Pay to Play? Jackson’s Push To Get His Development Project Approved

This blog started exploring Mayor Jackson’s curious lawsuit with the Watchtower Bible and Tract Society of New York. The lawsuit was “curious” in a sense that Jackson struck a deal with the church- selling the property for $11,500,000 while wanting to collect a $9,500,000 “consulting fee”- but later reneging on the deal and ultimately filing a lawsuit against the church. You can revisit the blogs here: part 1, part 2. 

This blog wanted to know why Jackson sold the property to the church in the first place, when he was applying for zoning for the property to have several developments on the land. The only explanation this blog was able to find for Jackson selling the property was due to the economic downturn. 

As was mentioned in the previous blogs, Jackson intended to develop four properties on 250 acres of land. In the 2004 Town of Ramapo’s Comprehensive Plan,  Jackson’s development plan was recommended for redevelopment as an age restricted planned community of residents aged 55 and over. In July 2005, the Planning Board granted preliminary approval for Jackson’s senior-citizen housing development in addition to three other developments, totaling 1,800 potential housing units. Some members in the community were concerned that the Jackson’s development project would cause drainage issues, traffic, and affect the wetlands in the area:

“ ‘This is not going to be a good thing,’ said Edward Goodell, executive director of the New York-New Jersey Trail Conference. ‘It's a bad idea and bad planning.’ During previous sessions — the project has been discussed for at least four years — Goodell and residents have raised concerns over issues ranging from drainage to traffic to the development's impact on wetlands. Goodell said he would like to the project's density to be decreased as well its location changed so as not to impact the natural surrounding.”

Others were also interested in preserving the Ramapo River Watershed’s drinking water and the areas open spaces. Ramapo Supervisor Christopher St. Lawrence “spearheaded” the Ramapo River Watershed Intermunicipal Council aimed at preserving Ramapo’s water. St. Lawrence served as the Chairman for Ramapo Watershed:

The goal of the Watershed Council was to ensure fresh drinking water and preserve the remaining open spaces. The Advocacy Director for NY/NJ Trail Conference Dennis Schvejda said it was under St. Lawrence’s watch “that the Lorterdan project is moving towards final approval,” and by allowing the Lorterdan project to be approved, St. Lawrence was not protecting the Council’s best interests. 

This blog became interested in the contributions the Jackson municipal campaign ticket received in 2012, and was also interested in the types of contributions Jackson made. As it turns out, Jackson made a quite a few contributions in New York, including a couple contributions to St. Lawrence’s campaign:

Jackson’s Lorterdan Properties also made several contributions to Friends of Alex Gromack and the Rockland County Republican Committee:

According to Gromack’s LinkedIn page, he is the Town Supervisor for the Town of Clarkstown. It’s fitting that Gromack’s LinkedIn summary includes: “Supervisor Gromack has supported senior and 55 and over housing,” the type of housing development Jackson was trying to get zoned. 

And Jackson made even more contributions to city council and town council candidates in the county and townships Jackson’s property fell under: 

It’s clear that Mayor Jackson was interested in getting the property developed. He had a few setbacks from the environmental groups and community members, but a few contributions to town councils really helped his efforts. Does this record of shady business dealings cast light on his qualifications and current abilities as mayor? This blog is concerned about the mayor’s previous business dealings in Montclair, and whether contracts were awarded not based on merit but rather through pay-to-play dealings. From the looks of it, he may have some experience with that sort of thing. 

Why Did Developer Jackson Charge Nearly As Much As The Property For A “Consultant Fee” In Questionable Real Estate Deal?

A few days ago, this blog wrote about the big, messy lawsuit that now-Mayor (then-Developer) Jackson was involved in. In summation: Jackson’s company, Lorterdan at Ramapo, purchased close to 250 acres for $2,075,000, and later sold the property to Watchtower Bible and Tract Society of New York, a Jehovah’s Witnesses group, for $11,500,000, a 454% return on investment in just 7 years, without making any improvements to the property. The Jehovah’s faced some complications when applying for zoning, and coupled with problems in their attempts to get a tax exempt status, the group decided to ask Jackson to repurchase the property, as Lorterdan was required to do pursuant to their contract. Jackson agreed, but later reneged on his agreement and instead filed a lawsuit against the church.

While looking at some of the details from the Opinion & Order issued in the Lorterdan Properties v. Watchtower Bible and Tract Society of New York case, it stands out that a consulting fee of $9.5 million was required of the Watchtower group once they reached the decision to develop the land. The Watchtower group purchased the land for $11.5 million, so a consulting fee of $9.5 million, almost the total cost of the land, seems astronomical.

As was mentioned in the previous blog, the property was originally acquired by CHFM Associates, and was sold to Lorterdan Properties at Ramapo, LLC in 2002 for $2,075,000.

CHFM Associates is a New Jersey Partnership, founded by its partners Foun-Chung Fan, Wen-Hong Chen, Maurice Hsu, and Hsiu-Ju Mao. According to New Jersey’s business entity records, Foun-Chung Fan is also a principal at Lorterdan Properties at Ramapo, LLC. Jackson likely received the property at an extremely discounted rate because Fan also serves as a principal for Lorterdan.

So this brings us back to the question: why would Jackson ask the Jehovah’s Witnesses to pay, in addition to the $11.5 million purchase price for the property, an additional $9.5 million for “consulting fees?” According to the court, Lorterdan was required under the contract to provide “consulting services as required to secure zoning” for the Jehovah’s Witnesses over the course of two years. If we assume Jackson was engaged in these consulting services full time over the course of two years (not likely) the “consulting fee” would work out to $2,283.65 per hour. That is a pretty hefty fee, especially since whatever services Lorterdan did provide ultimately failed to get the property zoned.

            2,080 hours in a work year x 2 years=4,160 work hours in 2 years’ time

            $9,500,000/4,160= $2,283.65 per hour

It’s pretty clear that this “consulting fee” was probably not actually a fee paid for Lorterdan’s consulting services. It seems that it may instead simply be the second installment of the purchase price for the property, with some creative financial engineering behind it. Lorterdan’s own attorney referred to the $9.5 million dollar payment as the “second tranche” of the purchase price in a letter sent to the court. So, why would you break the purchase price of a property essentially in half and call the second installment a “consulting fee?” Well, one explanation might be to avoid paying some taxes. As this blog will explain in more detail below, it appears Lorterdan could have saved close to $200,000 in tax payments by essentially misrepresenting to the IRS what the $9.5 million payment was actually for.

This blog will only focus on the federal corporate tax rates, as there are too many variables to determine state and local tax rates. The principle is pretty simple: a large single transaction will be taxed at a high rate, but if you break the transaction into two smaller transactions and spread them over two years, those transactions will be each taxed at a lower rate, meaning you would pay less in taxes. This is the same reason that when people win the lottery, they often choose smaller payments made over 20 years rather than a single lump payment.

A number of assumptions are made here. First, it is assumed Lorterdan has elected to be taxed as a corporation. Lorterdan is an L.L.C. and can elect to be taxed as either a corporation or sole partnership. L.L.C.'s often elect to be treated as corporations for income tax purposes because they are generally subject to lower effective tax rates.

Lorterdan’s cost basis, or purchase price, for the property was $2,075,000. To find what the property gain was for Lorterdan, you have to take the sales price and subtract it from the basis. Without knowing a lot of the specifics, this example is just assuming that there is no depreciation, no capital improvements to the property, etc. This blog has a hunch why Jackson split the property up: the property’s value was originally intended to sell for $21,000,000 but by dividing up the costs into the $11,500,000 property costs and $9,500,000 consulting fees, Jackson would see lower corporate tax rates. Let’s take a look:

To calculate the federal corporate tax rate, you must subtract the sales price from the basis to get the property gain, which is the taxable amount. So let’s assume the property’s value is $21,000,000:

            $21,000,000- $2,075,000 (Lorterdan’s purchase price)= $18,925,000

The taxable rate for the property then would be $18,925,000. According to the federal tax rate schedule, any taxable income over $18,333,333 is automatically taxed at 35%.

So calculating the taxes on $18,925,000, Lorterdan would need to pay $6,623,750 in federal taxes.

By structuring the sale of the property at $11,500,000 and “consulting fees” of $9,500,000, Lorterdan would fall under a different tax bracket than if it reported the $21,000,000 sale price. So looking at the $11,500,000 property sale first:

            $11,500,000 - $2,075,000 (original purchase price)=$9,425,000

So following the rules of the corporate tax structure, Lorterdan would have paid $3,204,500 in taxes on the $11,500,000 property sale:

            $113,900+ ((9,425,000-335,000)(0.34))= Tax liability

$113,900 + (9,090,000)(0.34)

$113,900 + (3,090,600)= $3,204,500 Tax liability

Calculating the corporate tax amount on the $9,500,000 consulting fee is a slightly different calculation since it was a straight income. The taxable rate on the $9,500,000 consulting fee is $3,230,000:

            $113,900+ (($9,500,000-335,000)(0.34))= Tax liability

$113,900 +($9,165,000)(0.34)

$113,900 + ($3,116,100)= $3,230,000 Tax liability

So adding up the taxed portions on the land and consulting fees, Lorterdan likely would have to pay $6,434,500 in taxes:

$3,204,500+$3,230,000=$6,434,500

Now if Lorterdan had reported to the IRS that the sale price was $21,000,000, they would have paid $6,623,750 in taxes, but instead they likely decided to divide the property up into two chunks- the property price and the “consulting fee” for a total of $6,434,500 in taxes. The difference between the straight sale of the $21,000,000 and the $11,500,000 +$9,500,000 “consulting fee” is $189,250.

            $6,623,750- $6,434,500= $189,250.

By dividing the property into two separate payments, Lorterdan would 1). spread out the taxes over the course of two years instead of one and 2). pay less in corporate taxes. By structuring the deal this way, Lorterdan could have saved $189,250, by these estimates.

Based on the corporate tax structure, it could have been cost-effective for Lorterdan to split the costs into two separate payments as they did. This blog is also assuming that the $9,500,000 in “consulting fees” were being taxed at the corporate rate. If either Fan or Jackson pocketed that amount, it would be taxed at a private rate, which is less than the corporate amount. Obviously, there are a lot of variables at play here, but this scenario suggests that the deal was set up to help Lorterdan save on taxes by misleadingly classifying income.

This blog made numerous assumptions and simplifications here, but the $9,500,000 consulting fee is very strange and should be questioned and investigated by others that might know these issues better.

PART ONE: Did Mayor Jackson Rip Off a Church?

As this blog has delved deeper into Mayor Jackson’s business dealings, there have been some interesting stories that make me wonder about the Mayor’s leadership and track record, which will be recounted here. Mayor Jackson has quite a few businesses in Montclair and the surrounding communities. One business in particular, Lorterdan, is a diversified real estate development company. Lorterdan Properties has numerous businesses throughout New Jersey.

In 2002, Lorterdan Properties at Ramapo, LLC purchased close to 250 acres near the New Jersey/New York border. The property was originally acquired by CHFM Associates and was sold to Jackson.

The land was a HUGE discount for Jackson. Jackson bought the land for $2,075,000 in 2002 and later sold the land (keep reading below for the details) for $11,500,000 in 2009. If the land was adjusted for inflation, the land should only have been worth $2,474,509.59 in 2009. Instead, Jackson saw a 454% increase. That’s a pretty significant increase. After looking through records, it appears like Jackson didn’t make any improvements to the land.

So why did Jackson receive such a discount on the land he purchased in 2002? Well, CHFM Associates is a New Jersey Partnership, founded by its partners Foun-Chung Fan, Wen-Hong Chen, Maurice Hsu, and Hsiu-Ju Mao. According to New Jersey’s business entity records, Foun-Chung Fan is also a principal at Lorterdan Properties at Ramapo, LLC. Probably as a result of this partnership, Jackson received the property at a heavily discounted rate.

Once Jackson got the property in his hands, he intended to build four developments, totaling over 1,800 housing units. Jackson even received zoning for the property, but something seemingly went amiss and Jackson put the property up for sale. Some speculate the economic downturn was a contributing factor for Jackson’s decision to sell the property.

What follows next is taken from a lawsuit, Lorterdan vs. Watchtower. Documents from it are linked to at the bottom of this blog for your reading pleasure.

The property was eventually sold by Jackson to Watchtower Bible and Tract Society of New York  (a Jehovah’s Witnesses group) for $11.5 million in 2009. If Watchtower decided to develop the land, they would then pay an additional $9.5 million in “consulting fees.” A repurchase agreement on the land was also included in the contract—at any time, Watchtower could back out of the contract within a two-year period, and Lorterdan was contractually obligated to repurchase the property for the same price as it was sold for.

Over the course of a year, Watchtower had numerous setbacks when they tried to get zoning for the property in order to develop it, and were ultimately unsuccessful. Additionally, they had difficulties earning a tax-exempt status. When it was clear that Watchtower could not get the property developed within the agreed upon timeline of two years, they sent a letter to the mayor dated November 1, 2010 and asked his company to repurchase the land.

Mayor Jackson personally met with Watchtower, acknowledged his contractual obligation, and promised to begin financing the repurchase of the property. Mayor Jackson’s company, apparently planning for what to do with the property after the repurchase, petitioned the Town Board on March 1, 2011. Lorterdan’s original 2005 development plan was zoned for a 55+ Senior Development, but in 2011, he wanted the age restrictions removed due to the "proposed target market of those homes" had "drastically declined, largely because of the current deteriorated national economic conditions."

Watchtower was more than willing to work with the mayor (developer) and consented to Lorterdan’s rezoning efforts, providing Lorterdan with an Owner's Consent Affidavit dated March 14, 2011. The Owner’s Consent Affidavit stated that the Lorterdan had a contractual right in the property and there was an obligation to repurchase it from them.

However, during that period of time in March 2011, it seems Mayor Jackson’s rezoning plans did not pan out. According to the Opinion and Order, on March 28, 2011, Lorterdan’s attorneys sent Watchtower a notice that it was rejecting the repurchase agreement, despite Mayor Jackson’s previous statements and assurances. In addition to backing out of the property repurchase plan, Lorterdan demanded that Watchtower pay $9.5 million for consulting fees that would have been owed had Watchtower decided to develop the property (perhaps the mayor somehow forgot the letter they received from Watchtower several months earlier?). Mayor Jackson’s company then initiated a very, very messy lawsuit. Ultimately, the case was settled confidentially.

This begs the question: why did Mayor Jackson agree to repurchase the property from the Watchtower group, only to reject the repurchase agreement and file a lawsuit against the religious group? This blog has a couple of different theories.

1.     It’s quite possible that Lorterdan's rezoning plan submitted on March 1, 2011 was turned down, or that they weren’t able to secure financing for the project.  But even in that case, they were still obligated to buy the property back from Watchtower, and suing instead of doing that raises questions about principles and ethical business behavior.  

2.     Another possibility is that Jackson just didn’t have the $11.5 million on hand to return to Watchtower and was looking for a way out of the contract. But in that case, that’s just irresponsible.

The case raises a number of interesting and important questions that will be explored in future posts. Stay tuned…

For more information on the case, click here. 

Mayor Jackson Stepping Down From The Planning Board After This Blog Revealed Potential Pay to Play Issues

The past few blog posts here have been about Mayor Jackson potentially violating Montclair’s ethics ordinance by receiving contributions from developers while possibly negotiating development deals with them. As of Monday, when this blog first shed light on some of the shady business deals happening in our town, Mayor Jackson served on the Planning Board.

Well now it appears that Jackson will be stepping down from the Planning Board. Says the Montclair Times:

“The commission's former representative, Martin Schwartz, will remain on the Planning Board as Jackson's appointee, essentially replacing Jackson.”

Coming just a couple of days after this blog’s first post on mayor’s possible backroom deals, the timing of this decision doesn’t seem coincidental. Maybe the mayor/developer thought he could avoid a potential future conflict? Or future scrutiny?

Also, this blog would also love to know if there’s any real beef between Jackson and Schwartz over the MC Hotel and Centroverde development project. Back in January, Schwartz said they were pushing back on the “ugliness” of the projects:

“Many residents worry that the developments will add large, bulky buildings to the streetscape, detracting from the historic quality that differentiates Montclair from some of its less picturesque neighbors. The designs, they argue, could be found anywhere along the state’s strip-mall-strewn roads.

The developments are “going to look absolutely hideous,” said Jason DeSalvo, a Montclair resident. “They’re basically sheer walls. It’s like a concrete canyon,” he said.

“We are pushing back on the ugliness,” said Martin Schwartz, a member of the Montclair planning board and a critic of the developments. “We are saying we want redevelopment — we just don’t want it to look like Route 46 New Jersey.” ”

And when Schwartz questioned Planning Director Janice Talley on whether she was “really in favor of opening the floodgates for unbridled development here,” his comments struck a nerve with Jackson. Jackson characterized his comments as “facts-challenged, bad form, and perhaps [having] a touch of demagoguery.” Those are some fighting words!

“Clearly, there is a feeling by many residents that our planner does not really support a preservation-directed, neighborhood character approach to redevelopment,” says Schwartz.  “Based on the excessive heights and bulk parameters originally proposed in the first master plan draft which put people up in arms, and the mass and density she didn’t stop for the first CentroVerde project [Valley and Bloom] while the redevelopment terms required the project to blend in with our downtown, it appears Ms. Talley is really in favor of opening the floodgates for unbridled development here.”  Many Montclair residents themselves have directly demanded more municipal preservation and protections of historic structures, both publicly at meetings and in research Talley herself conducted through public feedback for the master plan.  Talley, though, defends her stewardship of redevelopment projects in Montclair.

“My role is to facilitate the development of plans through coordination of consultants, subcommittees, the Planning Board and the public, ” Talley tells Baristanet.  “I am not a decision maker, but a facilitator in this process, and the plans that have been prepared over the past four years are the result of many different voices.  Recent redevelopment plans have included extensive design standards which were not a part of previous redevelopment plans.  The purpose of these design standards is to help ensure that new development fits in with the context of existing neighborhoods.”

Mayor Jackson was more direct in response to Schwartz’s observations.

“I consider Mr. Schwartz a friend and I respect his opinion on matters of planning and development,” the mayor said.  In this instance, however, I have to characterize his comments as facts-challenged, bad form, and perhaps [having] a touch of demagoguery.”

It’s great to see that Schwartz is replacing Jackson. This blog isn’t the only one to support the preservation of Montclair’s historical assets. A little while back Saving Montclair made an appeal to keep Schwartz on the Planning Board. This blog is glad he kept him, but curious about the whole turn of events.

It seems Jackson was weary of the increased public scrutiny as he stepped down from the Planning Board just 2 days after this blog’s revelations. This blog will continue to monitor the situation and provide updates on the matter as necessary. And this blog will continue to investigate issues like these. In fact, this research has led to further findings that will be detailed here over the next week. Stay tuned…

Who I Am

This blog has also gotten a few inquiries and heard some murmurings on social media that speculated about whether I was tied to the blog Montclair Schools Watch. While I’ll cop to being a bit of a copycat after watching their blog, I don’t know them or have any ties to them, or even agree with them on most things. My own beliefs around what we should do with our schools seem to be pretty different than theirs (significantly so, from what I can tell), and I disagree with them and the people they support.

My own interests are more focused on town governance, good governance, development, and media accountability. These are areas where I feel like there hasn’t been nearly enough scrutiny on the system, and where the media attention has been weak. That’s what I intend to blog about. That said, if you have any good tips on problems or corruption present in the schools, or anywhere else, please don’t hesitate to send them my way: montclairsdirtylaundry@gmail.com