Private Investors Stand to Make Millions in Lease of Former St. James Hospital to Newark School District

The lease was publicly discussed during a February 2021 virtual board meeting that lasted less than an hour and the financial presentation portion lasted two minutes and 18 seconds. 

In the presentation, the district’s assistant school business administrator, Jason Ballard, described the deal as a “quasi public-private partnership” and that the “district is going to ultimately receive a turnkey new facility.” 

However, according to the lease obtained by TAPintoNewark, after Newark pays the landlord two streams of rent for 20 years, it will then have the option to purchase the building for “fair market value.”

The district will not receive any credit for the rent it had paid for the previous 20 years, even though it paid for 100% of the construction costs, in addition to other costs. The purchase option means NPS could end up paying twice the full cost of the building if it decides to purchase at the end of the lease.

The construction costs to turn the former hospital building into a high school are expected to be capped at $77 million–all of which NPS will pay through what the lease calls “base rent,” according ot the lease. 

Newark will pay $6.2 million, or $519,243 per month in base rent in the first year of the lease. By the final year, the district will pay nearly $8.3 million, or $689,010 per month, an increase of 32% over 20 years.

In addition to the up to $77 million, the landlord added a guaranteed return on investment that could result in tens of millions of dollars over the 20 years. The schedule of payments in the lease for the “base rent” shows that if construction costs reach $77 million, NPS will actually end up paying $144 million over the course of 20 years.

In addition to the “base rent,”  the lease says NPS will have to pay a monthly “additional rent”—made up of real estate taxes and the landlord’s insurance costs. The lease does not list the amount of the real estate taxes or the landlord’s insurance costs, so the public does not have a way of knowing what that additional rent will be over the 20-year term. 

A spokeswoman for NPS did not respond to questions about the lease. Albert Nigri, a member of 155 Jefferson St. Urban Renewal LLC, the owner of the building, when asked about the terms of the lease via email on Monday responded: “All information you have is wrong, I will look into this and get back to you.” He did not provide further comment or information.

Public tax records show that the real estate taxes on the property are about $316,000 per year. Over the course of 20 years, if property taxes stay the same, the district would pay an additional $6.3 million in property taxes alone. 

School districts generally are exempt from property taxes on property they own, but since this property is owned by a private investment group, it must pay property taxes and in the lease, NPS agreed to pick up the cost on behalf of the landlord. The lease discloses that the landlord has filed an application for a tax abatement and an application for a PILOT, or payment in lieu of taxes. 

TAPintoNewark previously reported that Laborers Eastern Region Organizing Fund, or LEROF—the organizing arm of Laborers’ International Union of North America—filed a complaint with the state Department of Labor and Workforce Development alleging laborers are not being paid prevailing wages as required by law and are working in unsafe conditions. Nigri has told the union that the project is not subject to the prevailing wage law.

During the district’s public presentation of the $160 million deal, Ballard said that as a point of comparison, the School Development Authority has built new schools in New Jersey for an average of $134 million. He pointed out Camden High School, Perth Amboy High School and Trenton High School as three examples. 

There are notable differences, however, between Newark’s project and those of the other three schools, which Ballard didn’t mention. For instance, those three districts own those buildings, while in the case of 155 Jefferson, Newark has a lease, not ownership. 

In addition, those facilities were built using union labor, while Newark’s new high school is being constructed with non-union and non-prevailing wage labor. 

Those three high school examples are also significantly larger than the project that the Newark district is leasing. The Perth Amboy High School will fit over 3,000 students in 576,000 square feet of space, the Trenton project is 374,000 square feet for 1,850 students, while the Camden high school will serve 1,200 students in a 270,000 square facility. 

Newark’s school will have a final enrollment of less than 1,000 students in 160,000 square feet. 

Public records suggest that it may have been far less expensive for NPS to have purchased the building outright, then borrowed for the construction costs. 

New Jersey tax records show that the landlord, 155 Jefferson St. Urban Renewal  LLC, purchased the property in June of 2019 for $11.2 million. In addition to Nigri, that LLC is made up of investors Avi Penamu and Jack Hazen, according to a press release by their broker.

The lease also reveals that there are severe consequences for NPS if it were to fail to pay or be late with any of the two rent streams it agreed to pay. According to the lease, if NPS is late with a payment twice in an 18-month period, the landlord can terminate the lease and the school would have to “promptly surrender the premises to landlord.” If this happens, NPS would then be liable for paying the rest of the term of the lease, plus damages.

The landlord even has a right to display “for rent” and “for sale” signs on the property and bring prospective sellers through the building while school is in session in order to sell the building. 

Preston Green, a professor of Education Leadership and Law at the University of Connecticut, said deals such as this one could end up with bad results for communities.

“We should be very concerned about what those implications are for poor communities and find ways that they can maintain their property control," Green said.

In its original plan for the building, NPS said students would be able to attend the new school in September of 2022, though that has changed to September of 2023. 

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published this page in News and Politics 2022-08-18 03:13:33 -0700