Real estate development does not require any financial assistance from the residents to ensure the owner/investors make a profit. It is time to lay the PILOT fairy tale – that redevelopment won’t occur without it – to rest.
When performing a financial analysis, the financial advisor must look at historical evidence, failure to do so is gross negligence.
Let’s take the 2 South Willow PILOT subsidized project as an example, and compare the projected costs and revenues and profitability to actual results.
Background
In 2016, Planning Board members requested a financial analysis of the project. The request was dismissed by the Township Planner as “not matters for their concern”. (See Montclair Times, May 26, 2016 page A3)
The project was completed in 2021 and under contract for sale to a new owner by December 4, 2024.
The project application estimated construction costs at $87 million and projected annual rents at $8 million. With just that information, the Township approved a PILOT with an initial rate of 13% and assessed the value of the building and land at $46 million, half the cost to build.
Facts
| Current Assessed Value | |
| Land-Block 3105. 1.01 | $3,682,400 |
| Improvements-Block 3105. 1.01 – – X | 42,766,000 |
| Total assessed value | $46,448,400 |
The current assessed values are public information see https://wipp.edmundsassoc.com/Wipp/?wippid=0713#taxPage12545
| Gain on Sale | |
| Sales price | $96,150,000 |
| Depreciated cost | (77,216,244) |
| Gain on Sale | $18,933,756 |
The amounts in the table above, sales price and depreciated cost, are per the Audited Financial Statements of BSREP II Wellmont East Urban Renewal LLC, for the year ended December 31, 2024, on file with the Township.
| Tax Rate | PILOT Paid | Taxes Based Upon Assessed Value | Profit to Owner/ Investor | |
| Year 1 | 2022-3.521% | $1,067,965 | $1,635,448 | $567,486 |
| Year 2 | 2023-3.626% | 1,123,630 | 1,684,219 | 560,589 |
| Year 3 | 2024-3.65% | 1,035,250 | 1,695,367 | 660,117 |
| $1,788,189 | ||||
| Years 4 – 30 | $16,093,701 |
The PILOT amounts in the table above are per the Audited Financial Statements of BSREP II Wellmont East Urban Renewal LLC, for the corresponding years, on file with the Township.
Analysis
The owner/investor made $19 million in 3 years plus saved over $1.7 million in real estate taxes. Why are the residents subsidizing a profitable project? Traditionally, gains in real estate are “earned” over the long term, 30 years or more, not 3 years.
This is just one example of the Township’s inability to perform a reasonable financial assessment of need, as PILOT subsidized projects stretching from the Alister on Pine Street to Valley and Bloom have nearly bankrupted the community.
The Township is undergoing a revaluation and reassessment of all properties within the Township, it is promoted as required and necessary to rebalance the assessed values with market values. That is except for any project that has a PILOT.
Currently the owner/investors of 2 South Willow have been granted an effective 35% discount on taxes. But the sales price (market value) is more than double the assessed value, so with the revaluation and reassessment, that discount is going to double.
Why are the residents paying attorneys – Waters McPherson McNeill – and financial advisor – Mike Hanley – who clearly represent the interests of the owner/investors.
This is another example of the failure of democracy – forcing the residents to subsidize short term gains -an effective redistribution of wealth from the middle class to the wealthy.
Montclair Progressive or Corrupt 
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