POST OFFICE DEVELOPER USING PROJECT TO AVOID TAXES ON ANOTHER DEAL

Rendering of Maplewood Village post office project

Update: Village Keepers has responded to this story. Read below and then see their reaction HERE.

The developer of the former Maplewood Village post office project, which will include a three-story building with 20 apartments and five new retail shops, is using the project to help avoid paying capital gains tax on his sale of land now being used for a separate development at the former PSE&G site on Boyden Avenue.

Joseph Forgione, owner of JMF Properties, had owned the property on Boyden Avenue that will become a 235-unit apartment complex, but sold it last year to Avalon Bay, which is constructing the apartments now.

Forgione would have to pay capital gains taxes on the land sale unless he uses the proceeds to purchase and finance another such deal. Since he is directing the profits toward the post office project, the capital gains is avoided, Mayor Vic Deluca confirmed to Maplewoodian.com via email Monday, adding that the Township Committee will close on the sale of the post office land to JMF at its next meeting on November 16.

Rendering of Avalon Bay project on Boyden Avenue

"The timing of the closing (November 16) is beneficial to Forgione and (his partner Steven) Kalafer because of the capital gains reason you mention in your email," Deluca wrote. "Those taxes benefits are governed by federal law and have nothing to do with the Township. In fact, homeowners are entitled to similar tax breaks if they purchase another home within a certain time period after selling a home."

See the letter from Forgione requesting the tax abatement transfer HERE.

But the Township did play a role in the arrangement when the Township Committee on Wednesday gave initial approval to an ordinance allowing JMF to transfer its five-year tax abatement or PILOT (Payment in Lieu of Taxes) on the project to two new entities. Those entities are JMF Maplewood, owned by Forgione, and the new Gladstone of Maplewood LLC, overseen by Kalafer, who is also owner of the Somerset Patriots and a car dealership owner.

Neither Forgione or Kalafer responded to requests for comment.

The transfer keeps the tax abatement in place, but allows Forgione to utilize it for the new entities that are receiving the funds from the Avalon Bay sale, thus avoiding the capital gains tax.

"The five year tax abatement, in which payments to the Township are increased by 20 percent each year, is based on the financials of the project and has nothing to do with the benefits of any federal tax law," Deluca said via email.

But it does indicate that JMF is benefiting from its investment in the post office project more than was previously revealed and raises questions about whether it needs the tax abatement that was approved by the TC on April 7, 2015, in a close 3-2 vote, with TC members Marlon Brownlee and India Larrier voting against it.

Asked about the capital gains benefit and tax abatement issue, Brownlee said via email, "I did not feel that it was necessary to grant the PILOT last April when we voted on this matter, and my position is unchanged."

But Deluca pointed out that legally the TC had to allow the tax abatement to be transferred as per guidance from Township Attorney Roger Desiderio.

"The redevelopment agreement between Maplewood and JMF allows for the assignment of the redeveloper's interest to a related company and/or to an outside entity," Deluca emailed. "The TC must consent if any or all of the interest is assigned to an outside entity but we cannot reasonably withhold consent ... JMF was within its rights to make this request."

Brownlee agreed, adding, "JMF had the right to make the request that they did, and our Township Attorney advised us that while we had to officially vote on whether to grant their request, we could not unreasonably refuse to grant their request as long as we were satisfied that whoever the agreement was being transferred to had the financial wherewithal to take on the project."

Deluca went on to list, via email, his reasons for why the project, even with the capital gains benefit and tax abatement for JMF, is still a positive for Maplewood:

The result of this action is beneficial to Maplewood:
1) We close on the sale of the post office property on November 16th.This means Maplewood will receive $1,050,000 now rather than wait for all final approvals are given in 2016. We will be able to put $100,000 immediately in our Affordable Housing Trust Fund, which is now at zero, and market the rehabilitation program so we line up 4 or 5 homes for work. The balance, $950,000, goes into Maplewood's reserve fund and will be used to lower property tax increases in the 2016 budget.

2) With the closing on November 16th, the Township no longer has responsibility for the upkeep of the building or the property. JMF will now be responsible to remove snow and ice and will be responsible for the building if any emergency repairs are needed.

3) The new owners of the property will begin paying taxes on the land.

4) The redevelopment project is now personally guaranteed by the two individuals who head up the firms, Forgione and Kalafer. We did not have guarantees in the previous agreement. With Forgione and Kalafer now paying for the project's construction, they will not need bank financing. This will help move the project forward.

He later added:

Do I think that wealthy people use the tax laws to their advantage? Yes

Do I think the federal and state tax systems need to be made more fair? Yes

Do I think Maplewood is also getting a benefit with this arrangement? Yes