A change of plans could save failing real estate

November 07. 2011 3:00AM

A change of plans could save failing real estate

But towns decry ‘bailout' bill allowing builders to alter approved projects

Steven Patron, left, a real estate consultant, with Stanley Koreyva, of Amboy Bank. The bank successfully sought approval to switch a Red Bank property from 20 condos and 18,000 square feet of retail to 45 market-rate condos and 12 affordable-housing units.

Developers hope a bill being discussed in the Legislature helps salve the stalled real estate market by allowing the builders of approved projects to change plans without seeking a use variance.

If passed, the bill would allow, for instance, a developer to convert a planned age-restricted housing community into a project with no such restrictions, if it can prove it isn't able to build under the current approval, and that the new proposal would be profitable and wouldn't harm the community.

But the "adaptive amendment" plan is being fought by municipal officials, who say it amounts to a bailout and is destructive toward home rule.

Stanley Koreyva, senior vice president and chief operating officer for Amboy Bank, said there are $1.088 billion in nonperforming loans for approved, but stalled, developments in New Jersey. Also, there are $250 million in developments that have reverted to lenders, known as other real estate-owned properties, providing a major drag on banks.

Koreyva said the age restrictions at developments like Visions at the Shore, in Absecon, are what need to be changed. The condominium failed, with only 42 of 360 planned units completed, and just 17 sold. Amboy — the lender on the project — became the owner of the other 25 units after foreclosing on the property.

With the market for age-restricted housing now exhausted, Koreyva said the bill would allow the bank to work with a developer to come up with a proposal that works in the current market.

"I have met every builder, both public and private, who builds in the South Jersey area, and they say, 'When you get rid of the age restriction, we'll talk to you,'" Koreyva said.

Legislators have discussed advancing the bill during the lame-duck session that starts after the Nov. 8 election, but changes are anticipated to address concerns raised by municipal officials.

In some cases, though, towns have agreed to changes. In Red Bank, borough officials agreed to allowed an Amboy Bank-owned property approved for 20 condos and 18,000 square feet of retail to be converted into 45 market-rate condos and 12 affordable-housing units after the retail market dried up.

"If these towns listen to a very small minority of homeowners, these projects will never be built," Koreyva said.
He described the measure as an "economic stimulus" that would allow banks to lend more, putting builders and subcontractors back to work.

Real estate consultant Steven Patron, who worked on the Red Bank proposal, said it took a year in front of the local zoning board to reach an agreement, a possibility that is impossible in many towns that are resistant to changing approvals.

Patron noted that zoning authority rests in the Legislature, adding that the bill should fit in with Gov. Chris Christie's plan to expand jobs in the state.

But Michael F. Cerra, senior legislative analyst with the New Jersey League of Municipalities, said the bill wrongly changes how properties can be used, shifting from what is in the public interest to what is in the interest of the owner.
"There's a fundamental objection to particular applicants being allowed to jump to the front of the line," Cerra said.
While the law would only cover property approved before the recession, Cerra said the new uses would exist for decades, and "I don't know if we want to be paying for bad businesses that were made four or five years ago for 20, 30 or 40 years."

Bill sponsor Assemblyman Albert Coutinho (D-Newark) said he has heard concerns from municipal officials, but the Legislature must act to aid the state's economy.

"We need to look at the drag that stalled projects are having on our economy in so many different ways," Coutinho said, adding that he is focused on freeing up banks' capital. "This is not an attack on home rule or (towns') ability to determine what gets built in their communities."

Real estate appraiser Jeffrey G. Otteau, president of Otteau Valuation Group, also said the bill's changes are necessary. He said towns are failing to deal with economic and demographic changes in the state, including declining incomes and numbers of children. "House construction will need to incorporate both smaller living spaces, as well as smaller lot areas, in order to line up with what purchasing power will be," Otteau said.

Absecon city administrator Terry Dolan said city council passed a resolution opposing the bill, which he said provides developers and lenders who made decisions that were "shortsighted, misguided and extremely risky with a remedy that is completely contrary to local planning and zoning."

Dolan said residents would pay a dear price if the bill is enacted.

"This legislation is extremely poorly authored, thought-out, conceived — and basically, it's a bailout for more developers," Dolan said.

Dolan said the measure would violate residents' basic right "to the quiet enjoyment of their city," and said it's a stimulus on the order of the Lehman Brothers bailout: "Bail out the developers and all will be well?" Dolan asked.

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