It's Sold - 12- and 8-story buildings will replace Observer Highway Garage

(Click image to hear HANY AHMED's comments to the Hoboken City Council regarding the garage sale)

It's Sold

12- and 8-story buildings will replace Observer Highway Garage

December 16, 2007 HR

If all goes as planned, Hoboken residents will soon become accustomed to a new, 8- to 12-story residential complex stretching from Newark Street to Observer Highway as a result of the council’s decision to approve the sale of the Municipal Public Works Garage during Thursday evening’s special session.  

After five years of discussions and setbacks, the City Council finally approved a resolution Thursday night to accept a $25.5 million bid for the city's 1.1-acre Observer Highway Public Works Garage.

In return, a developer will be allowed to build a 240-unit residential structure that will rise to eight stories along Newark Street and 12 stories along Observer Highway.

The bid, which was one of two considered by the council, was offered by S. Hekemian Group, a real estate development firm based out of Paramus with over 30 residential and retail projects throughout New Jersey. The bid was the only offer the city considered to be entirely consistent with the Request For a Proposal (RFP), which outlined the specifics the developer had to meet. In the past, the city had sought bids and not found any that were acceptable.

Nevertheless, last week, several members of the public and council criticized the new process, which they viewed as flawed.

Questions still remain as to where the city will relocate its garage, having not yet purchased another site. They also wonder how much the site's environmental clean-up will actually cost the city.

The next steps and the money

According to a representative from S. Hekemian, once construction is underway, the proposed project will take approximately 18 months to build.

According to Director of Community Development Fred Bado, the city must still enter into a redevelopment agreement with S. Hekemian to finalize the transaction. This is likely to occur within the next three months, Bado said.

After that time, the city has 18 to 24 months to vacate the site, at the end of which time the city will receive the $25.5 million.

Of that sum, approximately $13.8 million will be paid to NW Financial group, who is currently leasing the property back to the city. The city actually sold it to a county agency several years ago, then rented it back for an annual rent equal to the interest on the HCIA's bond, which amounted to about $250,000. (See sidebar for further explanation.)

In addition, $4 million will go towards the current 2007-2008 fiscal year city budget, and the remaining $8 million or so will be put towards relocating the garage to another spot in Hoboken, according to Business Administrator Richard England.

6-3 vote

In the end, the resolution passed in a 6-3 vote, with Council Members Peter Cammarano, Ruben Ramos Jr. and Angelo Giacchi dissenting. Council members Theresa Castellano, Elizabeth Mason, Michael Russo, Terry LaBruno, Dawn Zimmer, and Peter Cunningham supported the measure, though some had reservations over how the process was handled overall.

For many on the council who voted in favor of the resolution, the vote appeared to be out of necessity, since the city wrote the $4 million amount into this year's budget. If the sale was not finalized, the budget, which still has to be approved by the council, would require $4 million from another source, perhaps taxes.

Unresolved issues

One of the most repeated concerns expressed by both the council and public was where the city will move its garage operations in a short time.

According to Bado, the city is looking into acquiring a property in the northern end of town above 14th Street near the sewerage treatment plant.

Although the city is in discussions with the owner of the property, who was not named at the meeting, Bado informed the council that no agreement has been struck yet.

This angered several members of the council who did not understand how the city could sell their property without knowing exactly where they were going to relocate.

Bado responded that the city had selected the piece of property three years ago, but could not proceed without having first selected a redeveloper for the old site. Bado pointed out that for the past three years, the city consistently appeared to be coming close to choosing a developer, but they were never able to close on the deal.

In an interview Friday morning, Bado added that the city is already in the process of selecting an architect to construct a new garage, for which he hopes to have a plan from within six months.

In an attempt to ease concerns, Bado added that if negotiations with the property's owner do not go well, the city can always declare the land to be neglected and acquire it through eminent domain. The city also has the option of temporarily moving the public works operations to another Hudson County municipality.

Some were also concerned with the cleanup of the garage property, which has housed numerous chemicals over the years related to maintaining city vehicles. Bado estimated that the clean-up would cost in the hundreds of thousand of dollars, possible up to or over a million.

Competing developers upset

The second proposal, which was consequently rejected by the council through their endorsement of S. Hekemian's proposal, came from the nation's largest developer of rental housing, the Texas-based Trammell Crow Properties. That company is presently planning to develop a section of Bayonne's waterfront.

Trammell Crow's bid called for a 240-unit residential structure rising from seven stories on Newark Street to nine stories on Observer Highway. They offered $26 million, $500,000 more than the accepted bid, for a structure that would be significantly lower.

The size of the structure has been a sticking point for many in the community who did not want to see a massive tower along Newark Street, where most of the buildings do not exceed five stories.

Although the proposal looked good on paper, City Special Counsel Gordon Litwin informed the council that in his opinion, the bid did not conform to the specifications of the RFP.

According to Litwin, Trammel Crow failed to put a bid bond notice, which is a percentage of the bond that acts as a security deposit for the municipality. If the developer fails to go through with the project, the city gets to keep the deposit. In addition, Litwin said the development firm deviated from the affordable housing requirement and did not conform with several environmental conditions in the RFP.

Several representatives from Trammell Crow disagreed with Litwin's assessment of the situation on Thursday, arguing that their bid did indeed conform to the RFP's specifications.

Those representatives said that if the counsel believed otherwise, the company would be happy to readdress the requests in different language.

Trammel Crow wasn't the only redevelopment firm that had issues with the RFP put forth by the city. A company called MDK Development provided a bid of $30 million in previous RFPs.

The complaint from the council with regards to previous bids was that MDK ignored essential requirements, including exceeding the height limit and offering a hotel option in the bid that was not authorized in the RFP. MDK defended their previous actions by saying they were being creative. They refused to participate in the new RFP process, which according to MDK attorney Khoren Bandazian was "illegal."

Instead, Bandazian and another of his colleagues asked the council to disregard the current RFP and start again, giving them a chance to compete and possibly offer the city $5 million more than what they were getting now. The calls fell upon deaf ears and their request was ignored.


A three-year history

After incurring a deficit of approximately $18 million in the 2005 budget from purchasing property and upgrading city equipment, the city of Hoboken sold the municipal garage to the Hudson County Improvement Authority (HCIA), a quasi-governmental agency, which then leased the property back to Hoboken for an annual rent equal to the interest on the HCIA's bond, which amounted to about $250,000.

As part of the agreement, if the HCIA were to sell the garage to a third party, the city would collect the sum once the HCIA was paid back their initial payment.

In 2006, Hoboken, which does not technically own the property anymore, attempted to sell the garage once again, this time to a developer. The City Council had approved a redevelopment plan allowing a residential complex to be built on the site, consisting of no more than 240 units and rising no higher than nine stories.

That plan was the result of a yearlong effort between City Hall, various architects and planners, and a citizens' committee called the Observer Highway Advisory Committee.

Due to time restraints imposed by the approaching deadline for submission of the 2006 budget, the city gave developers only 17 business days to complete and submit their bid package.

Only two developers presented proposals for the site.

Both bids were rejected by the council. In addition, the council's attorney, Gordon Litwin, found flaws with the contract offered by the Hoboken-based Metro-Ran, which proposed the high bid of $22 million.

As a result of not being able to approve a successful bidder, the city was forced to bond for $5 million dollars with the Jersey City-based brokerage firm NW Financial Group, due to a revenue line item it had placed in the 2006 budget anticipating the sale of the garage.

NW Financial subsequently settled the debt the city had with HCIA to become the sole lease holding company for the property.

Due to the two prior unsuccessful bids, the city of Hoboken currently owes $13.85 million through a Bond Anticipation Notice (BAN) to NW Financial. The city is also currently paying approximately $100,000 per month to the brokerage firm in order to continue using the site as a municipal garage.

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