The 15-year Payment In Lieu Of Taxes (PILOT) requested by Metro Rahway would be $265,000 annually, according to a revised ordinance (O-35-13) that the City Council is expected to approve tonight. The council will meet for a combined conference agenda/regular meeting at 7 p.m.
*** UPDATE: The City Council tonight introduced the revised ordinance (O-35-13), which will be up for a public hearing and final adoption at the Sept. 9 regular meeting, and scrapped the previous ordinance (O-31-13) by defeating it, 7-0.***
The foundation should be poured this week for the 116-unit Metro Rahway, built on the former site of the A&M Supply building and other adjacent lots. Construction is expected to last about a year.
PILOTs typically are either 2 percent of total construction cost or 10 percent of annual gross revenues. The Metro Rahway ordinance stipulates a $265,000 annual service charge based on 10 percent of annual gross revenue. Gross revenue in year one is estimated to be $1,360,119 but the development isn’t expected to be fully occupied until year two, when revenue is estimated to be $2,632,488. The development budget projects a 2-percent escalator beginning in year three.
The annual service charge is about 30 percent, or $165,000, less than what property taxes would be for the 116-unit project when fully built out — at least according to my estimates based on an analysis of other comparable recent sales of rental apartment buildings in the city (namely River Place and Meridia Grand).
Metro Rahway’s property tax bill normally would be around $430,000 each year, according to my estimates, but much of that ultimately will depend on that what the tax assessment turns out to be. In the meantime, you can review or check my math in this spreadsheet that looked a comparable sales and assessments. My guess on the tax assessment would be in the neighborhood of $7 million, yielding taxes of about $430,000, based on a comparison to River Place, which might be the most appropriate comparison given that Heartstone Development developed that and is involved with Metro Rahway.
But many factors go into calculating the tax assessment, including materials used, size of apartments and other amenities. Units in Metro Rahway generally will be larger than those in Meridia’s Water’s Edge or Lafayette Village projects, which would mean a higher assessment. Metro Rahway also would feature more two-bedroom units (64 two-bedrooms and 52 one-bedrooms), hence larger apartments and thus, higher assessments.
The benefits of the PILOT spelled out in the ordinance are much the same ones touted for previous PILOTs:
- “Create jobs during construction and new permanent jobs;”
- “Stabilize and contribute to the economic growth of existing local businesses and to the creation of new business, which will cater to new residents;”
- “Further the development objectives” of the redevelopment plan for the Central Business District.
- The “relative stability and predictability” of the annual service charge — as opposed to say, rising property taxes — will be attractive to lenders and ensure the success of the project.
The argument has been made that new developments haven’t attracted people with school-age children, and that probably will be the case with Metro Rahway as well. City Council members likely will parrot the same lines tonight as in previous PILOT approvals: that the city will be getting a boon of $265,000 annually, more than three times the $77,752 what the properties currently generate in taxes — and that’s split among the county and school district whereas the city will get 95 percent of the PILOT with 5 percent to Union County.
The $77,752 figure, however, is based on current tax assessments of $1,285,800 of the six lots acquired for the project: namely a former industrial building, a few small, vacant lots, and two homes. A more appropriate, apples-to-apples comparison would be what the property taxes will be on Metro Rahway once it’s completed. That tax assessment and its accompanying property tax bill would be far greater than $1.285 million and easily will be three times as much.