MC Hotel behind on negotiated tax payments to Montclair

Montclair officials say the MC Hotel is more than a year behind in payments it must make to the township under a PILOT program — an alternative to normal taxes set up when a community wants to encourage development.

If the hotel doesn’t pay $691,003 billed in 2021 plus interest by
October, it could face a tax lien sale in November, Montclair Chief Financial Officer Padmaja Rao said.

The money is owed through a payment in lieu of taxes program — an agreement between a municipality and a developer for a predictable schedule of payments, typically significantly less than normal taxes and with amounts tied to a project’s annual gross revenue. Montclair and the hotel entered into the agreement in 2016, and the hotel broke ground that year, opening in 2019. The agreement lasts 30 years, after which the hotel would begin paying property taxes. 

Rao attributed the lack of PILOT payments by the hotel to its gross revenue being severely hit during the pandemic. An audit of a given property’s revenue might eventually lead to an adjustment in the amount that’s owed — but even after an adjustment, the hotel would be behind, having not made a payment since 2020.

The interest rate is 8% for the first $1,500 owed, and 18% for any amount over $1,500, the same penalties set for delinquent property taxes. The hotel has not paid this year’s first-quarter PILOT payment as well, Rao said. Payments are due Feb. 1, May 1, Aug. 1 and Nov. 1, according to the township’s website. 

Rao declined to provide a calculation for how much the hotel currently owes with the interest factored in.

This year, the township is expected to receive almost $4.3 million in PILOTs from 14 properties, up from the $4.1 million collected in 2021. If regular taxes were applied to the properties, the amount collected in 2021 would have been about $5.9 million, according to the “user-friendly” version of the township’s 2022 budget. 

Two properties were added to the list of those paying PILOTs this year, both from the Seymour Street redevelopment project — Wellmont East and Wellmont West. One property, 11 Elm St., was removed from the list as its financial agreement is complete and it will now pay taxes, Rao said. That property’s last PILOT payment was $16,574 in 2021.

At a 2022 budget presentation on March 15, Rao said that the township is expected to see a 5% increase in the PILOT payments in 2022. But that overall increase is only expected because the two newly opened Seymour Street properties, which will pay an estimated $850,000 for the first time in 2022, have been added to the list. If not for them, anticipated revenue from the township’s other 13 PILOTs would have been down about 16%.

Rao said the hotel paid its PILOT obligations for 2020, $484,340, in full.

The 2022 budget, adopted April 19, reflects anticipated PILOT payments based on a previous year’s gross revenues for each property. But end-of-year audits submitted by the property owners can change that amount, Rao said. 

During the pandemic, with lockdowns and rent freezes, gross revenue taken in by the properties could have gone down, changing the PILOT amounts due, she said. 

For 2020, the township had anticipated collecting $529,729 from the hotel; however, the hotel did have a few postponements with its opening, finally opening in August 2019, which affected its gross revenue and lowered its PILOT payment to the realized $484,340.

But, Rao added, if an audit for a property reflects a higher gross revenue than a previous year, PILOT payments increase. 

The 14 properties paying PILOTs in 2022 are: Montclair Senior Housing on Orange Road, First Montclair Housing Corp. on Walnut Street, Lackawanna Plaza, Union Gardens, PineRidge, Valley and Bloom, Orange Road Garage, The Siena, 11 Pine St., Herod Redevelopment, 55 Glenridge, MC Hotel, Wellmont East and Wellmont West.

The highest PILOTs are paid by The Siena, anticipated at about $1.16 million in 2021 but actually paying about $1.24 million that year, and Valley & Bloom, anticipated at about $1.24 million in 2021 but actually paying closer to $1.02 million. The anticipated amount for those properties in 2022 is the same amount that was anticipated in 2021, according to the 2022 budget.

While other PILOTs were a couple thousand behind in payments compared to what was anticipated in 2021, Montclair Senior Housing paid $149,843, with the township only expecting $95,817. Rao said she believes the property owner was getting “caught up” on PILOTS from the year before. 

Delinquent PILOTs are treated the same as delinquent taxes. A public tax lien sale is held by the township, usually at the end of the year, Rao said. The deed or title is not sold, instead what is sold is a tax sale certificate — a lien on the property. 

“The purchaser's money pays the delinquent taxes, water and sewer to the township on behalf of the delinquent property owner. In exchange, the purchaser is given first lien position on title, ahead of mortgages, deeds of trust, and judgments, subordinate only to state tax liens,” the township website states. 

The MC Hotel has also not paid its affordable housing obligation. According to Township Planner Janice Talley, that amount, which will be placed into Montclair’s Housing Trust Fund, is $644,650.

“The payment must be made before a certificate of occupancy can be issued by the construction official. They are currently operating under a temporary certificate of occupancy. The developer (HP Orange 2013 Urban Renewal, LLC) is responsible for making the payment,” Talley said.  

To get the payment, the township is working with Brian Stolar, president of redevelopment company Pinnacle, which partnered with real estate firm Hampshire Companies to build the hotel, Talley said. Stolar, reached by Montclair Local this week, declined comment.

Pinnacle, along with real estate and development company LCOR, built Valley & Bloom and the Orange Road garage. Pinnacle and Brookfield Properties developed the Seymour Street development. Pinnacle will also build the approved 46-unit MC Residences, located in between the hotel and parking garage. Pinnacle and Hampshire also owned the Lackawanna Plaza site before selling it to David Placek last year.