NDC consultant delivers alternative PILOT terms for “pioneering project”
On Monday, October 19th, County Executive Pat Ryan announced that the report had been delivered by the NDC and that it would be reviewed by all impacted agencies (except for the Kingston Common Council, who did not receive the report even though the Mayor of Kingston did) before being released to the public on Friday, October 23rd. Although the developers and our elected and appointed officials have maintained that some of their financials for this project contained “trade secrets” that could not be revealed, we have argued that any public/private partnership should lay everything out on the table. There should be no secrets. Was the county going to step up to advocate for transparency where tens of millions of dollars in tax incentives were involved?
After several delays throughout the day on the 23rd, a “public” version of the NDC study was finally released at 5pm and to our dismay, the consultant delivered more than just a review of the current PILOT terms. They also submitted an alternative PILOT, new terms for what they called “a pioneering project.” Now, the County Executive, Chair of the Legislature and Chair of the UCIDA were all aligned.
“This new PILOT framework further strengthens the alignment between our community and the developers, making this a win-win project that I’m excited to support,” said Ulster County Executive Pat Ryan in a prepared statement.
“The new framework provides numerous public benefits that go far beyond the original PILOT structure,” said Ulster County Legislative Chairman Dave Donaldson.
“I am proud that we were able to work constructively with the developer and all the municipalities to develop an innovative PILOT approach that makes this project a win for the community,” said Ulster County IDA Chairman James Malcolm.
Last year the public had been told that affordable housing was not affordable for the Kingstonian project. But after much public outcry and advocacy work, 14 affordable units were included (only by expanding an already overscaled development) late in the review process. As for the PILOT, in July the Kingstonian developers publicly stated that the PILOT terms already approved by the Kingston Common Council were not negotiable. When asked in September by a local news source how much further they could go in negotiating the PILOT terms, the developers replied (nearly in unison), “We’re there.” (WATCH: 3:25). And yet, only a few weeks later, NDC’s report was delivered with new PILOT terms that the county executive says would nearly “double [the developers’] payment.”
It seems plausible to speculate at this point that the county’s decision to hire a consultant to review the Kingstonian PILOT terms might have been mainly a strategic move, a way to try to reset public concern and perception while sweetening the pot a little in order to bring the Board of Education along.
“PILOTs do not have a positive impact on school district finances.”
On October 1st the UCIDA held a public hearing on the Kingstonian PILOT. Testimony at that meeting by City of Kingston resident James Shaughnessy (although Shaughnessy made his statement as a private resident, he also revealed that he was the President of the City of Kingston’s Board of Education though not speaking on their behalf), placed on record the following: “…PILOTs do not have a positive impact on school district finances. The school district is subject to tax cap legislation which limits the growth of our tax levy…when the new construction is under a PILOT, the growth factor is zero at the beginning of the agreement and it is not included in the growth factor at the end of the agreement. So the district’s tax levy limit is permanently reduced…The developers don’t seem to understand school district finances. They don’t seem to understand the impact of a PILOT on school district finances and frankly, the Mayor and the Common Council and perhaps (City of Kingston Assessor) Dan Baker don’t seem to understand the impact of a PILOT on school district finances.”
Meanwhile, a recent notice issued by the Kingston City School District, stated that on August 13, “…the New York State Division of Budget announced that they would be withholding 20% of the school district’s state aid payments for the 2020-21 school year. Without federal support to offset the loss of state funding, this withholding could turn into a permanent reduction which will lead to a loss of programming and personnel.” A 20% cut of the $70m in State aid that the district relies on would equal approximately $14m.
City of Poughkeepsie community members voice in
We have received a number of communications from our neighbors living across the river in the City of Poughkeepsie. They have had a lot of experience with one of the primary Kingstonian developers pertaining to PILOT deals in their city, and most of it is unsavory.
Among them is a letter received from Ann Finney, a resident and the former chair of the City of Poughkeepsie council, she writes, “I am one of a group of Poughkeepsie residents, mostly attorneys and business people, who are researching the history of transactions with (Joseph) Bonura. We are organizing a comprehensive library of public records, records available through FOIA, and newspaper reports quoting parties in interest…Speaking for myself, expressing my opinion, it is my belief that an independent review of the financial position and resources of the Kingstonian, LLC and its principals would be incomplete, without an independent contemporaneous review of the publicly available information regarding the Bonura Group’s track record with tax assisted projects in Poughkeepsie.”
Ann speaks of the over $1 billion in tax benefits that the Bonuras have received from the City of Poughkeepsie over the years, and the pittance that the community has received in return. “First, I refer to a public presentation from the Poughkeepsie City Industrial Development Agency, to the Poughkeepsie Common Council on September 21, 2020. (The IDA presentation is on-line at the City of Poughkeepsie IDA page at www.cityofpoughkeepsie.com). I call your attention to pages 7, 8, 9, 11, 16 and 27, where the Poughkeepsie IDA reports that Bonura projects have received a present value of over $1 billion in tax benefits, yet have produced only 226 jobs. The two Bonura projects authorized by the Poughkeepsie IDA cost $141,000 per job for the Shadows restaurant, and $142M per job for the Water Club. [emphasis added] These numbers compare to $4,378 per job across New York State, $6,555 per job in Dutchess County, and $2,677 per job in Ulster County, according to the 2018 IDA Data released by the NYS Comptroller on July 20, 2020.” (On the public website osc.state.ny.us)
Another critical piece of information was learning of Bonura’s current effort to refinance his projects in Poughkeepsie and how his success may or may not affect the Kingstonian project’s financing. Finney continues, “My group, though informal, is also inquiring into another topic– the June, 2016, Landlord’s Estoppel document is included as part of the Bonura $23M financing and refinancing of the Water Club apartment complex, in the City of Poughkeepsie. The Water Club is the subject of a 99-year PILOT in favor of Bonura’s Waterfront Development LLC. (The 2016 Landlord’s Estoppel agreement is filed in the Dutchess County Clerk’s Office, Document 1836 filed on March 24, 2016, and amended in Document 3842, filed June 16, 2016)…Today, the 2016 Estoppel agreement is relevant, because it will have to be amended by the Poughkeepsie IDA and executed as a formal agreement, in order to support Bonura’s planned $ 36 million refinancing of the Poughkeepsie properties, among other collateral…Our group’s position is that the success of the Water Club and other Bonura operations is due to the tax benefits supplied by the taxpayers of Poughkeepsie. Therefore, the increase in the value of the properties, and related financial strength of the projects, should remain in Poughkeepsie, to benefit the Poughkeepsie economy. This success, measured by the increased value of the properties, the equity, should be frozen, in Poughkeepsie, until the original $23M loan and the 99-year tax holiday comes to an end….It is also possible that the Bonura Group’s ability to cash out the self-reported $13M equity may be restricted, in ways that affect the financing of the Kingstonian project.” (Read the letter and citations in its entirety HERE)
Red flags raised with the NDC study
Though not impossible, it’s quite a feat to turn around a cost benefit analysis for a PILOT as complicated as the Kingstonian project in only one week’s time. Upon reviewing the report, Ann Finney pointed to several of the red flags she could identify, that are worth amplifying for a deeper understanding at this critical time in the PILOT debate.
Financing of the Kingstonian project. [emphasis added] “In the report, the developer is able to restructure the financing over a period of fewer than 10 business days, between the hiring of NDC and the October 23 report date. This flexibility is noteworthy, in the middle of the Covid real estate uncertainties, which affect the core revenue sources–rental tenants, tourists, and parking associated with small scale retail. This flexibility would undermine confidence in the original numbers, as well as could raise doubt of the revised numbers. Months into the crash of the hospitality and small scale retail industries, within 10 days, the developer would be able to concede he needs less money.”
Uniform Cap Rate. [emphasis added] “The uniform 6.5% cap is incorrect. It should be higher. The higher the cap rate, the less valuable the real estate. This project may end up costing more to build than the resulting fair market value. To illustrate this, the cap rate for boutique hotels is higher than 6.5%, as of the second half of 2019. (US Hotel Cap Rate Survey Second half of 2019 https://www.cbre.us/research-and-reports/US-Hotel-Cap-Rate-Survey-H2-2019) It is likely higher than 8% today, due to Covid impact on tourism and the hospitality industry in general. The same incorrect valuation may apply to the parking lot. Pre-Covid parking lot cap rates are suggested at 7.2-7.5%, for an airport parking lot, with very stable revenue streams, pre-covid. Parking lots for suburban areas range higher than 8%, pre-Covid. (The Appraisal Journal, Spring, 2020, esp. p.134.)
To summarize, the incorrect cap rates means the project as presented costs more than the resulting fair market value. The economic performance of the project is determined by its fair market value, not the cost to the developer. The economic performance occurs in the real world of actual cap rates, rigorously assessed and confirmed by commercial appraisers, lenders and investors.The short hand uniform 6.5% cap rate used by NDC is unreliable. As a simple and preliminary ameliorative step, the analysis should compare the lenders’ metrics with the consultants’ cap rates, and to compare all the project’s metrics, used by all the parties, to widely available industry metrics, as affected by Covid.”
The developer’s equity of $9M cash is self-reported. [emphasis added] “Perhaps not coincidentally, the developer is currently negotiating a refinance of the Poughkeepsie properties, seeking to replace $23M of debt with $36M of new debt. This refinancing requires the approval of the Poughkeepsie City IDA, by issuance of a new Landlord’s Estoppel agreement (filed in the Dutchess County Clerk’s Office and as outlined above). As noted, there is widespread and increasing taxpayer sentiment in Poughkeepsie that this refinancing should not be approved by the Poughkeepsie IDA, due to the controversial terms of the original $23M financing. The developer’s self-reported cash equity of $9M should be confirmed, as to its sources and its independence of the questions and possible delays in Poughkeepsie, or even, the possible freezing of the developer’s equity in Poughkeepsie, until the Poughkeepsie Water Club contract (s) are renegotiated.”
Lease Terms. [emphasis added] “The leasehold terms have not been provided. Those terms must be provided for public review, before a decision is reached. As noted, the ground lease terms of the Poughkeepsie Water Club project include several terms that are imprudent for a small municipality, and that may violate the authorization from the Poughkeepsie Common Council and/or general municipal law.”
Construction Costs. [emphasis added] “No details on the construction costs — such as developer fees, general contractor fees, lender fees in addition to interest costs, all such soft costs. No independent and current qualification of the developer or the general contractor, as required by New York State government contracting laws and commercial best practices.”
Boutique hotel. [emphasis added] “No details on any franchise costs payable to the actual operator of the boutique hotel, no details as to control over room rates, and other costs that ensure a “boutique hotel” operation. These hotel specific costs may be additional reductions in the gross revenues to the developer, affecting the PILOT payments, but these reductions are not yet identified.”
Bait-n-Switch [emphasis added] “In terms of local economic benefit, this developer has a track record of bait-n-switch–not building the boutique hotel in Poughkeepsie – and a mediocre track record for delivering the economic benefits of its hotel operations in Poughkeepsie.” (Poughkeepsie IDA report.)
“Every investment and every choice we make….should be evaluated by the ways it impacts our people”
In a recent, and very good report (released on September 28) by Ulster County’s Economic Development office called “Building a People Centered Economy,” there is a quote that really stands out, especially now: “Every investment and every choice we make about how we develop our economy…should be evaluated by the ways it impacts our people, with careful consideration and weighing of the trade-offs that are inherent in all impactful decisions.” As it pertains to the Kingstonian PILOT, can the county say with confidence that they’ve done that here? We don’t think so, and in fact as a witness to the Kingstonian project process from the start (our most recent post appears first. Scroll to the end to begin what has been an epic journey) we believe that the outcome of this project was long predetermined for unknown reasons, and the feigned public process throughout has been a reflection of that.
The county’s attempt at a cost benefit analysis hasn’t changed anything for the residents and taxpayers of Kingston and Ulster County. In fact, it has deepened our belief that if the developer wants to proceed with its project, they should be required to pay their full tax bill. If they are not able to do that, or to secure financing without such a large PILOT request, then maybe the project is too large and out of their reach. That is their burden to bear, not ours.
The City of Kingston, in collaboration with the Uptown business district, should begin work on mapping the true parking needs of Uptown now and going forward and with that, identify solutions to address the problem without impacting the budgets of our school district and municipalities throughout Ulster County for a quarter century. What if instead of a county wide IDA, individual municipalities were able to decide whether or not they wanted to provide tax breaks to developers, by setting up their own municipal IDAs? At least in that way, a community could choose whether or not to support a development based on it’s true ability to spur local economic development. In fact, the mayor brought this up as a possibility in January of 2019 just before the Kingstonian project publicly released its formal application, making it likely that the developer and many of our elected and appointed officials were clued in to the developer’s PILOT needs early on. Imagine if the City of Kingston alone had to make a decision about whether or not it could afford to give a $30 million dollar tax incentive for a parking garage. That certainly would have gotten everyone’s attention from the start.
NEXT STEPS for the Kingstonian PILOT involved agencies.
Kingston Common Council. We are waiting to learn whether or not the council will need to re-vote on the new PILOT terms. If so, it would go back to the council’s Finance Committee. The UCIDA will provide direction as to whether or not they council will require a revote.
Ulster County Legislature. We have reached out to the Ulster County Legislative clerk to learn the process steps of the new Kingstonian PILOT terms. Will it need to go back to the Legislative Economic Development, Tourism, Housing, Planning & Transit Committee before Ways and Means?