One real estate firm has already filed suit after Hackensack, New Jersey, rescinded financial incentives for its project and two others in a move that reflects the kind of backlash over development that’s been seen nationally.
An affiliate of Hackensack-based Enburg Group started litigation against the city and Mayor Caseen Gaines, all in the wake of the municipal council voiding an agreement regarding the developer’s project at 132-148 Main St. Enburg plans to build a 100-unit multifamily building, called The Sapphire, at the site.
But the City Council on Aug. 11 threw out redevelopment agreements that would have given Enburg and two other companies the benefit of having payment-in-lieu-of-taxes, known as PILOTs, for their projects. Under PILOTs, a developer is given a predetermined annual schedule, sometimes spanning 30 years, of payments to make to a municipality rather than traditional taxes, which can vary widely from year to year. In turn, PILOTs are a carrot that towns can use to revive vacant land or buildings.
The council, which swept out incumbents in May with a platform wary of development and financial incentives, also scuttled PILOTs for Carlstadt, New Jersey-based Russo Development and Hackensack-based Alfred Sanzari Enterprises. Russo is planning to redevelop the site of a former Sears flagship store at 436 Main St. into a 300-unit multifamily property. Sanzari Enterprises is looking to build a 250-unit, mixed-use complex, called One Essex, at 1 Essex St. for $137 million.
At the council meeting, residents and municipal officials echoed some of the debate across the nation over real estate firms getting financial incentives to build. Reacting to a spurt of development in downtown Hackensack under the prior mayor and governing body, there were complaints about municipal services and schools being overburdened; green space being lost; too much traffic and sky-high rents for new apartments driving people out of the city. These types of debates became particularly heated from 2017 to 2019, when Amazon was seeking tax incentives from cities that wanted to attract the e-commerce giant’s second headquarters.
By contrast, attorneys for the three developers said they are not being given free handouts but rather will be generating revenue for the city through their PILOTs, as well as providing some affordable housing. In addition, the developers argued that the council’s rescinding of their PILOTS, approved by the prior administration, amounts to a breach of contract. The lawyers also maintained that the council’s action would set a precedent of Hackensack not honoring its legal obligations. At the meeting, the developers threatened to take legal action, and Enburg was the first to do so.
'False narratives'
The suit alleges that the council has unlawfully refused to sign the Main Street project redevelopment pact and PILOT agreement. Mayor Gaines disputed the claims.
“This lawsuit validates this City Council’s decision to rescind three long-term tax-exemption developer deals, as they were rushed through in the final days of the previous administration, and thus deserving of scrutiny,” Gaines said in an email. “Instead of negotiating in good faith with the incoming administration, Sapphire Urban Renewal [an Enburg affiliate] attempted to beat the clock with the outgoing folks. Now they are left with drafted paperwork and a blank line above the former mayor’s name, where they wish they had a signature.”
Dan Kennedy, CEO of the trade group NAIOP New Jersey, in January said part of his mission is to address “false narratives around PILOT agreements,” which he described as “just a different way to pay” property taxes, not a public subsidy. And he had a statement about the scrapping of the three PILOTs.
“This egregious action on part of the Hackensack City Council is pure theater at the expense of great developers working to implement the city’s own redevelopment plan,” Kennedy said. “It's unlikely that any court is going to take this clearly unlawful move seriously. However, Hackensack’s new Mayor and Council will be able to say ‘we tried,’ as they work to appease their constituents — who ultimately will bear the burden of the city’s legal fees.”
In New Jersey, PILOTS are the traditional way to incentivize development. In other parts of the country, tools like tax increment financing, or TIFs, are used to spark building and redevelopment in designated areas.
Silence from city
Enburg’s attorney, Leo Hurley, declined to provide a copy of the lawsuit, earlier reported by NorthJersey.com, to CoStar News on Friday. Russo declined to comment on its plans.
Sanzari Enterprises said it hadn’t made any decisions yet regarding potential legal steps, or otherwise, it may take.
“We are disappointed in the city council’s vote, because rescinding a signed PILOT agreement is likely illegal as well as concerning as it would set a bad precedent for development across the state of New Jersey,” Ryan Sanzari, president of Sanzari Enterprises, said in a statement. “Realize these are completed, signed agreements that the City of Hackensack has now chosen not to honor in the new City administration.”
Sanzari Enterprises reached out to the city numerous times when it learned the administration planned to rescind its PILOT and didn’t get a response, according to Ryan, who also spoke at the council meeting.
Sanzari Enterprises created a website advocating for its project and PILOT, saying that the city “wants to throw away up to $66.7 million in revenue” that it would lose if 1 Essex St. remains vacant. The developer also plans to contribute $1 million to Hackensack’s Open Space Trust Fund, construct market-rate and affordable housing, and create roughly 300 construction jobs and 85 permanent jobs.
Mayor disagrees
Those arguments don’t hold sway with the mayor.
“Any agreement with developers must be carefully considered, for both its financial and quality-of-life impacts on our residents,” Gaines said. “This council takes that responsibility seriously, and we will not voluntarily rubber stamp the previous administration’s deals drafted under fire. Furthermore, we do not see it as our responsibility to sign paperwork specifically designated for former Mayor John Labrosse. ... We support responsible growth in Hackensack, and will sit down with anyone willing to be true partners in addressing the needs of our residents.”
As to its PILOT, Enburg has admitted “there was no ink — no signed agreement — at all,” according to Gaines.