TAX NEWS - June 2010
New Jersey Tax: East Brunswick proceeds with Toll Bros. settlement
Purchase price for Golden Triangle would be reduced from $35M to $22.5M
Following a speech by Mayor David Stahl, the council approved two resolutions related to the Golden Triangle redevelopment plan, with Councilwoman Camille Ferraro casting the sole dissenting vote.
The resolutions, which included the approval of a settlement between the two parties and a request that the Planning Board recommend amendments to the plan, were only preliminary approvals of the agreement. The council cannot give it the final green light until the Planning Board approves the proposal.
East Brunswick officials received a letter from Toll Brothers on May 24 stipulating terms of an agreement that would potentially end a legal dispute initiated more than a year earlier. The offer, which originated from ongoing negotiations, was presented in executive session during a Township Council meeting later that day.
In 2005, Toll Brothers agreed to buy the 32- acre Route 18 property, which the township owned and leased to Sam's Club and other businesses, for $35 million. The builder later received approval to build 402 residential units and more than 180,000 square feet of retail space.
Toll Brothers had made five annual payments of $4.5 million for a total of $22.5 million before the agreement stalled. The developer announced in 2008 that the approved project was no longer viable due to economic and real estate market changes, and proposed major revisions, including the elimination of the residential component and an expansion of the property's commercial uses.
East Brunswick officials said at the time that they intended to negotiate with Toll Brothers, but as a precaution adopted a $25 million bond ordinance that could be used to buy back the Golden Triangle if necessary. The negotiations did not come to fruition, and in early 2009, Toll Brothers and the township filed breach-of-contract lawsuits against each other.
State Superior Court Judge Diane Pincus denied the township's motion for a partial summary judgment in January. The motion would have expedited the return of the property to the township, and separated the repurchase from perceived contractual issues between both parties.
In the agreement drawn up by Toll Brothers, the purchase price would be reduced to $22.5 million as the final cost of the property, so the builder would not be required to make any further payments. The developer would construct between 200 and 400 residential units along with a large-scale retail store, and eliminate the office space portion and the strip mall portion of the site plan.
"This is a very exciting night in East Brunswick," Stahl said during Monday night's meeting, noting that the actual number of units will most likely be 276. "We've finally come to a resolution with the Golden Triangle and have laid the foundation for what we've been working on for the past 15 months."
Toll Brothers would make a payment in lieu of taxes (PILOT) to the township annually, starting at $550,000 in 2011. The municipality would receive 95 percent of PILOT fees due to the way the long-term tax exemption law is written. Middlesex County would receive the other 5 percent.
Stahl said the actual amount that the township would receive in the future would be dictated by the square footage of the commercial and residential development. He noted that East Brunswick is looking at a minimum of $1.1 million annually between apartment rentals and the commercial portion as taxes and fees increase.
Toll Brothers would agree to drop litigation against East Brunswick, should the Township Council amend its ordinances and allow the revised project to move forward. In addition to dropping the lawsuit, Toll Brothers would abandon property tax appeals filed over the past two years.
"We have been working very hard to restructure the government in East Brunswick, and the Golden Triangle is part of that plan," Stahl said, noting several ways in which operations have changed over the past two years. "We've figured out a multitiered approach to solve this problem, and this seems like our best bet. We'll be saving the township a lot of money."
Stahl said that if East Brunswick were to continue the litigation, the cost related to a trial could exceed $500,000 and last until 2012. He said winning such a trial would result in East Brunswick paying Toll Brothers back with no interest and receiving a potentially vacant property in return.
Stahl noted that Sam's Club will soon be moving to an Edison site, and big-box retailers would be unlikely to take a chance on a property with no definite landlord.
"At the end of the trial, our best-case scenario would be to give back the money in return for an empty building," he said. "No developer would ever entertain a lease that is unknown."
Stahl also noted that other offers that were being entertained did not come close to $22.5 million, and were deemed not in the best interest of East Brunswick.
"The economy is clearly climbing out of the recession stage, but there's been no tremendous growth in the home market," he explained. "In 2004, we were on top of a real estate bubble. Now, we could expect to sit on the property for a long time — $35 million was an appropriate price then, but not now."
Stahl said East Brunswick needs to move quickly before the property is vacant for an extended period of time, otherwise consumers will find another destination site for their shopping.
But many residents disagreed with Stahl, and urged officials to fight for a better offer.
"Maybe this is only a good deal because it's the best we could hope for under these conditions, but it galls me to have Toll Brothers take us to the cleaners," said Bob Lennon. "I guess the best thing to do is settle because that's our only option. But some things are worth fighting for, and I happen to think this is one of them."
Republican Township Council candidate Michael Hughes also spoke about the settlement, and asked how the PILOT program would affect school taxes, an issue that is also a concern for Ferraro, the lone Republican sitting on the council.
"The deal is great for the current administration, but terrible for the taxpayer," Ferraro said. "While this would significantly help to control the rising municipal tax portion of the average taxpayer's bill, it does nothing to help out with the school portion, which makes up well over 60 percent of the average property tax bill."
Stahl said the PILOT fees would be used for tax relief.
"The township is, in essence, the tax collector, and the balance will be spread amongst the 16,000 households in East Brunswick," he said.
Jim Wendell, also a Republican Township Council candidate, spoke about the PILOT program, noting that the program is tailored more for urban areas.
"It's a loser for the taxpayers," he said. "I know these deals as I'm a developer. They're not for towns like East Brunswick. They're for urban environments as an incentive to spur development."
Stahl said the plan is realistic for the situation that the township is in, and the PILOT program will allow the township to plan appropriately for what to expect as a revenue stream.
Resident John Taglione said East Brunswick should have abandoned the deal with Toll Brothers altogether.
"You trusted Toll Brothers again when you should have been telling Toll Brothers to take a walk," he said.
Stahl said the agreement is not an ideal settlement, but is the best the township could do given the circumstances.
"It was a trade-off," he said. "They weren't perfectly happy, and neither were we."
Stahl said the next step is to redraw the redevelopment plan and send it to the Planning Board, where it will be reviewed for approval. If and when that approval is granted, it would need to be reinstated by the Township Council before any construction plans can move forward.
If the Township Council or Planning Board fails to approve the site plan, he said, the deal stops and the township may be open to further litigation.
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