Blue Onyx prepares for pivot to large-scale urban projects, maintaining focus on social impact
Levi Kelman recalls feeling “very much at home” when he visited Paterson more than a decade ago, as he drove the streets in search of his first real estate investments. With its density, history and ethnic diversity, he said, the city reminded him of his family’s home in Brooklyn’s Kensington section — a melting pot of a neighborhood just east of Borough Park.
That comfort level was critical as he began to build a portfolio, keying on Paterson and other urban markets that many buyers might shun.
“I realized how there’s a bit of a stigma about being in certain municipalities,” Kelman said. “I compare them to just being in different neighborhoods … and I think someone who grew up in a very suburban neighborhood may feel that when they were coming into parts of Paterson, but I was already very open-minded to it and I just saw the potential there for building good, quality housing at an affordable rate.”
His firm, Blue Onyx Cos., has since completed more than 120 transactions involving more than 1,000 apartments in the region, largely through value-add renovations of smaller multifamily properties. The rehabs have given Kelman a foothold in Paterson, the state’s third-largest municipality, and other cities seen as emerging markets for development.
They’ve also paved the way for Blue Onyx to tackle larger, more ambitious projects, as it’s now looking to do, with an eye toward larger-scale multifamily and mixed-use investments that still provide social impact and affordably priced homes. Its pipeline, which it estimates is more than $500 million in value, includes a highly touted project in Paterson that would restore and repurpose a historic mill complex along the Passaic River, creating spaces for entrepreneurs and creatives, hospitality venues and new apartments over the course of five years.
While construction has yet to begin, he expects that to change soon as the firm prepares to submit a formal plan to the city in early 2023, with a “spirit and vision of … having a community-anchored institution, commercial space and housing that’s within reach for local folks that want to live there.”
Its plans also include a new 78-unit apartment building in East Orange that is set to go vertical, along with a 135-unit project in Plainfield, among others.
“In Jersey City or the Gold Coast, there are plenty of top-notch developers building all kinds of high-end product. They didn’t really need another developer,” said Kelman, Blue Onyx’s founder and CEO, later adding: “We have an affordable housing shortage in New Jersey, so by building good-quality properties and upgrading units in areas that are typically run-down, you’re providing a great service and you’ll be able to do just fine.”
The firm, meantime, is building a team to support its growth, with recent hires ranging from a chief operating officer to a head of development and acquisitions. Kelman projects that the firm, currently at about 20 full-time employees, will grow significantly in the coming months “as we ramp up and make that change from one business model to another.”
Kelman’s plan to become a developer and real estate investor goes back nearly 15 years, he said, and he knew the importance of being patient and starting small. That meant getting a “day job” of buying two- to four-unit properties out of foreclosure to renovate and rent, often with investors, starting in Paterson around late 2008 after others encouraged him to look in New Jersey.
His earliest deals included small multifamily homes often clustered in the same neighborhood, such as Jackson Street in South Paterson, where he amassed around a half-dozen properties on one block. Doing so provided a real-time look at the impact of upgrading a neighborhood’s housing stock.
“Very often, our residents were moving from homes on the same block that are just poorly maintained, so we didn’t even have to heavily market our units,” Kelman said. “We just gave them a good, quality product — brand new — and they just moved in, sometimes before the carpet was tacked down.”
Blue Onyx built a sizable portfolio in Paterson and Passaic County over the next five years — as an owner and manager — but also grew in Bergen, Essex, Union, Atlantic, Rockland and Westchester counties. And it managed to scale while preserving affordability for its residents, he said, largely by maintaining construction, leasing, property management and other functions in-house.
“I like to touch and feel things,” Kelman said. “I’ve heard a lot of success stories of people who went into a company that worked in the mailroom or as a custodian.
“I don’t know if they’re true,” he joked, “but that story has always resonated, that you really have to start at the bottom and work your way up.”
He was especially drawn to Paterson after having heard stories of “placemaking” in areas that had untapped or unrealized potential, he said, citing the types of case studies created by organizations such as the Urban Land Institute.
“When you go on tours where they show areas that have really revitalized, and you listen to the developers, the stakeholders and the community members that have lived through that, it’s given me a lot of insight into how we can replicate that process as well,” he said. “And I saw a lot of the raw material ingredients in Paterson, particularly around the (Great Falls), which gave me the confidence to begin that process here, through acquiring a site with a general concept in mind but knowing that we’d build out a redevelopment plan as we went through.”
That site was 24½ Van Houten St., a two-acre tract along the Passaic River that is home to seven former mills and warehouses. In 2020, Blue Onyx unveiled a plan for a sweeping adaptive reuse of the complex, with rehabilitated commercial spaces and new construction that will offer a mix of residential units, plus amenities such as a community theater, a food hall and a distillery and beer garden. The project has faced delays caused by the pandemic and environmental issues, he said, but he expected the bulk of the site to be residential, with around 15,000 square feet allocated for commercial and community uses.
Kelman added that the firm was close to submitting a proposal to the city, while it has drawn serious interest from would-be operators for the hospitality and community spaces.
In the meantime, it’s careful to not let the property sit idle. The developer in September 2020 refashioned part of the site as a sort of urban beach, complete with 500 tons of sand, umbrellas and walking paths, drawing residents and city officials for an event with food, live music and activities. It has since hosted other events at the property, which it calls 24+Half, such as a fall festival and an installation for local artists. That’s allowed Blue Onyx to build a rapport with stakeholders and organizations such as the YMCA and Boys & Girls Club of Paterson, along with the Greater Paterson Chamber of Commerce, outside the typical entitlement process. And he expects the community’s input to be reflected in the finished product.
“Not everyone has that bigger picture or vision ahead, so doing these activations, I feel, has really helped strike the imagination and encouraged people to believe in what’s possible that they may not have seen,” Kelman said. “And I’ve seen this work in other areas. It’s not typically common, but I felt that, for us to accomplish that, we needed to foreshadow it.”
He also believes that, “with the right mix there, we can further that impact in the neighborhood and the community. And to do that I felt that you have to engage at multiple levels.”
Kelman’s plan comes in a time of growing opportunity in Paterson, where local officials have become more open to development and builders can secure valuable tax incentives. That’s helped attract larger-scale projects and put the city on a path to becoming an emerging market.
“That’s where Paterson is today, and this transition from being a tertiary market to being a secondary market historically takes about 25 years to be realized,” said Jeffrey Otteau, president of Otteau Group and managing broker of Hudson Atlantic Realty Advisors in Matawan. He noted that apartment vacancy in the city, at about 0.9 percent at year-end, has fallen faster since the start of the COVID-19 crisis than in northern New Jersey at large. Net effective average rent per unit in Paterson was $1,463 in the fourth quarter of 2022, compared with $2,305 in northern New Jersey, he said, adding that rents in the city were less volatile throughout the pandemic. That bodes well for the municipality as apartment dwellers look for lower-cost options.
Building in such a market does come with challenges. One such hurdle, Kelman said, is that local officials can be rigid when it comes to minimum unit sizes, “so when you have a big move in construction costs or interest rates … it begins to make them more challenging.”
“We know that, over the years, many of the more mature markets have accepted and gone to smaller units,” he said. So there is much time spent educating local officials, their professionals and their consultants that, “if they really want to see that diversity and they really want to see new development, they have to understand the challenges and have some flexibility.”
Blue Onyx’s strategy will also hinge on cities outside Paterson. The firm in 2017 completed a major renovation of a 75-unit, prewar apartment building in East Orange, at 18 Summit St., in a project that allowed it to grow beyond the investments that it had made to that point. It’s now developing the adjacent site with a new ground-up, 78-unit apartment building.
“I realized that we could have more of an impact on a block with scale,” Kelman said of the firm’s first building in East Orange, which it acquired in 2014. “That began a natural evolution to looking at redevelopment and development projects throughout Jersey.”
That’s also meant growing beyond the “lean and mean” operation that served Blue Onyx well in its early days and “building a core team that could really carry us into the next 20 or 30 years of growth,” he said. Kelman has bolstered the firm’s senior leadership group, adding a combined 60 years of industry experience since 2020 with the hiring of Tom Lardieri as chief operating officer and Michael Marron as chief financial officer.
In late November, it announced the arrival of Jim Driscoll as its senior vice president of development and acquisitions, citing its push to expand its Northeast portfolio and shift to larger-scale multifamily and mixed-use developments. He comes to the firm with more than 20 years in the industry, including senior-level development posts with Waypoint Residential, LCOR and K. Hovnanian Homes. And the move followed the addition of Shane Brethower, a longtime entrepreneur, as president of emerging platforms, as it looks to infuse technology into the company’s portfolio and operations.
“Putting together a very strong leadership team has always been our goal,” said Kelman, who also noted the importance of finding strong mentors in the industry. “That’s what we’re doing, we’ve invested heavily in that.”