The City Council next month will consider the fourth Payment In Lieu Of Taxes (PILOT) in the last two years, this time for the largest project and the longest program yet.
Slokker Real Estate Group, in December 2012 proposed to build 196 units among two, five-story buildings along Main Street near Poplar and Monroe streets. The $51-million development would receive a 30-year PILOT, if approved, starting with a payment of $359,856 in the first year. The City Council introduced an ordinance (O-9-14) for the PILOT at its March 10 meeting. A public hearing and final adoption is scheduled at the April 14 meeting.
Based on the estimated annual increase in the PILOT of 3 percent, the project would pay almost $850,000 in the final year of the agreement (~2046). Over the life of the PILOT, payments would total $17.1 million, or an average of about $570,000 annually over the 30 years. The proforma estimates monthly net operating income of $2.4 million in Year 1, or $12,367 per unit and $16.12 per square foot.
The Dornoch II project, as it’s often referred to, encompasses Block 318, Lots 1-10 and 23 along Main Street near Poplar and Monroe streets. The lots have a combined total assessment of $649,400 but all are currently tax exempt under an agreement with the Parking Authority, which owns Lot 23. (Based on the latest overall tax rate of $6.047, such an assessment would yield a tax bill of less than $40,000.)
The proforma and details of the PILOT can be found in the PILOT application, which was filed in January. The Redevelopment Agency approved a redevelopment agreement (Resolution 15-14) with Slokker at its meeting earlier this month. Total project costs are estimated to be $51.4 million, almost half of which would be for construction of the two buildings ($9.99 million and $14.1 million) but also would include environment cleanup and the extension of Monroe Street across Main Street, through Lot B, to East Cherry Street.
Environmental cleanup will be considerable, according to Redevelopment Agency Director Peter Pelissier, and the extension of Monroe Street will be paid for by the redeveloper, with support from federal Community Development Block Grant (CDBG) funding.
The developer budgeted $250,000 for the extension of Monroe Street in addition to site improvements of $575,000 and soil removal of $375,000, according to a proposed financial agreement between the city and Dornoch. Environmental investigation and remediation is estimated to cost about $1.375 million, including remediation of about $1 million.
The project is complex “in as much as the previous developer paid an exorbitant amount of money for the property,” he said. Dornoch acquired the series of lots in 2006 — at the height of the real estate market — paying $5,656,270 and razed several buildings in anticipation of building The Westbury, a 150-unit complex with parking deck before the recession scrapped those plans. The developer plans to acquire more lots from the Parking Authority, for $350,000, and another from Amtrak for $100,000.
Final approval of the project is anticipated this month or next, according to the PILOT application. Construction would begin in January-March 2015 with completion by September-November 2016.
Recent downtown development projects that were awarded PILOTs include:
* 20 years, approved September 2013, Metro Rahway, 116 units under construction on Campbell Street between Elm Avenue and West Cherry Street, and expected to be completed later this year.
“Each project requesting a PILOT is considered independently and the pro forma for this project is difficult to meet without support” from the Redevelopment Agency and city.
“Development in cities like Rahway that have inherent challenges require a partnership of sorts between developers, Redevelopment Agency and city to reach the common goal of revitalizing Rahway,” Pelissier said. The redevelopment plan, created in 1998, allows Rahway to offer various incentives to encourage development, including PILOTs, tax abatements and phased-in tax assessments.
The ground floors would provide for parking as well as about 4,000 square feet of retail space. The north building would have 84 units with 88 internal parking spaces and 2,300 square feet of retail while the south building would have 112 units and 120 internal parking spaces, and 2,210 square feet of ground-floor retail. About 25 public parking spaces will be conveyed to the Parking Authority and a new street will be created with the extension of Monroe Street, from Main Street to East Cherry Street.
The north building would abut the railroad tracks and extend from the corner of Poplar Street and the south building would be on the other side of the Monroe Street extension, along Main Street toward the corner of East Cherry Street.