What Will Summit's Broad Street West Cost? Financial Expert Breaks It Down

SUMMIT, NJ — With the recent buzz around the proposed Broad Street West redevelopment project, the Summit Common Council invited a financial advisor to Tuesday night's meeting to break down the costs of this extensive project.

Robert Powell Jr., the managing director of Nassau Capital Advisors and the financial advisor for the Broad Street West redevelopment, spoke at Summit's council meeting and explained the finances of the project, as well as answered questions from council members and residents.

The project will entail constructing a mix-used building with 10,000 square feet of retail space, with a combination of 140 market-rate and affordable housing rental units. The building will also be surrounded by public green spaces.

More details on the project can be found in this letter to the editor from the Summit Council.

In financing this project, Powell explained the 30-year PILOT agreement that has been proposed. PILOT, which stands for "payments in lieu of taxes" is a financial incentive that allows the developer involved in a redevelopment project to make payments in lieu of taxes for up to 30 years.

In this case, the developers of the Broad St. West development are Toll Brothers and L&M Development Partners. Powell said the state's Long Term Tax Exemption Law permits towns, at its discretion, to provide tax abatement for certain kinds of redevelopment projects.

"The PILOT is a financial incentive that has attracted private investment to hundreds and hundreds of towns in New Jersey just like Summit," Powell said.

The PILOT involves a financial agreement between the City and the developer. Once the agreement is effective and the project is built and goes into operation, the project and the site will come off the tax rolls, Powell said.

In this case, Broad Street West would be treated as "tax exempt property," as if it had been acquired by a school or church. Instead of paying real estate taxes, under the financial agreement, the developer would make payments for up to 30 years. These payments made by the developer are a percentage of the annual gross revenue of the project.

Because Broad Street West involves building an apartment building, the gross revenue would include things like gross rents, parking fees and other housing-related fees. Just like taxes, Powell said PILOT payments are made on a quarterly basis.

Normally, when residents pay taxes in Summit, the City receives about 19 or 20 percent, the Board of Education gets a chunk and the county gets a chunk. But under the PILOT agreement, Powell said 95 percent of revenues go to the municipality and 5 percent go the county.

Another feature to this project is a Redevelopment Area Bond or "RAB." This is a bond that Summit would issue and proceeds of the bond would be used to pay for a portion of the cost of the redevelopment project. But unlike other bonds, the RAB is a revenue bond, which means the only security behind this bond is a portion of the PILOT revenue that the developer is paying.

Powell said the PILOT will generate an average of $600K per year for the City. The RAB bond will require about $100K of that $600K. As a result, there will be another $1.7 million of capital available to pay for certain costs in the project that serve a public purpose.

In order to be financially feasible, Powell argued that Broad Street West needs a PILOT agreement and RAB financing.

Here's a specific break down of the costs of the project:

In the first year of the PILOT, Summit's share would be about $528,000, according to Powell's research.

Over 30 years, the PILOT will go up about 2 percent every year. Powell said PILOT rates go up because rents go up. The average annual PILOT payment to the City over 30 years would be about $705K. The City will also receive a $14K administrative fee over the 30 years.

As mentioned above, payments of $100K per year will pay the debt service on a RAB bond of about $1.75 million.

What's left over for the City is an average annual net PILOT revenue of $619K, according to Powell.

What are the financial benefits?

Powell said the combination of using a PILOT agreement and a RAB bond will turn the current property, which is largely underutilized at the moment, into "an income-generating asset." Not only will the property generate PILOT revenues, but Powell said the developer has also agreed to pay the City $8 million for the site.

Right now, the site is only generating about $30,000 per year, whereas the PILOT payments over 30 years would generate over $18 million for Summit.

Residents Respond

Steve Sartorius, a Summit resident, asked Powell what occupancy rate he used when projecting the financial estimates of the PILOT agreement, to which Powell responded that all the numbers are based off a 95 percent occupancy rate.

Powell explained that if the project is really successful, there will be more PILOT revenue, but if occupancy rates decrease, the PILOT revenue will go down.

Sartorius brought up the issue of lack of parking at the development, which many have voiced concerns about, and how that could discourage people from renting, thus lowering PILOT revenue. Powell agreed that this could be possible.

According to a previous presentation, the project is proposed to provide 196 parking spaces for the 140 units.

Beth Welsh, who said she has been managing property in Downtown Summit for 30 years, argued rent does not continuously go up.

"When there are troubles, [rent] goes flat, or it goes to zero, and you have to solve the problem," Welsh said.

Welsh also expressed concerns over the parking situation.

"Our lovely, authentic downtown is woefully under-parked ... and this project will put a huge under-parked facility in competition with parking that serves the downtown."

Irwin Miller asked Powell if the development will prioritize Summit residents for renting the affordable housing units. Powell said in order for the units to qualify as affordable housing, they cannot restrict it to just Summit residents.

To view the entire Council meeting, watch the YouTube video below.

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