Community Voices: PILOT’s- 40,000 Square Feet, Untaxed

Bruce Patterson is a resident of Garwood, NJ

Dear Editor

Have you driven by or visited any of the large high-density residential complexes. Usually, the first floor is not part of the residential portion but has spacious lobbies, work-out rooms, meeting rooms which all look well-appointed and simply gorgeous. If these elements were part of your own home wouldn’t they certainly be assessed and taxed for your property tax?  Astoundingly, these are not taxed in those complexes.

At the last Garwood council meeting I explained that to the governing body, using the recent Vermella complex built in our boro.  Vermella has noted on social media that their complex contains 40,000 square feet of amenity space. And the boro sees no property taxes from that.

Vermella’s own description and likely is similar to all those other gorgeous residential complexes, provides clubhouse with game tables, business center, fitness center, teen room with arcade, children’s playroom, private dining area, et. alia and of course the ubiquitous spacious entrance foyer.

In the NJ DCA’s “Municipal Tax Abatement” handbook pg 8 it allows for two types of PILOTs. (This is a revenue stream from the complex avoiding property taxes on the building.) If one paid attention to towns’ and developers’ PILOT agreements, a town’s revenue is nearly all based on the rental income from the apartments and stores within if any were included. So we find that all these amenities spaces listed above created no rental income thus no revenue stream to a town.  This flaw has escaped nearly every town when crafting the agreement and allows the developer to enhance the beauty and value of his own asset without paying taxes on it.

But the DCA handbook allows a second and different PILOT format, noting that a PILOT could be based on 2% of total construction cost of the complex. In consideration that would then pick up the construction cost of all those extraneous appointment areas and amenities the developer usually slips in untaxed since they are part of the construction cost.  Fanwood did negotiate one high-density complex that has this second PILOT type.

Using Vermella again as an example.  They have the first type PILOT#1 based on rental income and now fully occupied, Garwood receives nearly $1 million.  However, looking if they agreed to the 2% total construction cost PILOT format, the 2% would be on the $68 million assessed value (which actually could be less than true cost), this PILOT#2 would have gained 2%x68m=$1.26million to the boro, a quarter million dollar more than PILOT#1, the extra increase from all the extra amenities built into the complex.

But the sad part in talking to a Vermella resident about those amenities, he notes they are sub-par, small and mediocre, useless to his eyes. So it turns out the existing homeowners are victims of this PILOT contrivance and the high-density residents are also victim thinking of all the great amenities they would have. Especially for the rents they are paying under PILOT#1 which one would thinkg be reasonable since tax exempt but still market rate high. It appears agreeing to PILOT#1 hurts everyone involved except developers’ cash flows.

Presently Garwood is negotiating a PILOT with Wilf/Garden Homes for the Paperboard factory property on North ave. Upfront a consultant NW Financial usually works up the PILOT revenue stream and for all the high density around plus our Vermella he bases his analysis on the PILOT#1 type. IMO, he is a “snake-oil” salesman, doing no good for the towns. We must demand this upcoming project to consider the PILOT#2 type and capture all the extra amenities that would be buried in the complex untaxed. When I explained this to our governing body, it appeared it just goes over their heads, they just relying on consultants instead of knowledge.

Very Truly yours,

Bruce Paterson

Submitted directly by the author; content reflects their own views