350 residential rental units. There is no affordable housing component.
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As opposed to a conventional taxation, the Town and Avalon Bay agreed to the following:
10% of the gross revenues would be considered a “PILOT” (Payment in Lieu of Taxes). It was anticipated at the time of the agreement that the gross revenue would amount to $7.7 million and the Town would receive $770,000/year. This would be offset by a payment for taxes on just the land portion of the property. The County would receive 5% of this payment and the schools would not receive a share of the PILOT. As part of the agreement, the Town would receive a $300,000 contribution toward an improvement within the community. Municipal services such as snow removal and sanitation services would NOT be provided by the Town.
Avalon Bay and the prior property owner, during their due diligence in the course of the purchase of the property, discovered an environmental contamination on the premises. The contamination is estimated to cost between $10 and $15 million to clean up. As part of Avalon Bay’s desire to continue with this project, they undertook two objectives (a) they settled with the prior owner of the property and received a reduction in the purchase price of approximately $2.5 million; (b) they approached the Town of Boonton and asked for a modified PILOT and after a series of meetings over the summer between the Board of Aldermen, the Administration and Avalon Bay, the parties came to an understanding that a modification to the agreement would be formally considered. As part of this modification, the PILOT rate would be reduced from 10% to 9%. However, over the past three years the estimated rents for the project have increased from $7.7 million to $9.5 million and accordingly the amount of projected revenue to the Town of Boonton, notwithstanding this amendment from 10% to 9%, will not change. In order to change this agreement it is required that the Town issue redevelopment bonds. The interest on the redevelopment bonds will be paid by the Town of Boonton so long as the Town of Boonton maintains at least $700,000 in projected revenues from the project. If the projected revenues were to amount to less than $700,000, the Town would still be guaranteed that payment from Avalon Bay. The original $300,000 contribution towards the community was increased to $350,000. Finally, if the clean-up costs fall below $12 million, the entire deal reverts back to the original 10%.
The way this deal is structured, there is no risk to the Town of Boonton or to the Town’s credit rating, even in the event of a default of this bond.
Upon the execution of this agreement, the building was taken down. There is very little utility with respect to the property, especially in light of the environmental cleanup. It is also recognized that according to State statute, the property is exempt once the property becomes subject to a redevelopment agreement. However, Avalon Bay and the Town have negotiated that Boonton will receive $10,000/quarter or $40,000/year while the project is under construction. Once the first Certificate of Occupancy is issued and 18 months have elapsed, the Town will receive a pro rata share of the PILOT percentage of 9% or at least $700,000 even if the project is not completed on a timely basis.
The Town would then have the right to foreclose on the Avalon Bay property. The bonds are structured in such a way where payment is essentially guaranteed by Avalon Bay or the purchasers of the bonds.