Court Rules Jersey City Can Keep Some Funds from Failed Journal Square Project

Appellate court decides municipality must return $2 million to developer but can hold onto $700,000 paid into affordable-housing trust fund

Credit: Googlemaps
The site in Journal Square, Jersey City at the center of the case.
A municipality cannot force a developer to prepay fees before construction that would come due as part of a tax abatement, but it can require and keep payments to an affordable-housing trust fund — even if the project is never built — a New Jersey appeals court panel ruled on Thursday.

The decision requires Jersey City to repay $2 million to Maryland-based Multi-Employer Property Trust. MEPT made that payment to the city in June 2009 to win a tax abatement for a mixed-use high rise on 1.5 acres next to the PATH transportation center. But it allows Jersey City to keep a payment of $711,000 made at the same time to its fund for affordable housing.

The case itself is interesting.

Kushner connection

The property in question has been vacant since it was razed in 2006 in anticipation of development and has become infamous because of its ties to Jared Kushner. Now known as One Journal Square, it called for 1,512 residential units and 214,000 square feet of commercial and retail space at a price tag of $900 million. After MEPT chose not to develop, it sold the property at the end of 2014 for $27 million to Kushner Cos. and KABR Group. Kushner was a principal in Kushner Co. until he stepped down from the company, and project, to become a senior adviser to his father-in-law, President Donald Trump, in January 2017.

Credit: DOD
Jared Kushner, son-in-law of President Donald Trump, once had plans to develop the Journal Square site.
Now that ambitious project is in limbo. Jersey City has pulled its support and pledged tax breaks, contending the developers defaulted on their redevelopment agreement. The Kushner Companies and other owners have filed their own, separate suit against the city, alleging it withdrew its support “to appease and curry favor with the overwhelmingly anti-Trump constituents of Jersey City,” according to the Kushner suit.

The $2 million decision

But before Kushner bought the property, MEPT planned to build a 68-story tower with 922 units, a 50-story tower with 693 units and a 210,000-square-foot building with commercial and retail tenants there. As part of its agreement with Jersey City, it had paid $2.71 million prior to even breaking ground in order to secure a tax abatement.

A three-judge Appellate Division panel determined that the city had to refund the $2 million that was originally paid by MEPT, since the prepayment of an annual charge is not expressly permitted by the Long Term Tax Exemption Law. The LTTEL does allow for payments in lieu of taxes, also known as PILOTs, instead of property taxes on projects by an urban-renewal entity that are consistent with a local redevelopment plan.

Judge Jose Fuentes wrote in the decision that there is no “authority that would permit a municipality to enter into a separate agreement in which a municipality may condition the grant of a tax abatement upon the urban renewal entity agreeing to prepay ‘a portion’ of its Annual Service Charge … We confidently conclude that this arrangement concocted by the City to alleviate an immediate revenue shortfall was not envisioned, or even remotely contemplated, by the Legislature when it adopted the LTTEL.”

The decision cited language in the prepayment agreements between MEPT and the city that noted “the City is in immediate need of additional funds for use during this fiscal year” and MEPT “is willing to prepay the Annual Service Charges … in exchange for the City’s agreement to credit such payments through credits against future Annual Service Charges that will become due.”

Such charges are not due by law until the “substantial completion” of a project. MEPT never built its proposed complex, . Instead it sold the property to the Kushners.

MEPT stated that when it sold to Kushner, neither its prepayment of the annual surcharge PILOT nor its payment to the affordable-housing trust money were part of the deal. It requested the return of the $2.71 million in April 2015. The city declined, saying that the prepayment agreement stipulated that the $2 million had to be credited against annual service charges or be forfeited and that the affordable-housing trust payment, representing a quarter of the total that would have been due had the project been completed, was not refundable.

Superior court favors developer

Superior Court Judge Mary Costello agreed with MEPT in August 2016 and ordered the city to repay the entire amount. While the appeals panel agreed that state law did not allow Jersey City to collect the PILOT charge early and then keep it, the city had properly levied the affordable-housing trust assessment and is entitled to retain that money.

In ruling on the affordable-housing funds, the judges relied in part on a friend-of-the-court brief they had invited the Fair Share Housing Center to file in the case. The judges agreed with Fair Share’s argument that the Long Term Tax Exemption Law explicitly allows for the levying of a financial contribution to a housing trust as a condition of receiving a tax abatement and so that money need not be refunded.

The law states, “Any municipality that has designated a redevelopment area, provides for a tax abatement within that redevelopment area … may, by ordinance, require, as a condition for granting a tax abatement, that the developer set aside affordable residential units or contribute to an affordable housing trust fund established by the municipality.”

Jersey City followed the law, which allows for the imposition of fees on a developer of up to $1,500 per residential unit and $1.50 per square foot of commercial space to be paid into a fund to be used to renovate or build affordable homes.

“The $710,769 at issue in this case represents the first twenty-five percent installment payment due under this plan,” Fuentes wrote in the decision. “The methods the City employed were consistent with the statutory guidelines.”

An affordable-housing precedent

Anthony Campisi, a Fair Share spokesman, said the judgment regarding the housing-trust-fund fee is significant and should set a precedent.

“It preserves a tool in the toolkit for municipalities addressing housing-affordability issues,” he said. “This allows municipalities like Jersey City to proceed with these agreements on property slated for redevelopment. It clearly gives the city the power to negotiate with developers over housing-affordability issues.”

A Jersey City spokesman did not return a request for comment. MEPT’s attorney declined to comment.