Five years have passed since Hoboken saw a financial opportunity in selling its public works garage on Observer Highway to a developer. But now that the city was unable to complete the sale last week, they must consider whether to keep or sell the land, and prepare for the fact that the developer is threatening legal action.
After the city voted on Tuesday not to go through with the sale to S. Hekemian Group – the developer that agreed to buy the property for $25.5 million in 2008 and then wanted to lower the amount to $14 million – the city faces litigation and has still been moving its own equipment out of the garage.
The first thing the city must do now is buy back the garage from a financial lender, according to Mayor Dawn Zimmer. The city bonded for $16 million in June because of the possibility that they might have to do so.
Meanwhile, the S. Hekemian said last week, “We intend to pursue all remedies available to us through the courts.”
At the end of last week, the city moved its equipment out of the Observer Highway Municipal garage and brought it uptown to a Willow Avenue location that they will be renting temporarily.
“We’re talking about moving when we have no reason to move.” — Councilman Michael Russo
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But why spend the money if the city still has its garage for now?
Councilman Michael Lenz said Friday that failing to move could “undermine the city’s legal position.” He said he could not get into more detail because of the impending litigation.
According to the deal, the city was to vacate the garage and close the sale by this past Friday.
Developer: We’ll see you in court
The garage controversy began in 2005. Like so many other neighborhoods in modern Hoboken, the property was thought to be close enough to a transit hub that it would be too tempting for a development company to skip over. So the administration of Mayor David Roberts decided to fill a budget gap by offering the property to developers.
In 2005, the City Council approved a sale and leaseback to the Hudson County Improvement Authority for $13.8 million for the garage. The city then agreed to sell the garage to S. Hekemian Group (SHG) in 2008 for a price of $25.5 million, including a $2.5 million deposit. Officially, the deal was to close this past Friday, as long as the city had moved out of the garage and the state had granted the necessary environmental approvals.
There was still one problem: The Roberts administration never conclusively decided where to move the garage operations.
This past year, Zimmer considered various locations, but any residential neighborhood was met with resistance from neighbors.
At the same time, there was another problem: The real estate market has declined over the last few years. This change in the economy caused Hekemian to come to the council in early June of this year to try and re-negotiate the price.
They asked for the city to consider $14 million, as well as offering $1 million in lieu of building affordable housing.
Zimmer said last week that she believes that the relationship between the city and developer turned sour after the city declined the new proposal.
This past Tuesday, the city voted 5-3 (with Zimmer’s allies in favor) for a resolution to declare the developer in “breach” of their contract, effectively terminating the deal.
In the resolution, they claimed that the developer had recently tried to “sabotage” state environmental approval for the transfer, as well as other actions.
However, the developers are singing the same tune as the city, claiming that Hoboken is in breach of the contract.
Principal and Vice President of Development at SHG Peter Hekemian did not elaborate on the complexities of the contract, but released a statement via e-mail: “We are disappointed that the city is taking this action because of its clear inability to satisfy its contractual obligations. We intend to pursue all remedies available to us through the courts.”
Among the issues to be debated is the future of the deposit that SHG already provided, which is currently being held in escrow.
Zimmer on the interference
According to Zimmer, SHG interfered with the project’s environmental sampling tests, which in the end would delay the project past the necessary deadlines.
“From March to August, a six-month period, in 2008, [SHG] had the opportunity to do their own sampling,” Zimmer said. “It was only after we rejected their proposal that they sent their own people in. They were trying to obstruct the process.”
Long-term goals in jeopardy?
A question that shocked both council members and residents alike was issued by Hoboken resident Perry Belfiore, who asked the council on Wednesday about a rumor that another company already has a lease at the city’s new location for garage operations, 1714-16 Willow Ave.
After Belfiore was met with silence from the City Council, Corporate Counsel Michael Kates confirmed the rumor, which caused an uproar in the crowd.
“I wanted to speak to congratulate you, saying you’ve done something good,” said local activist Helen Hirsch in response to Belfiore’s news, “but I am sad because the item on the agenda is tainted.”
Hoboken resident Stephanie Rhodes echoed the sentiment of Hirsch, expressing anger with the city government about a lack of transparency on this quirk in the contractual negotiations.
Councilwoman Beth Mason also expressed anger with the way the new information was brought to the attention of the City Council, saying that a member of the public should not be the one to inform the council about such a grand issue.
City Attorney Michael Kates said that he believes the prior lease will not be an issue.
“There is a lease in place but it is not firm,” Kates said. “There is no conflict at the moment. Ultimately, the landlord should have told us. But our immediate need is 60 days. We’ll have to work it out.”
Zimmer said later that the other lease would require the granting of a variance first.
Russo: Why are we moving now?
Councilman Michael Russo said at the meeting that he did not see the purpose of relocating to a new garage once the sale was terminated.
“Why are we moving?” Russo said. “We’re talking about moving when we have no reason to move.”
Nevertheless, the city voted 8-0 on Wednesday to share services at an uptown location with Weehawken as they had planned. Councilwoman Theresa Castellano was absent.
Zimmer said Thursday that moving to the new location allows the city more time to figure out the next step.
“We do have the lease up to one year,” she said.
The current agreement states that the city can use the property for 60 days with two 180-day extensions. The city and Weehawken are together paying $15,000 in month to the location’s private owner. Weehawken’s share will be between approximately $3,000 and $4,000 to use 25 percent of the facility.
Zimmer said she is hopeful that 1714-16 Willow Ave. will become a permanent residence for the city’s municipal garage, which it will share with Weehawken.
But then, what is to become of the Observer Highway garage?
Not close to over
Now the city must steel itself for litigation and decide what to do with the property.
One resident – Lane Bajardi, a frequent critic of Zimmer – said at Wednesday’s meeting that he expects costly litigation.
When a contract resolution came before the council to spend up to $15,000 for a redevelopment lawyer for another project, Bajardi said the city should make that number $100,000, because a lot of work lies ahead for that lawyer, hinting at future lawsuits regarding the garage.
The city’s next council meeting is scheduled for Sept. 1. As of press time, no special meetings had been scheduled. And the municipal garage will sit largely empty and in limbo until the city reveals the next step.