Redeveloper finally closes on $70M loan

WEST ORANGE, NJ — Edison Village redeveloper DGP Urban Renewal LLC has finally closed on its $70 million construction loan, resulting in the transfer of property from former redeveloper GP 177 Main Urban Renewal LLC to DGP and the execution of the August 2015 redevelopment agreement. The West Orange Township Council approved the modification to the agreement requested by the lender PNC Bank at its Feb. 23 meeting.

Township Business Administrator Jack Sayers confirmed to the West Orange Chronicle that those events took place in the days after the council voted 4-1 to pass two separate resolutions officially terminating certain aspects of the original 2006 redevelopment agreement and adding revisions to the 2015 agreement that succeeded it. Only Councilman Joe Krakoviak voted against the resolutions.

Those approved modifications, which township redevelopment counsel Jennifer Credidio said were not effectuated until after the agreement was executed, basically clarify PNC Bank’s rights as lender and establish procedures and timelines for the project moving forward — such as the addition of a new construction schedule. Though the redevelopment agreement approved by the council in 2015 contained a schedule mandating that the project start no later than Sept. 30, 2015, and be completed by Sept. 30, 2017, one of the amendments passed eliminates that timeframe and replaces it with one stipulating that construction must begin within 30 days of the agreement’s execution and finish by Feb. 1, 2019. The only exception to that schedule would be if a natural disaster or some other major event prevented construction from continuing.

Even with this schedule in place, however, Credidio said the redeveloper still expects to complete construction within the 24-month time period originally laid out. And finishing Edison Village earlier than expected would certainly benefit the redeveloper, she said, because the sooner it can start renting out units, the sooner it can start reaping financial benefits.

But the council members were nonetheless interested in hearing how the construction timeline will be enforced, leading Credidio to explain that the construction funding will be delivered through a drawdown schedule, which means PNC Bank will have inspectors visit the site throughout the building period to verify that benchmark improvements are made before giving out additional money. Additionally, she said DGP has expressed a willingness to provide in-person updates and written progress reports on how construction is going, which Councilman Jerry Guarino thought was a good idea.

“I would like to see something,” Guarino said. “Even though you may see what’s going on, you also need to see a punch list of items to make sure all the obligations of each phase are being met.”

Aside from the change to the construction schedule, the other amendments are relatively minor. One involves language being added to a section of the agreement making clear that the document will not be terminated in an event of default unless the lender fails to remedy the violation within in its 90-day cure period. Credidio said PNC Bank wanted to include that passage to emphasize the fact that it will have a longer period of time to fix the problem than the developer’s 30-day cure period.

Additionally, one amendment revises a section to reflect the fact that any funds resulting from the property’s sale to another redeveloper should go, in part, to pay off PNC Bank’s mortgage against the property. And the last amendment inserts a passage into another section clarifying that if the Edison Battery Building is ever damaged or destroyed, the township’s interest in the insurance coverages will be subject to the interest of the bank.

The council also approved two deletions of language that had been included in the original 2006 redevelopment agreement but no longer apply to the 2015 agreement. One terminates a list of covenants and restrictions for the redeveloper to abide by, which Credidio said will be replaced by a new list that is only slightly different from the original. She said the new list includes vows to comply with the redevelopment agreement, make diligent efforts to obtain all governmental approvals and avoid the suspension or discontinuation of the performance of its obligations.

The other deletion is the termination of a reverter clause that had been included in the 2006 agreement after the property was transferred from the Prism Capital Partners and Greenfield Partners partnership to the GP 177 entity it created in 2009. According to that clause, ownership of the Edison Battery Building would revert back to the township if there was ever an event of default that resulted in West Orange terminating the redevelopment agreement. But as Credidio explained, when the 2015 agreement is eventually executed, the 2006 agreement will become invalid. And since the reverter clause only applies in the 2006 agreement, she said PNC Bank wanted to void the clause formally in order to eliminate any perception that the bank should be held to it.

If the redevelopment agreement is ever terminated, Credidio said either DGP or the township will find a new redeveloper to purchase the property. In other words, the township no longer has the right to have the Edison Battery Building revert back to its control. While being questioned about this by Krakoviak, the redevelopment counsel admitted that West Orange’s position in the agreement has changed as a result — but she said that is not a bad thing.

Simply put, Credidio said, it is “extremely difficult” to find a lender willing to join a project with a reverter clause in effect. So, though the township may be giving up something, she said it will be worthwhile in the long run.

“If (the reverter clause) actually prevents the objective of the redevelopment agreement to get the project developed, to revitalize downtown, to start generating the PILOTs (payment in lieu of taxes) and bring a new 24/7 community to Main Street, I think that the removal of the reverter actually achieves those objectives the township wants to pursue,” Credidio said.

Despite these explanations, residents still had some questions about the changes, which they were allowed to ask during a special public comment period after Credidio’s presentation. Mark Meyerowitz wanted to know whether the township would have first lien in the event of a foreclosure if the reverter was eliminated. The redevelopment counsel answered that it would not, though she added that the reverter never gave the town that right in the first place. She explained that West Orange only has first lien status with respect to payment of PILOTs and special assessments.

Mariel Clemenson asked what would happen if the redeveloper failed to engage in construction for reasons other than an act of God and the subsequent default was not cured by either DGP or PNC Bank. Credidio said that the township would have the right to terminate the redevelopment agreement in that scenario, along with other options including litigation.

Similarly, Rosary Morelli questioned what would be considered a default under the 2015 redevelopment agreement, to which Credidio responded that the default provisions are “substantially consistent” since they were modeled after the ones found in the 2006 agreement. They include nonpayment of taxes and suspension of construction, she said.

Still, Morelli seemed to have doubts about the changes that were eventually approved, particularly regarding the reverter clause.

“Somehow I feel that the reverter (deletion) favors the new developer more than it does West Orange,” Morelli said.

  DGP, Edison Village, PNC, Prism