Newark's no-bid contracts, discounts and tax breaks mean fast, fat profits for some unlikely home developers
Sunday, December 04, 2005
BY IAN T. SHEARN
Over the past five years, thousands of multifamily homes have popped up on weed-strewn lots in Newark, transforming neighborhoods and creating legions of new homeowners.
The housing boom has been fed by favorable economic conditions and an aggressive redevelopment program city officials devised in 2000. Under the program, more than 3,000 surplus city lots have been sold to developers at cut-rate prices, helping fuel construction of more than 5,000 multifamily homes.
But even with real estate values soaring, the city is still discounting land, translating into big profits for the dozen or so developers who won most of the no-bid contracts.
And among the developers are a roster of people with close ties to Mayor Sharpe James and City Hall, including some with little or no development experience.
· Jackie Mattison, the mayor's former chief of staff, who went to prison eight years ago on federal corruption charges. According documents filed with the city, Mattison co-owns the development company that has bought 116 lots at a steep discount.
· Manuel Rosa, a longtime James supporter and campaign contributor whose real estate firm employs the mayor's son, Elliott. Through a separate company, Rosa has bought and developed at least five dozen city parcels, netting millions of dollars in profits. Rosa also has acted as liaison between City Hall and other developers, and is the exclusive sales agent for many new houses.
· Jacinto Rodrigues, a James campaign contributor who built 50 homes on five acres of city-owned land he bought for $1. Rodrigues, one of the city's biggest developers, also is president of the bank financing a private real estate deal for the mayor.
· Emilio Farina, a convicted cocaine trafficker and former aide to Councilwoman Bessie Walker. Farina is in the process of building 11 two- and three-family houses on discounted city land. He also is one of three partners involved in a deal to build 2,000 condominiums on land the city said it will take through eminent domain.
By designating surplus lots as property in need of redevelopment -- as it has done since 2000 -- the city can sell the land without competitive bids. As recently as this year, the city offered developers vacant land for as little as $4 a square foot.
By comparison, the average sales price of privately owned vacant lots in Newark this year is more than $29.50 a square foot, according to a Star-Ledger analysis of all fair market transactions. The average since 1999 is $16 a square foot.
Critics questioned why the land continues to be so heavily discounted.
"The real estate market in Newark is white-hot. The demand is here and there's competition," said Ray Codey, director of development for the New Community Corp., a nonprofit organization that has built thousands of housing units in Newark. "'You don't need to induce people the way you used to."
UNSEEN PUBLIC RECORDS
Newark is not the only city to use discounted land to revive blighted neighborhoods.
Urban areas from Detroit to Indianapolis to Los Angeles have sold government-owned land cheaply. Those cities, however, offered subsidies to nonprofit developers or directly to prospective homeowners, who then hired their own builders.
In Newark, applicants ranging from small nonprofit organizations and church groups to established builders, such as Summit Real Estate Development Corp. of Westfield, have received discounted land.
Making redevelopment even more attractive, builders are routinely given variances that allow them to squeeze in more houses than zoning laws allow, while buyers are offered small down payments and five-year tax abatements to help them make their monthly mortgage payments.
Niathan Allen, who as director of the city's office of Housing and Economic Development reports to the mayor, chooses developers for projects. They then must be ratified by the city council, which routinely approves the recommendations.
City officials, including James, Allen and Council President Donald Bradley, did not respond to repeated requests for interviews. The city also has not complied with The Star-Ledger's request under the state Open Public Records Act for redevelopment proposals submitted by developers, as well as contracts and correspondence related to the land sales.
Alfred Faiella, Newark's deputy mayor for economic development until 2002, has staunchly defended the housing strategy he developed. Auctioning land, he said, would be "shortsighted."
"We weren't there to make money on the land," Faiella said in an interview late last year. "We're in a race with time. We're 40 years late."
Several land-use experts disagree, saying other cities don't need such generous discount programs.
"Many urban communities are looking for ratables for abandoned and contaminated land," said Raheemah Jabbar-Bey, chairman of the National Congress for Community Development and a professor at the University of Delaware's School of Urban Affairs and Public Policy. "But I've never heard of this approach."
It's an approach that has spelled big bucks to a clique of developers who are wired at City Hall.
In a rundown section of the city's Central Ward, 18 multifamily houses currently under construction were each sold for $495,000 before the foundations were poured.
The project, known as Blue Jay Homes, is being built by a company called ATS Development Group. ATS signed its first contract with Newark in 2001, just two months after the city ratified its East Ward Redevelopment Plan.
The owner of ATS, Antonio Pereira, ran an East Ward auto body shop until he got into the housing development business.
While state corporate filings list Pereira as the sole owner of ATS, documents obtained by The Star-Ledger show Mattison, the mayor's former chief of staff, has an interest in the business. According to a signed affidavit filed with the city in an unrelated zoning case, Mattison declared himself an owner of ATS.
A former assemblyman and a cousin of the mayor's wife, Mary, Mattison was convicted in 1997 of extorting bribes from an insurance vendor looking to land a city contract.
Mattison and Pereira also declined requests for interviews. Phone calls and registered letters to the two men seeking comment also went unanswered.
ATS has landed three redevelopment projects with the city -- all involving cut-rate land purchases from City Hall -- that have generated millions of dollars in profits.
Blue Jay Homes, where units sold out before construction was finished, recorded $8.9 million in sales. ATS' estimated cost for land acquisition, construction and overhead on the project was $4.8 million, according to documents the company filed with the city.
ATS paid $1 a square foot, or $69,727, for the 28 Blue Jay Homes lots, according to city records. Two months before ATS closed on the property, property records show, another developer paid almost $17 a square foot for a privately owned lot less than a block away on Hudson Street.
'THE OPPORTUNITY WAS THERE'
A common figure in ATS deals and other Newark redevelopment projects is Manuel Rosa, whom other developers hired as a liaison to guide their proposals through City Hall. He is also the sales agent for Blue Jay Homes, according to his real estate agency and signs at the construction site.
Rosa has long been an ardent supporter of James, vocally and financially -- just as he was for Mattison when Mattison held public office. After his release from prison in 2000, Mattison worked out of Rosa's Belleville office, according to employees. Also working there was James' son, Elliott.
In addition to his real estate business, Rosa oversees his own construction deals in Newark using a company named Lilac Development, according to city documents.
Rosa did not return phone messages, and previously said he has no interest in speaking with The Star-Ledger.
Over the past five years, Rosa development companies have purchased 71 city-owned lots in six redevelopment projects, according to city records.
In the summer of 2003, for example, he teamed up with a longtime friend, John Lister, to purchase 13 city-owned lots for Brick City Homes. They paid $129,624 -- or $4 per square foot -- for the land assessed by the city at more than four times that price.
That same year, Rosa's company paid $60,000 -- or more than $26 a square foot -- for a single, privately owned lot on South 10th Street, according to property records.
The 11 two-family homes being built for the Brick City project are all under contract and will generate in excess of $4.5 million in sales, Lister said. The estimated total development cost was $2.2 million, according to an application Rosa and Lister filed with the city in 2003.
Rosa's attorney for the project is Betty Grayson, who has long been James' real estate lawyer, as well as Mattison and Pereira's.
Lister, a former substance-abuse counselor for Newark public schools, pleaded guilty in 1997 for submitting $115,000 in bogus insurance claims. He avoided prison time by cooperating with authorities.
"I believe everybody stands a second chance," said Lister, who got into the housing development business four years ago. "The opportunity was there, and I took advantage of it."
THE BANK CONNECTION
The $2 million construction loan for Rosa's Brick City Homes project came from Crown Bank, whose chairman is Jacinto Rodrigues, another developer with close ties to City Hall.
In 2000, Rodrigues paid $1 for 4.7 acres of city-owned land in the Ironbound, the city's hottest real estate market. The land was assessed at $390,000.
Using a construction loan from his bank, Rodrigues then built 50 identical two-family houses. The project, known as Sumo Village, generated more than $17 million in sales, according to state property records.
To illustrate the escalating demand in the Newark, one of the Sumo Village homes that sold for $290,000 in 2001 is now on the market for $529,000.
Rodrigues also did not return phone calls requesting comment. There was no response to questions faxed to his office.
Last year, the city sold Rodrigues an additional 1 1/2 acres for Sumo Village X, a development of 10 two-family homes just north of Route 78. This time Rodrigues paid $4 per square foot, or $266,700, for land assessed at nearly three times that amount. Crown Bank supplied a $6.5 million construction loan for the project, according to county real estate records.
Last year, Crown Bank gave James and his wife a $1.95 million mortgage -- using their South Ward home as collateral -- that the mayor used toward the purchase of a downtown Newark office building, according to deed and mortgage records. The bank also gave the mayor's other son, John, a mortgage for a home in Toms River.
Fifteen years ago, Emilio Farina was convicted of selling cocaine in the city's East Ward. Today he has established himself as one of Newark's more successful developers.
Farina also refused to comment for this story, referring questions to his publicist, Pat Smith of Rubenstein Associates. Smith confirmed Farina has built 20 homes on land he purchased from the city. He declined to discuss Farina's criminal past.
In 1991, Farina was arrested in a State Police investigation called Operation Hacksaw. He was convicted of distribution and conspiracy in what authorities said was a multimillion-dollar drug operation. He was sentenced to six years in prison, serving six months.
Over the next decade, he worked as an aide for City Councilwoman Walker and, according to several acquaintances, found the power of positive thinking through self-help guru Tony Robbins. He now holds a real estate license and is a licensed mortgage banker, according to an application he filed with the city.
In 1999, he established the first of 18 limited liability corporations to handle his real estate ventures. Last year, one of those companies -- the Newark Redevelopment Corp. -- bought 12 lots in the East, North and Central wards for $178,731, or one third of the assessed price. The company is in the process of building 11 multifamily homes there, which brings to 20 the number of houses Farina's firm has built on former city land.
Last month, the city council approved a $550 million development project on Mulberry Street that would construct 2,000 condominiums near where the new arena for the New Jersey Devils is being built. The city has said it will use its powers of eminent domain to seize up to eight more acres of land to accommodate the project, in which Farina is a principal.
Last year, Farina teamed with Randy Faiella -- wife of Alfred Faiella, the former deputy mayor for redevelopment -- for a 49-townhouse project near the train station in Union. Alfred Faiella is the developers' attorney in the deal. Farina's company is also slated to build more condominiums and a hotel next to the train station.
Ian T. Shearn may be reached at firstname.lastname@example.org or (973) 392-1671. Staff writer Robert Gebeloff contributed to this report.
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