For too many years, the development community has experienced a myriad of snafus in their pursuit of redevelopment projects across New Jersey. If this state is to house the one million additional residents which economists predict will flock to New Jersey over the next decade – while at the same time more and more of the state is placed off-limits to development – NJ must fix the redevelopment process. The following law school-style hypothetical will serve to highlight the problems inherent in the redevelopment at tomorrow’s Alliance Program.
Strange Things Happened on the Way to Redeveloping Edgetown, New Jersey
Our hypothetical redevelopment site is a five acre parcel in Edgetown (named for former NJ Governor Walter Edge) a transitional, working-class community between Newark and the suburbs. There are 25 existing homes, a small garden apartment-style building containing a dozen or so residential tenants, and an equal number of commercial tenants disbursed throughout the site, mostly on the ground floor of buildings or in small one story buildings. The site is “parking challenged”. All properties within the zone are current on their property taxes and, while there is some blight, most properties are in decent condition. A church is located at the edge of the site. Three crafty developers, sensing the redevelopment potential of the site, have taken options on various parts of the site. The mayor was just elected on a pro-redevelopment platform and thinks he has a mandate for change; however, a majority of the town council leans against the redevelopment project. Finally, litigation was recently instituted against the town by some existing landowners who are claiming inverse condemnation as a result of the mayor’s actions.
ACT ONE – VISIONING: Building Community Support; Creating a Workable Plan
* The mayor commissions a well-known, out-of-state planner, I.V. Tower, PhD, AICP, the principal of Never Been Built Associates, who hails from Utopia Polytechnic Institute, where he is a full-time professor. He’s well-known for beautiful but unworkable reuse designs.
* True to his reputation, Professor Tower designs a magnificent mixed-use project that contemplates 50,000sf of retail (with gourmet restaurants and high-end retailers), 25,000sf of office, a boutique hotel, and 100 age-restricted housing units, with rent control and a 20% COAH set-aside. There’s also a giant parking deck that would solve the parking problems of half the town, vast amounts of newly created parkland, and a new public library to replace the ancient one across town.
* Caught up in the moment, the mayor schedules a press conference to announce his grand plan for redevelopment. He promises no “special tax breaks or subsidies” for the project and boasts that “some lucky developer” will gladly finance construction of the new town library for the “privilege” of being designated as project redeveloper.
* The planning board, appointed by the mayor, begins hearings on whether the area is in need of redevelopment. Community opposition is muted due to the something-for-everyone nature of the plan promised by the mayor.
* The planning board unanimously declares the area in need of redevelopment. The council, sensing community support, goes along and adopts a resolution declaring the site to be an “area in need of redevelopment.”
* Shortly thereafter, the planning board prepares and the council adopts a redevelopment plan that is mostly consistent with the mayor’s vision.
* The town puts out a Request for Interest (RFI) produced by an out-of-town consultant.
* In an attempt to keep down costs, the town decides to charge developers for the RFI packet.
* Notwithstanding these ominous signs, a few developers ultimately respond to the RFI, including an impressive presentation by a joint venture company — Capable Development Corp. — comprised of three sizable developers, one residential, one retail, one office, each playing to its core competency.
* Capable Development spends nearly $100,000 on its response. But to its amazement, it gets “short-listed” along with Louis Lugnuts, a friend of the mayor, whose claim to fame is a five-unit townhome project that has been the subject of much controversy over shoddy construction, and Major REIT Co., a well-respected national office park developer with no mixed use expertise or jv partners but lots of hired guns on its side. Mr. Lugnuts is one of the parties who has options on parts of the site. He also owns a few small parcels on the site.
* The three short-listed companies are invited to respond to a Request for Proposals (RFP).
* Capable agonizes over whether or not to spend more money on this project. Capable’s VP of Development is getting immense pressure within his company to pull the plug.
ACT TWO – THE ENTITLEMENTS PROCESS AND THE MATING DANCE: Making the Numbers Work; Attracting Serious Proposals and Competent Developers
* All three short-listed companies respond to the RFP. Capable and Major REIT each spend well over $200,000 on very impressive proposals. Mr. Lugnuts, feeling overwhelmed by the qualifications of his two giant competitors despite his own close ties to town hall, teams up with another local homebuilder, Joe Handyman. The Lugnuts/Handyman proposal includes virtually every aspect of the town’s concept. Major REIT, on the other hand, omits several aspects of the town’s concept without explanation and embellishes its obviously limited mixed-use or urban renewal experience. Capable’s proposal is straight-forward and honest: it politely sets aside major aspects of the town’s concept and candidly explains why they are not financeable and/or buildable. Capable proposes a practical alternative redevelopment project that any objective real estate professional would deem the most appropriate concept for the site and the community.
* Lugnuts/Handyman are designated the redeveloper. They are invited to negotiate a developer’s agreement with the town.
* After many months of amateurish negotiations and despite their connections, Lugnuts and Handyman are overwhelmed by the harsh realities of the finance, design and construction impediments inherent in the mayor’s plan they had swallowed whole. They withdraw their designation. The mayor is devastated. The council members begin to distance themselves from what they now refer to as the “mayor’s idea”.
* The mayor places frantic calls to Capable and Major REIT. The project manager for Major REIT tells the mayor where he can go. Capable, on the other hand, says “let’s talk”.
* Capable is designated the new redeveloper, contingent upon the execution of a new redeveloper agreement with the Town.
* Capable proceeds to negotiate a developer’s agreement with the town. Capable proposes that its obligations to proceed under the redeveloper agreement will be contingent upon the town’s adoption of a revised redevelopment plan providing for 250 market rate condominiums/apartments, 35 low and moderate income apartments, which will be available for the relocation of any homeowners or tenants dislocated by the redevelopment, 20 market rate townhomes and 50,000 square feet of neighborhood retail space. This plan also provides for a combination of surface and structured parking to meet the needs of the site. Capable also proposes long term tax abatements for the site and a RAD to fund the parking improvements, financed by the PILOTs from the long term tax exemption. The council goes ballistic and talks about Capable getting rich on the backs of the taxpayers.
* After another year of negotiations, the council agrees that Capable will get a tax abatement for the retail and low and moderate income portion of the project only. The town will not implement a RAD. However, Capable’s obligations to perform the Redeveloper Agreement are conditioned upon the council adopting the redevelopment plan proposed by Capable with an additional 50 market rate flats and 30 more townhomes.
* The hearings on the new redevelopment plan are protracted and contentious. Neighborhood opposition lead by John Gadfly and Pastor Something Fore Nothing is shrill and effective. Professor I.V. Tower comes to the hearings and testifies that Capable has ruined his plan.
* After another year, the council finally adopts a revised redevelopment plan which provides for a community center run by the church and a reduced but barely profitable unit yield. Gadfly forms a neighborhood association “No Progress is Fine by Us” (NPFU) and hires the attorney Local Hack to challenge the redevelopment plan.
* After nine months, Capable and the town prevail on a successful motion for summary judgment.
* Capable then reluctantly starts to prepare its plans and applies to the planning board for approval of its project. However, Gadfly and his group have now swayed people against the redevelopment plan and the three council members who voted for the plan are voted out of office. The mayor, who is up for re-election next year, is nervous and jerky.
* The planning board turns down Capable’s conforming application.
* As Capable is about to file suit, it receives a letter from the Historic Preservation Office of NJDEP. Gadfly has informed the HPO that the site contains the ruins of the home of Dastardly Coward, a deserter from the Continental Army. The local Hysterical Society is in a tizzy. Accordingly, the town cannot condemn three vital properties in the zone without performing a Phase 3 Historic Preservation study which will cost $250,000 and take another year.
* It is also discovered that a newly-minted liquor license has not been issued in the town in twenty years, given the lack of population growth, and the last license resold on the open market for nearly $500,000. In addition, the state Board of Public Utilities has advised that the local utility provider will not be permitted to pass along the costs of vital on-site electric infrastructure improvements to all ratepayers in its territory; either the redeveloper or the town will have to bear these costs.
* Meanwhile, the housing market has taken a downward turn and Capable’s pro forma no longer works.
* Capable fires its V.P. for Development and walks away from the project.
ACT THREE – PUBLIC-PRIVATE PARTNERSHIP: A Happy Ending
* The mayor’s race turns into a three-person race: the incumbent mayor is challenged by Gadfly, who blames the mayor for creating the whole costly mess in the first place, and a smart, young planning board member — John Whippersnapper — who voted against the redevelopment from the start, not because he opposed redevelopment but because he felt the mayor was making “textbook” mistakes from the get-go by not first reaching out to the community for input on what the community wanted and then to the development community to determine whether the community’s desires were feasible financially and construction-wise. Whippersnapper also lambasted the mayor for making matters worse by hiring “out-of-town academic pinheads who don’t have a clue” and by initially awarding the project to two of his cronies, Lou Lugnuts and Joe Handyman. And he criticized his council colleagues for recently adopting the revised redevelopment plan, which he called “woefully unimaginative”.
* Whippersnapper wins the election and vows to pursue the original Capable development plan, promising “a public-private partnership that will be a model for the State of New Jersey”.
* Mayor Whippersnapper convinces the CEO of Capable to come back to the negotiating table. Capable agrees and rehires its former V.P. for Development.
* The project works with and around the historic site and is a giant success for the reasons our panelists will now explain.
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