WESTFIELD — Following rising questions from the public, on Monday evening town officials and consultants presented a first look at financials related to the One Westfield Place redevelopment project and the potential impact to the town’s budget.
As presented, the proposed mixed-use development, first revealed during a September meeting of the Westfield mayor and council, would consist of 138 residential apartments and 16 town homes for the 55 and older community, 69 traditional and loft-style apartments, two public parking garages and over 350,000 combined square feet of commercial, retail and office space.
HBC|Streetworks and town officials alike also have outlined a detailed plan for numerous “public improvements” like road and infrastructure repairs, new stoplights, outdoor public spaces and better pedestrian access routes.
To date, the project has elicited mixed reviews from local residents. While some have stated that they are looking forward to the new opportunities that the project could present, others have expressed concerns surrounding the impact that it could have on traffic, crowding and congestion.
But as the year draws to a close, two questions seem to be dominating the local air space: what is it going to cost, and who is going to pay for it?
On Monday, Mayor Shelley Brindle, along with other town officials and a host of financial experts, presented a virtual look at the numbers and what they might mean for taxpayers.
While the projected equity investment for HBC|Streetworks is anticipated to run in excess of $150 million, Steve Mlenak, a partner at Greenbaum Law and the town’s legal counsel, said Monday that the proposed public improvements — including a new town square at the North Avenue train station, a south-side green, the two public parking garages, traffic- and congestion-mitigation efforts and pedestrian-safety improvements, among others — will likely cost around $54.2 million to complete.
“If you had traditional piecemeal development, one lot at a time, these are the types of improvements that would likely be impossible to achieve,” Mr. Mlenak said, noting that municipalities like Westfield often turn to redevelopment opportunities in order to complete community-based projects like these that would otherwise be too cost prohibitive.
“The question really is, how do we get the project to pay for these public improvements? We know these projects are exciting, and in most cases, they’re needed, but we also know that we don’t want to pay for them,” Mr. Mlenak said.
Of the anticipated $54-million public-improvement costs, Mr. Mlenak said Monday that HBC|Streetworks is prepared to contribute an upfront payment of $8 million towards the first stages of development.
Another $29.5 million will be paid by the town through at least two separate Redevelopment Area Bonds (RABs) — one estimated at $16.5 million to cover the cost of the North area parking garage, and another estimated at $13 million for the construction of the South area deck.
The remaining balance of $16.5 million, Mr. Mlenak said, will be financed through a combination of additional RABs and the re-investment of some of the estimated $10 million that the town stands to earn by selling approximately 2.3 acres of municipal property to HBC|Streetworks as part of the anticipated redevelopment agreement.
Town officials said Monday that an independent appraiser will verify the purchase price of the property at or above fair market value.
“In my view, [that upfront $8-million contribution] is one of our risk-mitigating factors. We don’t want to be issuing bonds ahead of project development. The fact that the $8 million is coming in early allows us to sit back and ensure that the balance of the development unfolds the way it’s supposed to,” said the town’s bond counsel, Matt Jessup, a partner with McManimon, Scotland & Bauman, LLC. “If it doesn’t unfold that way, we get to hit the brakes a little bit in terms of what we have to do from a bond issue perspective.”
Assuming a 25-year term for each of the bonds and a conservative projection of a 4-percent interest rate, the average debt service for the town currently is expected to come in at approximately $3 million per year, with $1.36 million slated for the north-side garage, $870,000 for the south-side garage and $770,000 for various other public-improvement bonds.
Each series of bonds, Mr. Jessup said, will be sequenced based on a series of anticipated construction milestones for the project.
“By way of example,” Mr. Jessup said, “the north garage bonds will be the first ones to be issued. That’s important because the town needs and has insisted on the north parking deck being completed before Streetworks completes — or really commences — construction of any office space on the south side. At the same time, the town is not going to issue our north parking garage bonds until we know that Streetworks is far enough along in the west zone [comprised of the current Lord & Taylor building and its adjacent parking lots] to know that the project revenue will be coming online in sufficient amounts and on time.”
Mr. Jessup explained Monday that the debt service on the bonds is expected to be paid through the proceeds of an anticipated 30-year PILOT (Payment In Lieu of Taxes) agreement between the town and HBC|Streetworks.
Typically, Mr. Mlenak said, PILOT agreements stretch over 30 years. During that time, redevelopers are required to pay an annual service charge based on a percentage of no less than 10 percent of their annual gross revenue. Five percent of each payment is required to be made to the county, while the municipality is allowed to hold on to the rest. The payments, which will start out fairly low, are designed to increase as the project is completed and space is filled by tenants.
According to New Jersey state law, PILOT agreements can only be applied to improvements like new buildings and construction. Land taxes, meanwhile, remain the same and are paid to the schools, county and municipality as usual. Additionally, the town-owned land purchased by HBC|Streetworks will enter the tax rolls for the first time.
In this case, Mr. Mlenak said, Westfield should be able to anticipate a combined first-year payout (slated for 2027) in the amount of $494,654.
By 2037, that number would rise to an estimated $6,105,074, and by 2056, the last anticipated year of the payments, HBC|Streetworks could feasibly owe the town almost $11 million, according to the presentation.
All told, town officials said Monday, since the project revenue is expected to accelerate while the debt service should remain level, the town stands to net over $140 million from the project over the 30-year time span of the anticipated PILOT agreement.
And while the town stands to gain a significant amount of revenue from the project and its subsequent PILOT, said Robert Powell, a partner with Nassau Capital Advisors and the town’s redevelopment finance expert, it would likely not be feasible for HBC|Streetworks to commit to the endeavor without the use of the anticipated abatement.
If HBC|Streetworks was to proceed with the project with the normal tax structure in place, Mr. Powell said, “the project would generate a return on investment in the mid-single digits, a result which is not adequate in today’s capital market to justify a projected equity investment” of the size that the redeveloper is prepared to make.
If a PILOT agreement is reached, however, the project would be able to generate a return on equity in the range of about 10 percent.
“This result also indicates that the investment returns are not excessive in the context of the construction cost and lease-up risks the developer will encounter over the next several years,” Mr. Powell said.
Several safeguards have been established to protect the town’s investment and mitigate potential risk, Councilman David Contract said.
“The town has negotiated special assessments on HBC|Streetworks properties so that if the PILOT payments to the town are less than what is needed to cover the debt service, HBC|Streetworks will fund the difference,” Mr. Contract said via written communication.
For example, Mr. Contract said, if the town owes $1 million of annual debt service on the bond used to build the North Avenue parking garage and for whatever reason the PILOT payment that year is only $750,000, HBC|Streetworks will be required to cover the difference of $250,000.
“This special assessment applies until Streetworks delivers three consecutive years of projected PILOT payments that are 1.15 times higher than the town’s debt service. If they make two years in a row but miss the third, the clock resets to zero,” Mr. Contract said.
The town has scheduled an additional Facebook Live financial discussion for 6:30 p.m. on Wednesday, January 11. Residents are invited to submit questions ahead of time by visiting: westfieldnj.gov/FBLive.