Not long after Federal completed the purchase of 39 mixed-use properties in downtown Hoboken last year, a 15-day pause to flatten the COVID-19 curve turned into a still-running saga of lockdowns and restrictions on commerce. At the time, the acquisition marked a direct foray into a true urban shopping and entertainment district, something of a departure for the REIT. For years it had focused largely on developing urban-style, mixed-use projects in Bethesda, Maryland; suburban Boston; San Jose, California; and other coastal markets.

Despite the health crisis setback, Federal’s conviction about the investment hasn’t wavered. The company had paid local property owner Anthony LoConte $190 million to acquire a 90 percent interest in the portfolio, which sits primarily along Washington Street, Hoboken’s popular entertainment corridor brimming with local restaurants, shops and bars. The three-and-four story brick-and-masonry buildings encompass 171,000 square feet of streetfront retail topped by 129 apartments.

Federal has added three tenants of late: The group that operates an Italian restaurant and wine bar across the street opened Sirenetta Seafood & Raw Bar in October, a Lovesac furniture showroom opened in December and Brooklyn Dumping Shop’s second location will open soon. All fit into Federal’s plan to brings its national tenant relationships to bear on Washington Street while maintaining the corridor’s eclectic local vibe, says senior vice president of regional leasing Stuart Biel.

“What really attracted us to Washington Street is that it’s authentic, and all consumers want authenticity these days,” he said. “We love this partnership because we bring expertise in merchandising and national tenant relationships, and our partner has 20 years of fantastic boots-on-the-ground experience with local and municipal relationships.” What’s more, Hoboken is a natural expansion market for new retail concepts flourishing in New York City, says Biel. Attracting these tenants can benefit the REIT’s Hoboken holdings and also may create relationships across the REIT’s broader portfolio.

COVID-19 did change some variables, though

Still, the pandemic has altered Federal’s initial demand expectations. While the entertainment and shopping corridor caters to local students and medical and office workers, Manhattan commuters historically have made up a sizable portion of the traffic. For that reason, Washington Street’s proximity to Midtown Manhattan and the $25 billion Hudson Yards project — by means of the PATH train system and the NY Waterway ferry, in particular — appealed to Federal, especially given the plans of Adobe, Amazon, Facebook, Google and other companies made prior to the pandemic to expand into millions of square feet in Midtown.

Now, the uncertainty gripping the office market, particularly in Manhattan, may change assumptions about traffic drivers in Hoboken. But like many real estate observers, Biel anticipates that workers will split time between the home and office. That may mean fewer commuters, but it also means more at-home workers can frequent Washington Street during the day. Indeed, when the REIT was underwriting the Hoboken portfolio in 2019, it had been concerned that a lack of office density in the area would hurt daytime traffic, CEO Don Wood said during Federal’s third-quarter 2020 earnings call. “Well, it’s one of our better-performing assets,” he said on the November call, “and it’s one of our better-performing assets because people are at home and so traffic during the day is strong.”

And Federal’s long-term bet on Hoboken’s connection to Manhattan hasn’t changed. New York will come back, Biel maintains, and Hoboken historically has offered workers a more affordable residential alternative to Manhattan. “We sit in a much more convenient location to Midtown than most of Manhattan,” Biel added.

Washington Street property owners already had begun to pepper the corridor’s local character with more national retailers, says Savills managing director Frank Greco. Today, Athleta, Drybar, Gap, Lululemon, Sephora and Shake Shack are among the names there. “You have a whole different set of retailers that are obviously higher-credit tenants, and that had to be an attraction for Federal Realty,” Greco said. “It’s still a great downtown for just walking around, but it’s a complete turnaround from what it used to be.”

Retailers used to resist urban centers, but it doesn’t look like the industry will go back to that

Years ago, retailers had avoided urban population centers like Hoboken, observes JLL senior vice president of retail brokerage Marta Villa. She previously worked with New Jersey business improvement districts to enhance commerce, and she recalls having had a tough time attracting national names to the area. “At the same time, Hoboken didn’t want them either,” she said.

Still, she and Federal credit LoConte for “pretty much single-handedly” remerchandising the street. The REIT recently noted that its local partner had acquired his first commercial building in 1957 when he was 19 and accumulated a portfolio of more than 70 buildings on Washington Street alone. He and his firm, Unlmtd Real Estate Group, also are committed to “curating the perfect mix” along the corridor, Federal said.

Redeveloments like the luxury apartments at The Shipyard, on the north end of Hoboken, also have helped draw national retailers, Villa notes. As a result of these changes, the upper end of the retail rental rate range along Washington Street, which was about $55 per square foot a decade ago, roughly doubled just before the pandemic, depending on the location. A recent LoopNet search of available retail properties on or near the corridor shows landlords now are asking between $54 and $96 per square foot. Federal’s fourth-quarter supplemental earnings data reported an average rental rate across its Hoboken holdings of $55.76 per square foot at the end of 2020.

Federal and other investors may find similar opportunities in nearby New Jersey towns like Harrison, across the Passaic River from Newark, Greco points out. Over the past several years, developers have built hundreds of apartments near south Harrison’s PATH station and Red Bull Arena soccer stadium, which recently underwent a $35 million renovation and expansion. At the same time, older retail-and-apartment buildings similar to those in Hoboken line Harrison’s main streets, about a half mile north of the station, says Greco. In fact, a New York Times feature just before the pandemic pondered whether Harrison might be the next Hoboken. “I could see the gentrification of south Harrison extending into the central business district,” Greco said. “Development has really been on a tear there.”