A financial agreement between the developer of the former Bell Labs building and Holmdel Township was green-lighted by elected officials at a meeting Tuesday -- a negotiated deal that officials say will bring in $71 million more in taxes than conventional taxes over the next 30 years.
The estimate is derived from projections that the property will grow in value, as many businesses take up space in the building and its tax assessed value increases from its low point today. Holmdel officials project that the township could eventually reap $103 million in total by netting $86 million in total from the payment in lieu of taxes (PILOT) and $17 million from taxes on the land, which is outside of the financial agreement approved at the meeting.
The 1.7 million square foot glass and steel former Bell Labs building, also known as the Alcatel-Lucent redevelopment site, "is the Empire State Building laying on its side," said Deputy Mayor Eric Hinds. Alluding to that metaphor, Daniel McCarthy, the attorney hired by the township to oversee the PILOT agreement said, "It is going from that -- to a potentially first class, 'Class A' development that will bring jobs, money into the township, hopefully stabilize taxes for years to come."
Several residents asked why Holmdel had agreed to Lakewood-based Somerset Holmdel Development's request for the three decade-long maximum term. Resident Pradeep Jhanjee said Holmdel residents were "equity holders" in the building and should seek a valuable return. "Potentially, we are leaving $30 million on the table," he said.
Officials said that government-approved PILOT agreements are ubiquitous in new business developments, and successful in enticing new companies to take a risk and hang a shingle. "We all have to realize that not only is New Jersey not appealing to business, Holmdel is not connected to mass transportation," said Hinds. "We’re trying to create a competitive environment that will drive intellectual jobs to this area...If we are successful, than the value of the land goes up. If the building stays vacant, it will even reverse."
The township cannot offer shorter terms for repeated renewal under state statute, said McCarthy.
After years of efforts to interest global high-tech and biotech companies to consider the huge vacant building, last partially occupied by Alcatel-Lucent in 2006 and steadily declining in property value year after year, Holmdel officials realized that there would never be any bidding war for the building.
"Everyone said they wanted it, but nobody had any money to buy it," said Mayor Impreveduto. "This was he only game in town. It could lay dormant."The agreement addresses the building itself, and not the land under the building on the 475-acre campus. In response to questions by residents and school board members at the meeting, Mayor Patrick Impreveduto and Deputy Mayor Hinds explained that 95 percent of the anticipated increase in tax assessment would benefit the municipal portion of the property tax bill, and 5 percent goes to Monmouth County. If school taxes go up, the municipality can balance the property tax bill by decreasing municipal taxes to a point that offsets school taxes.
The potential land value increase, with 40 homes included, could also provide $1 million to the school district over 30 years, said officials. An estimate of what the additional 185 age-restricted town homes, which has not yet come before the Planning Board, might yield is not included in that number.
But when the township or school district could start seeing any money is not known, said officials. According to the Redevelopment Plan, the recently approved Toll Brothers 40-home development off Roberts Road cannot be built on the until 20 percent of the building is leased.
The PILOT for the building has certain triggers. "The agreement has escalators that have to go up through the course of the agreement," said McCarthy, the PILOT negotiator. The escalation clause is tied to the year of the agreement and the annual gross revenue of the project." At the end of the 30 years, the property reverts to conventional taxes.
Officials also explained that the money is due from the landlord no matter who eventually takes up space at 101 Crawfords Corner Road -- even if it is a tax-exempt entity. This includes an online school with 500 employees, as well as a hotel, office, retail, personal service, fitness, education, laboratory and medical facility. Houses of worship are specifically not allowed under township ordinance, said the mayor.
"We want Somerset to have success here because they have engaged with our town," Hinds said, referring to the years of discussions Holmdel has had with Somerset Development over the vision for the property, as well as several community forums. "I don’t see how anyone in this room is taking more risk than Somerset," said Hinds.
The projected PILOT payment, based on the assumptions made about the economy, buildout, certicates of occupancy and other factors, is $527,00 in the first year, based on the current tax rate.
In the second year, the projection is $382,816, and in the third year $675,546. Payments increase steadily until the end of the 30 year term, when payments could reach a high of $4,781,738 based on 80 percent of the current conventional tax rate. To see the chart, navigate to page 90 "Exhibit I - Expected PILOT" at this link on the township website. Look under "Projected Somerset PILOT" column.
For more coverage of the BellPlace Development in Holmdel, see:
40-Home Development at Former Bell Labs Gets Nod by Holmdel Planning Board
(June 10, 2014)
See The Houses Toll Brothers Proposes For Bell Labs Site (March 26, 2014)