Editor’s Note: The mayor’s column will run monthly. The municipal garage
The status of our city’s municipal garage has been a major topic of discussion recently, and residents are understandably concerned about what will happen next. Starting in 2005, a prior administration borrowed almost $16 million against the garage to pay operating expenses. Then, in 2008, the city agreed to sell the garage site for $25.5 million to a developer, S. Hekemian Group, in order to pay off that debt, but made no plans for relocating to another location.
The agreement called for the sale to close this year, and the city is preparing to close as planned. But last week, Hekemian asked the City Council, the redevelopment agency for the city, to change the original terms of the deal for the sole purpose of making it more lucrative for Hekemian, citing the downturn in the real estate market.
Hekemian claims the property is now only worth $14 million. One of the changes they have asked for is an annual $1 million reduction in their previously agreed-upon PILOT obligation – a cost that would be shifted to Hoboken’s taxpayers. This charge to the taxpayer would continue until “the market comes back.” They also proposed the elimination of their obligation to provide 24 units of affordable housing. Instead of a community benefit worth, by Hekemian’s own calculation, $1.8 million to $4.8 million, Hekemian is proposing a single $1 million payment, far less than the amount needed to build those units. But we wouldn’t even get the $1 million – the city would be obligated to turn the funds over to the state. Hoboken would still be on the hook for building these units that are required by law – an additional multi-million dollar burden on taxpayers.
The city has no obligation to protect developers against fluctuations in the real estate market. Hekemian is contractually obligated to close on the original terms of the agreement, but the underlying premise behind their new demands is the idea that they may not be willing to do so. The decision as to whether to accede to the developers’ demands is ultimately up to the City Council, but the city must be in the strongest possible position to negotiate and be prepared for the possibility that the transaction will not close on schedule.
If the city is prepared to close and Hekemian decides not to, the developers could lose some or all of the $2.5 million deposit with the city, which would help defray the city’s costs.
In addition, if the transaction does not close, the city will have to refinance the $16 million existing debt on the garage. At a special meeting this Sunday (June 13), the City Council will vote on a bond ordinance that would enable the city to reduce its interest costs on the garage from approximately 5 percent to less than 2 percent. Failure to pass this bond ordinance now could cost the city almost $500,000 per year in additional borrowing costs if the garage deal fails to close as scheduled.
Some might find it curious that Hekemian claims to be anxious to pay $25.5 million for a property they insist is worth only $14 million, but the fact is Hoboken residents have been hoodwinked enough in the past to know an unfair deal when they see one. The reality is that the developer’s new proposal reduces the value of the deal to well below $25.5 million, without disclosing that fact to Hoboken’s residents.
I, together with the members of the City Council, were elected to look out for the interests of Hoboken residents, not to provide guarantees of profitability to developers at taxpayer expense. I hope the City Council will carefully scrutinize the offer that has been made and pass the bond ordinance this Sunday.