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Officials representing the city and iStar Financial last night unveiled  a payment-in-lieu-of-taxes program intended to pave the way for $58 million in waterfront infrastructure improvement, as well as facilitate the redevelopment process.

“This is probably one of the most unique, fair and equitable financing programs ever in the state,” city redevelopment attorney Glenn Scotland said at last night’s meeting.

The new agreement enables construction to recommence at the Vive townhome site [pictured above].

Scotland, city manager Terence Reidy, and financial analyst Mike Hanley explained the plan to the governing body and the public at last night’s council meeting.

“The essence of the agreement is a financial agreement that allows the entire infrastructure of the waterfront to be built and allows residential development to begin immediately,” Reidy said.

This program differs from a traditional payment-in-lieu-of-taxes [PILOT] program. The PILOT system is allowed in New Jersey as a way to help re-populate and redevelop struggling areas. Under the traditional system, a developer pays a city an amount equivalent to a typical municipal, county and school property tax bill.

But instead of going to those three entities, the funds are used to pay the city its regular property taxes, and to offset building costs for the developer, with five percent of the total payment going to the county. This also sometimes results in homeowners paying a lower sum to the city rather than a full property tax bill each year, giving buyers an incentive to move to a struggling area.

Under the newly minted agreement in Asbury Park, property owners in the waterfront redevelopment zone will make annual payments equalling a typical municipal, county and school tax bill in the city. The city will receive its portion as a regular property municipal tax payment.

The remainder of the payment will be funnelled into a third-party bond program, Hanley said, with bonds being issued by the city. This will help repay some infrastructure costs as a result of the program, and help accelerate redevelopment, he said.

The county will receive five percent of the payment, as required by law, and the school district will not receive payment.

Reidy said iStar is taking more of a risk than the city is “on several levels. I think it speaks to their commitment to this project.”

The council unanimously voted to approve two resolutions and to introduce two ordinances enabling the plan to go into effect. Public hearings on those ordinances will be held at the second meeting in January.

WATERFRONT REDEVELOPMENT IN THE CITY SINCE 2002

The city entered into a waterfront redevelopment agreement [WRA] with designated master redeveloper Asbury Partners in 2002, Reidy said. At that time, the estimate for waterfront infrastructure work was about $39 million. The redeveloper has already spent $40 million, and more infrastructure still needs to be completed, Hanley said.

The original WRA required the master redeveloper to build the infrastructure at no cost to the city.

Asbury Partners did not succeed in redeveloping the waterfront, and borrowed $70 to $80 million from iStar Financial along the way. They were unable to pay iStar back, so iStar became the master redeveloper, taking control of the property Asbury Partners had purchased, Reidy said.

About a year after iStar took over Asbury Partners, the city took iStar to court due to the lack of redevelopment in the waterfront. A resulting arbitration allowed iStar to keep its development rights, but also established timeframes for completion of redevelopment. iStar also was still held responsible for infrastructure improvements, meaning they could not move forward with redevelopment until a plan for the infrastructure was reached.

This put construction in the waterfront area — and at the Vive townhome site — at a standstill until today, when construction recommenced.

Judge Nicholas H. Politan, who handled the arbitration, “admonished, if you will, iStar and the city, [telling them] to work in a collaborative fashion” in creating a funding mechanism for the infrastructure, Reidy said.

The city and iStar worked together to determine how iStar could rebuild the waterfront area’s infrastructure while redeveloping and still providing the city with revenue, Reidy said.

Issues arose due to some financial issues, including increased infrastructure costs and a weaker housing market, Hanley said. Only two thirds of the original units proposed in 2002 can now be built in the waterfront area — 2,200 units instead of 3,164 — and the values of the projects have decreased 20 to 25 percent from 2002 projections.

“So you have much fewer units paying for much more dollars,” Hanley said.

The new agreement is expected to provide funding for the infrastructure improvements, thus enabling redevelopment to move forward.

“This waterfront has been inactive for over five years,” Reidy said. “This amazing asset has not been developed. Where we are right now in terms of the willingness with the partners we have and where the economy is beginning to move, this is a great opportunity.”

 

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