Council rejects bids for garage. Now $5mil budget hole presents problem again

Council rejects bids for garage
Now $5mil budget hole presents problem again
06/11/2006 Hoboken Reporter

In the mad dash to plug a $5 million budget gap by June 30, a divided Hoboken City Council was left in a precarious position Wednesday night.

On the table were two bids from development groups that want to buy the city's municipal garage on Observer Highway and build high-end condos.

The council's lawyers deemed both of the bids - for $22.1 million and $18 million respectively - deficient. Yet, there were those on the council that wanted to approve the high bid as a way to instantly shore up the city's budget and reap a cash windfall.

In the end, the bids were rejected by a 5-4 vote, and now the city likely will take the potentially costly step of borrowing money to fill its budget hole.

The bids

The most promising bid for $22.1 million came from a group called Metro-Ran Garage Stop LLC, comprised of Hoboken-based developer Dean Geibel, and locals Robert Ranieri Jr. and Louis Picardo, who is also the city's tax collector.

A group made up of the Hoboken-based Applied Development Company and Cali Futures LLC, a subsidiary of Mack Cali, submitted the lower bid of $18 million. This bid was rejected, largely because it did not meet the threshold of what the city wanted to make from the sale.

What's this all about?

For 15 years, the municipal government has struggled each year to close budget deficits. To fill these gaps, the government had to come up with creative one-time deals.

However, such deals are controversial because they are short-term fixes that sometimes result in the loss of public land.

Last year, the city reaped $7.9 million from selling its municipal garage to the Hudson County Improvement Authority, a quasi-governmental agency, and then leasing the garage back from the HCIA.

Again this year, the city found itself with a budget gap, so it anticipated another $5 million from the garage. The plan has been to place the garage property into a redevelopment area, and then sell the garage to a private developer. Once the city paid off the HCIA, it would be able to keep any additional money out of the $7.9 million that would have to be paid back to the HCIA.

The city was hoping to get around $25 million for the sale of this prime piece of real estate. It was the hope of the council to not only plug the budget hole, but also pay for a new garage and to acquire land for open space.

But in order to make this happen, the city has to close on the property by June 30.

A plan developed

In a proactive effort to have the residents and city work together, last year Roberts formed the Observer Highway Advisory Committee, a group of 16 Hoboken residents and two City Council members, to discuss and come up with recommendations for possible zoning in the area.

The result of the committee was a compromise plan that would allow nine- and seven-story buildings and up to 240 units of residential housing on the property. Last month the plan was unanimously approved by the City Council despite substantial pressure from the development community to build higher.

A rush job

But with only a month to select a developer and close on the property, the city had to act quickly.

In May, the city released a "Request for Proposals," hoping to attract a buyer for the property. About 15 interested developers gathered at City Hall to ask questions about property. The developers were given 17 business days to submit their bids, which is an unusually short period of time to produce a bid for such a complex project (see sidebar).

Then on May 26, when the bids were due, two development groups submitted bids.

Deficiencies in the bid

So the City Council was left with option of rejecting or approving Metro-Ran's bid.

But according to the council's attorney Gordon Litman, there were significant flaws with Metro-Ran's bid. First, he said, the city's tax collector Picardo signed the bid document for the Metro-Ran group. According to Litman, while there is nothing that prohibits Picardo from being and investor in the project, state statute prohibits city employees from representing development interests.

Scott Foley, the attorney for Metro-Ran, responded that his clients would be willing to withdraw Picardo's name as a signatory.

Litman also said the bid was flawed because RFP required the developer to pay $16 million by June 30, and the remainder within 90 days of the closing. Metro-Ran's bid proposed paying $6 million up front and the remainder in 24 to 30 months after the group takes full ownership of the property.

Foley responded that Merto-Ran's "creative" proposal would actually save the city money because the city would not have to lease the property back from Metro-Ran over the next two years, which could save the city $2 to $3 million.

Bird in the hand or bush

There were two schools of thought on the council. Five members of the governing body said that the bids are flawed and should be rejected, and a new RFP should be written.

"We made certain demands, and those demands were not met," Councilman A. Nino Giacchi said.

Giacchi, who is an attorney, said if the city were to accept Metro-Ran's bid, it would be unfair because those "creative financing" options were not available to other players. He also said that the city could open itself up to a lawsuit by approving a faulty bid.

Meanwhile, four members of the council said that this is a fair deal that would solve the city's budget problems and generate instant revenue.

"I believe that this is an acceptable offer and I think we should accept it," Councilman Richard Del Boccio said. Del Boccio was a member of the committee that crafted the development plan and has been one of the committee's biggest advocates.

Councilman Michael Cricco added that if the project goes out to bid again, there is no telling what might come back.

"A bird in the hand is better than two in the bush," Cricco said.

Cricco added that because the development community has seen the first round of bids, the city will now be "negotiating from a position of weakness."

Tom Newman, who was a former city councilman, said during the public comment portion that the council should consider accepting the bid. He said that while it might not be the $25 million that the city hoped for, it is "in the same ballpark."

"It would be a mistake to ignore the work [the committee put in]," Newman said.

He added that city would almost get all of the money it wanted, plus there "would be peace in the neighborhood" because it was an open and public process to create the redevelopment plan.

After several hours of somewhat heated arguing, the council voted 5-4 to reject the bids. Those who voted to reject the bids said that the totalities of the deficiencies were just too severe to move forward. Council members Giacchi, Ruben Ramos, Christopher Campos, Peter Cammarano, and Theresa LaBruno voted to reject.

Council members Del Boccio, Cricco, Michael Russo, and Theresa Castellano said that the Metro-Ran bid should have been accepted.

So now what happens?

After the bids were rejected, the City Council, also by a 5-4 vote, introduced an ordinance to go out to bond, or borrow, for "no more than $15 million." That money would go to pay back the $7.9 million that HCIA gave the city for last year to fill that year's budget gap and will pay for the at least the $5 million that is needed for this year's budget.

But this kind of financing isn't free. According to the city's Business Administrator Richard England, interest payments alone on the bond could be $530,000 per year, and that doesn't count the transaction fees for issuing the bond. It is possible that it won't take a full year to sell the property, so a full year of interest might not be realized.

There also might be another foreseeable problem. On Wednesday, the bonding ordinance was introduced by a slim 5-4 vote, with council members Russo, Castellano, Del Boccio, and Cricco voting against introducing the legislation.

A final vote for any bonding requires a two-thirds majority, or six votes, which means that in the next two weeks, at least one of the "no" votes must be swayed. Last year, the city was shut down for three days because the City Council wasn't able to come to a two-thirds majority over last year's controversial plan to sale the garage to the HCIA.

A silver lining

But there is at least one positive out of Wednesday's meeting. For the past six months, the City Council has been under tremendous time pressure to make this sale go through by June 30.

Now that the bids were rejected, that is impossible. Assuming the bonding ordinance goes through, the City Council will now be able to rewrite the "Request for Proposal" in a more reasonable time period.

This will give the city time to get back the Phase 2 environmental report, and will give the developers more than 17 business days to complete their due diligence into the property. Litman suggested that developers should be given 90 days to do their research.

Giacchi said that the council can now take a step back, "clear its thoughts," and figure out exactly what it wants in an RFP.

"This was done at such an accelerated pace that it was impossible for any developer to produce a reasonable bid," he said.

Why so few bids?

While the municipal garage is a coveted piece of property, only two development groups submitted bids. There are several reasons why potential developers might have been scared off.

The city is still waiting on the Phase 2 environmental study. The fact that the property was used as a garage for decades could mean that there is significant contamination. Until the environmental study, which is now underway, is complete, there is no way to know for sure.

Secondly, there was the quick turnaround. The developers were only given 17 business days to complete their bid package. Several of those that were at the meeting were major national developers. But, as anyone who is familiar with corporate structure knows, getting a plan written and approved by corporate hierarchy in 17 business days would be difficult, especially if those firms didn't have intricate knowledge of Hoboken property values and real estate. It's probably not a coincidence that the two firms that did submit a bid have principals who hold extensive understanding of local development issues.

Another probable stumbling block was that the city needed the money now. Part of the bid document called for the prospective buyer to give the city at least $16 million by June 30 and the rest payable within 90 days. Getting financing approved and issued for upwards of $25 million in less than a month could be a difficult proposition. Another major factor is that the developer will not be able to put a shovel into the ground for the next 24 to 30 months until the city finds a new location to build a new municipal garage. With softening real estate conditions, some developers might have been weary of having to wait so long to begin construction.

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