By Lev D. Zilbermints
As was reported in the March 23, 2023 issue of “Local Talk”: the City of Newark, its Municipal Council and certain other parties were sued by the developer, Fairmount Senior Genesis, Housing Urban Renewal Partnership, LLC, Genesis Fairmount Partners, LLC and Genesis Central Ave Partners. The cause of the lawsuit was that the City and its Municipal Council allegedly failed to live up to their side of the agreement and were engaged in unfair play and political shenanigans.
In this, the second part of the article, “Local Talk” sheds more light on what happened.
Purpose for Redevelopment of Properties
According to court papers, “The goals of the proposed redevelopment were clear. The Fairmount Properties were to be a one hundred percent (100%) affordable low-income housing tax credit (“LIHTC”) development supported by significant subsidy and entitlements from the City, as is required and necessary to produce this type of housing.
By comparison, the Central Properties were to be developed as hi-end loft rental or condominium developments with ground-floor retail.
Given the specialized experience required to compete for LIHTC financing as well as the time and money involved in being awarded LIHTC from the NJHMFA, the City required Plaintiffs to develop the Fairmount Properties first (as these were more difficult to develop) and then to develop the Central Properties next. This was to ensure Plaintiffs did not develop the more lucrative Central Properties first and walk away from their obligations to develop Fairmount Properties.
However, responding to Plaintiffs’ concerns that the Central Properties might appreciate significantly and make the acquisition price less attractive given the timeframe Plaintiffs had to wait to develop Fairmount, the City agreed to set the acquisition price of the Central Properties at the of the execution of a redevelopment agreement to $550,000, which was the appraised price at the time of execution, and to credit any environmental remediation costs against the acquisition price paid to the City.
In summary, the City asked Plaintiff Genesis to prioritize the redevelopment of the Fairmount Properties, since they wanted to motivate development in the West Ward. This meant that Plaintiff Genesis was being asked to prioritize the expenditure of equity on a project with lower returns. Plaintiff Genesis was willing to do that, on the condition that, if they had to wait to develop the Central Properties, they could acquire it at value based upon the date of the original Redevelopment Agreement because, under normal market conditions, equity would be prioritized based on the highest return on investment (i.e., developing Central Properties first), and Genesis as being asked to forego that opportunity in deference to the City’s development priorities.”
From the court documents it becomes clear that the City wanted to develop Central Properties first. This meant that the developer would invest more time and money in one property than the other. Low-income housing would not produce much money, but the Central Properties, “developed as hi-end loft rental or condominium developments with ground-floor retail” would produce steady income.
Mention must made be of the project being originally being put together during the tenure of Cory Booker as Newark’s mayor (July 1, 2006 – October 31, 2013). This would explain why at first things were going more smoothly while Booker was mayor. The composition of the Newark City Council and the mayor was politically different. Once new people took power in the mayor’s office and on the City Council, everything changed. For example, Mayor Baraka had a vested interest in getting the Kawaida Towers project become reality. This was because Amiri Baraka Sr., the mayor’s father, tried to get the original Kawaida Towers project moving.
According to court papers, “Indeed, as Mayor Baraka has publicly made clear: ‘If there is one thing I can do before I get out of this – is to make sure that Kawaida Towers is alive and well in this community.’”
Agreements between City of Newark and the Developer
According to court papers, the City of Newark and the developer entered into three separate agreements between 2011 and 2013. These were the First Amended Redevelopment Agreement, the HOME Agreement, and the Grant Agreement. Each agreement included certain obligations that the City of Newark and the developer, Fairmount Genesis et al., pledged to carry out. However, as will be seen from analyses of court papers, the City of Newark ultimately refused to carry out its side of the bargain.
According to court papers, “In or around 2011, the City and Plaintiffs clarified the scope of the Project through an amendment to the RDA [Redevelopment Agreement]. As part of this amended agreement, the City pledged to support the development of the affordable project at the Fairmount Properties with a City subsidy, in the form of HOME or other money that the City would provide.
“A subsidy from the City was a necessary component of developing affordable housing at the Fairmount Properties.
“On or about September 1, 2011, Plaintiff Fairmount and the City entered into an agreement for payments in lieu of taxes (the “PILOT Agreement”), in order to support, in part, the affordable housing development contemplated at the Fairmount Properties. …
“On or about September 7, 2011, Plaintiffs and the City, entered into a First Redevelopment Agreement (the “Amended RDA”). …
“The City’s request to develop a 100% affordable housing LIHTC project, further encumbered the Fairmount Properties in addition to many other variables, including, among others, environmental contamination on the property. In consequence, both the City and Genesis understood that redevelopment of that site would require considerable subsidization and time to compete and win the tax-credits required for the development to occur.”
From the abovementioned, it appears as if the City was more interested in one property than the other.
The HOME Agreement
According to court papers, “one method of providing the necessary subsidization of the Fairmount Properties was the City and Plaintiff Fairmount entering into a certain Deed Restrictive Department of Economic and Housing Development Affordable Housing Agreement (the “HOME Agreement”) on or about June 1, 2013. …
“Under the terms of the HOME Agreement, the Parties agreed that the sum of $1,875,000 would be made available through the City’s share of the federal HOME Fund Program to offset the costs of redeveloping the Fairmount Properties, as discussed above.
“The HOME Agreement was intended to satisfy the City’s pledge in part to provide subsidy to the affordable housing development at the Fairmount Properties as provided in the Amended RDA.”
From the abovementioned, it is seen that the City is providing almost $2 million in order to offset the cost of developing Fairmount Properties. Left unsaid is what will happen to Central Properties? This is where the City, according to court papers, allegedly pulled the wool over the developer’s eyes, so to speak.
The grant agreement
According to court papers, “On or about September 17, 2013, Plaintiff Genesis Fairmount, the City, the Animal Shelter and defendant NCC entered into a Grant Agreement (the “Grant Agreement”), which was another method of subsidizing and offsetting the development and environmental remediation costs associated with the Fairmount Properties. …
“The RDA, the HOME Agreement and the Grant agreement are sometimes referred to herein as the “Agreements.”
“Under the terms of the Grant Agreement, certain funds – approximately $300,000 to $400,000 of some $5.7 million in City revenues raised from municipal motor vehicle rental tax income – were to be applied to offset the redevelopment and environmental remediation costs associated with the redevelopment of the Fairmount Properties.
“The balance of the Grant Agreement funds was to be applied to a contemplated City No Kill Animal Shelter, vis-à-vis the Animal Shelter.
“Funds from the Agreements were provided by the City to support the affordable housing redevelopment, in recognition that high environmental remediation costs would prevent in a successful affordable housing development. The express terms of the Grant Agreement provide: ‘the City has also determined that the City’s financial assistance is needed for certain costs of the Remediation’ relating to the redevelopment of the Fairmount Properties.
“The foregoing funding sources, together with the redevelopment of the economically attractive Central Properties, were intended under the various Agreements of the Parties to make the redevelopment of both Central Properties and the Fairmount Properties workable and feasible.”
When translated from legalese into everyday English, this means that Genesis Fairmount entered into certain agreements with the City of Newark to redevelop Fairmount Properties and Central Properties. City of Newark allocated a set amount of money for redevelopment. Questions remain unanswered as to why Central Properties were not addressed. This is seen elsewhere in this article.
Developer honors agreements; city does not
What followed after agreements were made was an elaborate charade by the City of Newark. The developer was apparently fooled by the City into believing that the agreements would be honored. Instead, the developer incurred considerable expenses while trying to get the City to cooperate. Court papers say that the City had no intention of cooperating.
According to court papers, “Plaintiffs incurred considerable expense and relied to their detriment upon the contractual obligations of the respective Parties all in furtherance of the redevelopment of the Fairmount Properties and the Central Properties.
“For example, in reliance on the City’s financial commitments as discussed, Plaintiffs elected to pursue certain financing for the Fairmount Properties as it would require a substantial amount of additional equity in order to expedite the development of the affordable housing at that site.
“By the way of further example of good faith reliance, Plaintiff Genesis Senior Fairmount took title to the Fairmount Properties by Deed from Defendant City dated June 23, 2014, in contemplation of the development of affordable housing at that site. …
“In connection with its contract obligations, Plaintiff Genesis Senior Fairmount paid the City the sum of $114,100, as required under the RDA in connection with that acquisition.
“Plaintiffs borrowed $500,000 from the New Jersey Redevelopment Agency to pay these and other costs related to the Fairmount project.”
Simply put, the developer relied, as is the case in legal circles, on the agreements made with the City. The developer invested money, time and effort in purchasing the Fairmount Properties from the City. Legally, the developer was now the owner of Fairmount Properties. However, the more attractive Central Properties was still owned by the City. The developer actually borrowed half a million dollars in order to pay the costs related to the Fairmount project. In the final analyses, is the developer making an honest effort to uphold its part of the agreement, while the City appears not to be?
City pressures developer
According to court papers, “On or about July 30, 2014, Plaintiffs’ representatives had a meeting with City Deputy Mayor Wilson, to discuss the Properties. At that meeting, Deputy Mayor Wilson suggested that he was reluctant to support Plaintiffs’ affordable housing development, despite the Mayor’s focus on development in the West Ward. The deputy Mayor also refused to discuss the Central Properties during the meeting.”
From the abovementioned it can be surmised that the City wanted to keep Central Properties for itself while backing away from supporting affordable housing development.
According to court papers, “In or about August 2014, Defendant City compelled Plaintiff Fairmount to modify its organizational structure with respect to the Fairmount Properties to include a community housing development organization (“CHDO”) development partner, in order to receive CHDO funds in advance of the City’s September 30, 2014 deadline for such funding.”
The question arises, why did the City allegedly pressure the developer? The answer, as usual, is in the court papers.
According to court papers, “This was done to replace a portion of the $1.8 million in HOME funds that the City had already committed under the HOME Agreement.
The City is in default of its funding obligations under the grant agreement and the HOME Agreement as discussed therein.”
Translated from legalese, this means that the City is trying to walk back its commitment to the developer under the agreements it had signed previously.
Court papers say as much. “The City is in default of its funding obligations under the Grant Agreement and the HOME Agreement as discussed therein.”
Developer tries to move on, incurs multimillion-dollar expenses
While all this has been going on, the developer has “in the interim also obtained approval from the Newark Planning Board in connection with the redevelopment of the Fairmount Properties,” court papers state.
The developer, Genesis Fairmount Senior, submitted numerous applications to state agencies, incurring multimillion-dollar expenses.
According to court papers, in connection with due diligence and related activities in furtherance of redevelopment of the Properties, Plaintiffs submitted multiple applications to the NJHMFA and as a result have incurred out of pocket expenses, with interest, in excess of $2.3 million to date. …
Plaintiffs’ aggregate damages exclusive of out-of-pocket expenses currently total at least $3.63 million, including $3.0 million of value from the Central properties, and $1,900,000 developer fees respecting the Fairmount Properties and forfeited dollars committed to the Properties of $1,875,000 and $300,000.”
Developer alleges city wrongfully terminated agreements
According to court papers, “the City’s wrongful termination of the RDA as to the Central Properties, wrongful termination of the HOME Agreement and wrongful and unilateral assignment of the Grant agreement” indicates that the City is not dealing in good faith.
“Despite Plaintiffs’ diligent pursuit of its obligations under the aforementioned Agreements, Defendant City of Newark wrongfully terminated the respective Agreements, or wrongfully and unilaterally assigned them as discussed below.
“The only obligation Plaintiff Central had respecting the Central Properties upon execution of the Amended RDA with respect to site diligence, was, pursuant to Section 3.3.2(a) thereof, to secure an appraisal within 180 days of Effective Date of the RDA.
“Plaintiff Central secured that appraisal and delivered it to the City.
“All of Plaintiff Central’s other obligations under the Amended RDA were predicated on the City’s delivery of a notice that the CHEN School had been relocated. The City, however, never delivered the required notice.”
The lawsuit description reads as if one side is doing its best to conform to the agreements while the other is trying to run away from what was agreed on.
At this point, court papers state, “the City sent an email setting the acquisition price at $550,000, evidencing its continuing interest in Genesis acquiring Central Properties.”
Next, the developer was told by the City “to halt development activities until the completion of the Fairmount Properties and were not to proceed with the Central Properties until the development of the Fairmount Properties had completed.”
The question arises, was the City trying to create obstacles for the developer? All kinds of things could happen to Central Properties while Fairmount Properties were being developed. Why would the City stop developing Central Properties? Did the City have an eye on keeping the more money-raising Central Properties?
According to court papers, “Despite this, at least two concept plans were submitted to the City of Newark for the Central Ave Properties. One in 2008 submitted to Deputy Mayor Stephon Pryor and another submitted to Mayor Ras Baraka under his clear direction and input.
“Plaintiffs met all of their performance obligations under the Agreements. In consequence, there is no legal basis on which the City could have terminated or unilaterally assigned any Agreement,” the developer’s lawsuit states.
Next time: How the City Reneged on Its Agreements
