A five-year-old downtown building granted a 15-year Payment In Lieu Of Taxes (PILOT) has applied to extend the agreement for another 15 years.

City Council on Monday introduced an ordinance (O-3-20) to extend the original 15-year PILOT with Metro Rahway for another 15 years, until 2045. The governing body is scheduled to hold a public hearing and final vote on the ordinance at its March 9 regular meeting.

The 116-unit building along Campbell Street, between Elm Avenue and West Cherry Street, was completed in 2014 on the site of the former A&M Industrial Supply Co. property. Metro Rahway Urban Renewal, LLC, is a partnership between AST Development, developers of REVA Rahway, and East Hanover-based Heartstone Development.

The ordinance cites rather generic language that the city’s findings including:

• “The city has benefited from the redevelopment and completion of the project;
• “The redeveloped property has generated, and will generate, Anual Service Charge revenue in excess of ad valorem taxation without detriment to the public.
• “The project created construction jobs during the construction and has generated and maintained permanent jobs in the city at the property;
• “The project continues to further redevelopment objectives of the Redevelopment Plan;
• “Benefits of extending the tax exemption to the statutorily-permitted 30 years significantly outweighs the costs to the city and the public; and,
• “The entity has demonstrated a need to extend the tax exemption to ensure the future financial viability of the project.”

City Administrator Robert Landolfi said in an interview after Monday’s meeting that the developer requested another 15 years because the financials project that the building is very close to being in the red.  As part of the extension application, he said the city negotiated a higher service charge, which will rise from 10 percent to 11 percent starting in year 11 (2026).

City Council in 2013 originally approved a PILOT of 15 years for the rental apartment development, which took effect in 2015 and would run through 2030. Metro Rahway’s PILOT was slated to be $155,000 in the 2019 municipal budget, one of among nine PILOTs scheduled to pay total of almost $1.4 million.

The original ordinance (O-35-13) called for an annual service charge of $265,000 based on 10 percent of Metro Rahway’s annual gross revenue, which it has yet to reach in any of the first four years. According to the original application, revenue was estimated to be $2.6 million in year two (2016), when the development was projected to be fully occupied. The service charge is about 30 percent less than what property taxes might be on the project once it’s built out, with 95 percent of the payment going to the city and 5 percent to the county.

Metro Rahway was assessed at $10.275 million for the 2019 tax year, according to property records. Based on Rahway’s $6.837 tax rate in 2019, that assessment would have generated approximately $702,503. The properties acquired for the project paid about $77,750 in property taxes on an assessment of $1.285 million at the time.