent sites that could accommodate several hundred more units in the years ahead, as part of a vision that could transform a large stretch of waterfront along the Passaic River.

To Russo, whose firm has moved aggressively into multifamily development in recent years, there is much to like about Kearny: Its proximity to downtown Newark and the region’s mass transit network, along with the ability to capture renters who are priced out of not only the likes of Jersey City and Hoboken, but the neighboring and newly redeveloped Harrison waterfront.

That’s not to mention the vastly improving retail options just north of the firm’s 280-unit Vermella West project, which include a Starbucks, Chipotle, BJ’s Wholesale and others.

“To have all of this land right next to a nice, diverse mix of retail, that was a big factor,” said Russo, who is also embracing the idea of building luxury apartments for the middle-market renter, a market he feels is underserved. That concept dovetails especially well with a town of 40,000 that has not seen new, large-scale multifamily development in decades.

“Our philosophy and strategy across the market is that, in the next two, three, four, five years, with all the supply that’s coming online in New Jersey, we think the moderately priced part of the market is where there’s more opportunity — and it’s likely to hold up the best when things start to soften.”

Construction is well underway on Russo’s third project in Kearny, a 268-unit development at 60 Passaic Ave. that will be known as Vermella East. Slated for delivery starting next spring, the project is breathing new life into an industrial site that had sat vacant for more than three decades, but one that sits at the gateway intersection of Passaic Avenue and Belgrove Drive.

“When you come into town from Harrison and from East Newark, this intersection is the first thing that you see,” Russo said during a recent tour of the site. “So what gets built here becomes very important to the town from an impact point of view.”

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He and his team also hope to redevelop a 21-acre stretch of riverfront property across Passaic Avenue, pending an ongoing entitlement process with the town. If it comes to fruition, it would represent a transformative project in an area that local officials have long sought to revitalize.

Russo Development, a multigenerational firm with deep roots in the industrial sector, is anything but a newcomer to Kearny. The firm completed its first project in the municipality, a 350,000-square-foot warehouse and distribution complex known as Saw Mill Park, in the early 2000s at the site of a former landfill on the opposite side of town.

The 25-acre project at 680 Belleville Turnpike attracted the likes of Pepsi Co. and H.D. Smith Wholesale Drug Co., providing a successful outcome for what had been a challenging site. The developer, meantime, enjoyed a positive experience with local officials that would prove critical to Russo’s pivot to multifamily.

In 2009, the developer made its second acquisition in the town with a site at the intersection of Bergen and Schuyler avenues, Russo said. While its initial plans called for more industrial space, the firm worked with Mayor Alberto Santos and other local officials to help fulfill their vision for a mixed-use project with apartments and retail.

The site today is home to two retail pads occupied by CVS and Investors Bank, which were delivered in 2015, along with the 230-unit apartment complex known as Vermella Crossing, which opened last year.

The success of Vermella Crossing, which was Kearny’s first new multifamily community in decades, helped fuel Russo’s interest when another opportunity became available about a mile to the west. Seeking to revitalize a stretch of riverfront just north of East Newark and Harrison, local officials in Kearny had issued requests for proposals from developers around 2014. When those efforts stalled, Russo Development stepped in and requested a meeting to present its own concept plan for the Passaic Avenue redevelopment zone.

Kearny designated Russo as the redeveloper in 2015 and granted site plan approval about two years later, the firm’s CEO said. By fall 2018, the company opened the 280-unit Vermella West community, its second residential project in the town and its first within an area that offered a rare opportunity for large-scale projects.

“(Vermella Crossing and Vermella West) are showing that it could work in the town of Kearny,” Santos said. “Now we’re at a very good point in our redevelopment of the areas we had targeted, largely because Russo Development and Ed Russo were willing to be the first ones on Bergen Avenue and on Passaic Avenue.”

Aside from its work in Kearny, Russo Development has been a key player in the 20-year effort to revitalize Harrison’s formerly industrial waterfront, which begins about a half-mile to the south, having delivered nearly 400 units at 1100 Frank E. Rodgers Blvd. South. It’s one reason why the team is well-versed in the area’s demographics and all that it has to offer, even though Kearny lacks the direct access to mass transit that Harrison does, with its newly renovated PATH station.

For one thing, the arrival of new retail offerings on Passaic Avenue has both validated those demographics in Kearny and provided an added incentive to build new apartments. Those offerings include a three-year-old, 139,900-square-foot retail center, whose developer sold the property in 2018 to a fund managed by Bentall Kennedy. The complex is anchored by BJ’s Wholesale Club and also includes the likes of Chipotle and other high-end operators, while also benefiting from a neighboring ShopRite.

“There were signs that retailers were snooping around” at the time Russo began exploring Passaic Avenue, he said. “So the timing was good and the retailers that were looking in the area came — because without the retail, this doesn’t get built. You have to have the convenience of being able to walk down the street, and having a million square feet of retail is huge.”

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The area also saw the arrival in 2017 of LA Fitness, which backfilled a former Pathmark store, along with the more recent opening of a Starbucks at 143 Passaic Ave.

“Especially with these national retail chains, they really do study the demographics and the income levels in an area before committing,” Santos said. “And Kearny has a history of being a working-class community which is next to the city of Newark, so it would not attract a Starbucks 10 years ago. But today it did and it’s doing very well.

“Part of it is that the demographic is changing with all of the new residential that’s moving in,” he said, citing the addition of both millennials and others with more disposable income. “And I think it also shows that this greater Newark region is doing better.”

Renters have responded to Russo’s projects in Kearny. Vermella West is currently 99 percent leased and occupied, thanks in large part to those retail offerings and its accessibility, which includes the developer’s self-operated, complimentary shuttle service to the Harrison PATH station. That response has come despite the abundance of new luxury apartments in surrounding communities.

Vermella West also benefits from Russo’s ability to provide the same type of high-end apartments and luxury amenities found in other new construction, but at a discount to even Harrison. Russo noted that acquisition costs are lower in an unproven market such as Kearny, while the large industrial buildings that once dotted Passaic Avenue have translated to single sellers and larger development sites. That has led to lower-density projects — roughly 30 units per acre at Vermella West, versus 130 per acre at Vermella Harrison — along with the ability to provide surface parking instead of costly structured parking.

The ultimate result? Apartments with similar high-end finishes and exterior design, Russo said, but less expensive structures.

“You can save 20 to 30 percent on your construction costs, which means your rents can be much more competitive,” he said. “In our mind, that’s sort of the key to this market.”

The first units at Vermella East, the site of a former baseball bat factory that burned down and sat vacant since the late 1980s, will be available in May 2020. The project will bring Russo’s footprint in the town to nearly 900 apartments across three properties, and the firm is poised to continue to expand its footprint in the years ahead.

Namely, the developer is under contract to buy a former American Strip Steel industrial building across the street from Vermella East and to the south of Vermella West, along with other parcels within a 21-acre swath of the redevelopment zone. Those sites are still pending entitlements and financial agreements with the town, but could add hundreds of additional units to Russo’s portfolio along Passaic Avenue.

The firm anticipates submitting its site plan application before year-end. In the meantime, Russo figures to stay bullish on Kearny, especially given that the town goes hand in hand with the developer’s goal of offering luxury apartments to middle-market renters.

“Our feeling is, in markets like this, even where the rents are not at a level where you would say it’s a necessary business decision, long-term, with our outlook, we feel like it’s the right thing to do and it will pay off in the future,” Russo said. “And it will pay off today.”

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