The project will be completed in phases that are tied to the three redevelopment zones – West Zone, North Zone, and South Zone. Within the West Zone, there are five components. The North Zone has one component and the South Zone has two components. Separately, public improvements are interspersed in the timeline.
Below are images showing the zones, components, and descriptions.
If Streetworks paid conventional property taxes, the project would not be financially viable, according to Westfield's financial advisor, Bob Powell of Nassau Capital Advisors.
Powell was hired by Westfield to determine the project's financial feasibility if the developer paid conventional property taxes. If it was not feasible, Powell examined whether it would be feasible with a PILOT, payment in lieu of taxes.
Powell examined the development costs, projected rents for each property type, estimated operating costs, funding sources, and projected increases in rental income and operating expenses over time. The numbers were used to calculate the developer’s projected return if they make the expected 40% equity investment. The other 60% is borrowed, i.e., debt.
Here are Powell's assumptions used in his analysis:
Other assumptions in Nassau Capital's financial analysis include:
● 6% interest on permanent loans with a 30-year amortization schedule.
● Project is built, leased with stable tenants, developer holds for 10 years, and then sells.
● High-end commercial and residential projects similar to One Westfield Place have an Internal Rate of Return (IRR) about 10%.
The analysis shows that if the developer paid conventional property taxes, the developer's return on their equity would be 7.45%. Powell concluded that this "is inadequate to attract the level of equity capital needed for the Project. This financial result indicates that the Project is not financially-feasible if subject to conventional taxes, and therefore will likely not be built."
The project is feasible if the developer pays less than conventional taxes under a PILOT formula. The IRR jumps to 9.7% and "while in the low range of an acceptable return in the capital markets, it is nevertheless sufficient to attract the sizable amount of equity capital needed for the Project. The result also indicates that the Redeveloper's projected level of profit is not excessive."
From 2027 to 2056, the total revenue from the project is estimated at $213.9M. That is $7.13M per year.
Here is a table showing annual revenue every five years. Year 2030 was added because that is when the project will be "stabilized."
At a previous meeting, Town Administrator Jim Gildea stated that PILOT revenues will:
Stabilize property taxes
Shift some of the tax burden from residents to commercial property owners
Improve municipal services
Fund major public improvements that the Town would not be able to afford
Likely improve all property values.
There will also be a significant financial benefit to the Town's retail businesses when a projected 1,340 new employees begin working in the One Westfield Place office buildings and spend money downtown.
The Town is going to sell two parcels of land to Streetworks. The parcels are on the train station parking lots #5 and #7. They total 2.27 acres out of the total 7.15 acres. The property was appraised by a well-known and highly-regarded appraiser, Otteau Group. It was valued at $11,100,000.
The appraiser used the comparison approach and deployed two methods – per acre and per unit. Neither the cost or income approach were used. The appraiser explained the cost approach is not applicable because the current improvements on the land do not significantly contribute to the site value. The income approach is not applicable because "it consists of land without improvements which is not typically purchased for its income producing abilities."
The North Zone includes the a 35-unit multifamily project (6 units are affordable housing) and the South Zone is 220,000 SF of commercial space – 210,000 SF of office and 10,000 SF of retail. (Note - the appraisal does not appear to reference the 2,110 SF of retail/restaurant in the North Zone.) Here are the details:
After reaching different valuations under the per acre and per unit methodologies, the appraiser weighted the unit methodology more heavily (75%). Their final valuation was $10,825,000. However, Streetworks agreed to follow a non-weighted approach and value the property at $11,100,000.
Westfield's bond counsel, Matt Jessup, explained at earlier Town Council meetings the necessity of Westfield issuing bonds.
There will be $54.2M of public improvement on land owned by the Town. (The $54.2M included 20+% contingency.)
Initially, the improvements will be funded by the developer and three Redevelopment Area Bonds (RABs):
● $16.5M for the North Parking Garage
● $13.0M for the South Parking Garage
● $16.5M for the other public improvements. Streetworks will provide $8M to the Town early in the project for improvements such as the North Avenue Town Square.
Jessup explained that the bonds will be issued over time as the Streetworks development reaches milestones. Here is how the project will be staged:
West Zone construction reaches milestones
North Parking Garage bond is issued
South Zone construction begins after 50% of office building 1 is pre-leased
South Parking Garage bond is issued
South Zone construction reaches milestones
Public Improvement Bond is issued.
Jessup added, “The staging ensures that we don’t get ahead of project revenues and over issue bonds relative to Streetworks buildout and completion of the redevelopment project.”
▸ Paying the Debt Service
Over the life of the project, the average annual debt service for all three bonds will be $3M, assuming a 4.00% interest rate. Revenues to the Town will ramp up from $4.6M in 2030 to $10.98M in 2056. This averages to $7.13M per year, or $213M over the life of the project. Since the total debt service over the project is $73M, the Town will net $140M over 30 years. This averages to over $4M per year in tax revenue which can be used for general municipal use.
Mayor Brindle said the project will produce "public benefits that the Town would never be able to afford and taxes will be stabilized for the long term."
▸ Streetworks transfers the project.
The Redevelopment Agreement (RDA) prohibits Streetworks from transferring: the project, project area, controlling interest of Streetworks, or controlling interest of the entity. The project is separated into eight Urban Renewal Entities to allow Streetworks to attract capital partners for different components.
Certain transfers are allowed in the RDA. If a transfer is not permitted or approved by the Town Council, the transfer will trigger a default.
▸ Streetworks does not comply with the development plan, design guidelines, architectural renderings, and public improvement plans.
These are Concept Plans that are not yet final. They will be developed during the Site Plan process and will be reviewed and voted upon by the Planning Board. Once approved, it will be incorporated into the RDA.
▸ Streetworks misses construction milestones.
The RDA includes construction schedules for each component of the project with deadlines for approvals, building permits, construction commencement, and construction completion. Failure to meet a deadline triggers default.
▸ Streetworks does not meet the traffic and parking requirements.
Traffic infrastructure improvements are integrated into the project phases. Traffic reports during construction and after completion are required in the Traffic Demand Management Plan. Streetworks must also adhere to parking plans during construction and after completion. Failure to abide by the traffic and parking requirements would either trigger an RDA default or violate the Declaration of Covenants and Restrictions.
▸ Streetworks fails to meet its affordable housing requirements, age restriction requirements, green project features (LEED Silver and mass timber office building), or construction site standards.
These items are incorporated into the RDA as construction requirements and failure to comply may trigger default.
▸ Streetworks revenues fall short of estimates and the Town does not have adequate funds to make the bond payments.
The Town has a “PILOT sufficiency test” which monitors the revenues to ensure that 80% of revenue is available to pay the debt service for bonds issued.
Each bond is issued for 25 years, at a level debt service, and at a projected 4% interest rate based on the Town’s AAA credit rating. Jessup said the 4% interest was conservatively high.
At an earlier meeting, he said, "We have a debt service cap. We will measure the debt service interest rate against 80% of the PILOT. If there is not sufficient revenue, we are not doing all of the projects. ... We will never issue more in bonds than the project can support."
▸ Streetworks fails to pay Westfield amounts due under the financial agreements.
Any amounts due to Westfield are a municipal lien on the project. The Town may sell the lien if payment is not made. Furthermore, each of the eight Streetworks entities for the project entered into a special assessment agreement with Westfield. The special assessment covers the bond debt service for public improvements. This ensures Westfield does not have to use general municipal revenues until PILOTs are stabilized at an amount sufficient to cover debt service. The special assessments may terminate before the bonds are repaid if PILOTs are paid in excess of certain identified project performance metrics.
Unlike conventional property taxes, no portion of PILOT revenues is earmarked for the schools. Instead, 95% goes directly to the Town and 5% to the county.
The question about burdening the Westfield schools stems from two issues: 1) The proposed residential units will increase student enrollment; and 2) There will be no PILOT revenues for the schools and Westfield tax payers will be taxed to make up for the shortfall.
▸ Student Enrollment
The student enrollment chart was discussed at the meeting to provide context. Since 2015, there are 395 fewer students in Westfield schools.
The projected increase in student enrollment is only 10 students.
▸ School Funding
Currently, the Lord & Taylor property taxes pays $337,000 for the Westfield schools. After the development and implementation of the PILOT, the amount is reduced by $109,243 to $228,312. The $109,243 reduction is offset by the $7.1M PILOT revenue from the project. The $3M bond payment leaves a balance of $4.1M. There will be adequate funds to pay for additional students.
Westfield hired consultant Richard B. Reading Associates to examine the project's impact on the Town budget.
Reading's analysis looked at the Town's 2022 municipal budget and determined that the residential development component will be $178,290 and the office/retail components will be $180,900. These combined service allocation costs total $359,190. This is less than 1% of Westfield's 2022 operating budget of $49.2M.
Town Administrator Jim Gildea said at an earlier meeting that the project's impact on the Town budget will be "easily absorbed by the anticipated infusion of net PILOT revenues."
There is a long list of public improvements estimated at $54.2M –
● North Avenue Town Square
● South Avenue Town Green
● North Avenue public parking garage
● South Avenue public parking garage
● New smart-technology Town parking system
● Traffic/congestion mitigation upgrades
● Quimby Street enhancements
● Roadway improvements
● Streetscape improvements (sidewalks, trees, street furniture)
● Mobility Hub enhancements (bike/pedestrian, rideshare, etc.)
● Pedestrian walkway
● Train Station tunnel improvements
● Pedestrian safety improvements ● Environmental remediation
Each public improvement is linked with a private component of the project and a Certificate of Completion will not be issued until the public improvements are completed.
Streetworks is responsible for the public improvements and the obligations are memorialized in the Public Improvements Construction Agreements.