iStar may file $105 million lawsuit against Long Beach

Superblock developer wants city to submit letter to IDA showing support for tax breaks

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Former U.S. Sen. Al D’Amato stormed out of City Hall on Tuesday after residents were told that questions would only be taken on index cards at a public meeting the city held to update residents about iStar's latest request for tax breaks and potential litigation against the city.
Former U.S. Sen. Al D’Amato stormed out of City Hall on Tuesday after residents were told that questions would only be taken on index cards at a public meeting the city held to update residents about iStar's latest request for tax breaks and potential litigation against the city.
Susan Grieco/Herald

The developer of the Superblock property intends to file a $105 million lawsuit against the city as early as this month if the city does not show its support for tax breaks the developer is seeking from the Nassau County Industrial Development Agency.

An attorney representing the city, Robert Spolzino, told residents at a heated meeting at City Hall on Tuesday that iStar Financial Inc. — the owner of the property, which is looking to build two 15-story luxury apartment towers and retail space along the boardwalk — would take legal action against the city if it does not submit a letter to the IDA supporting iStar’s request for a 20-year, $82 million payment in lieu of taxes, or PILOT, program.

Though iStar claimed that the project would generate millions of dollars’ worth of economic activity and tax revenue, the IDA rejected two previous requests for tax abatements, including a $109 million proposal last year, amid an outcry from residents who maintain that with such an agreement in place, the city would lose out on the full tax benefits of the development.


City officials announced last month that they had learned that the Manhattan-based developer would soon submit “a third and final application for tax abatements.” Spolzino said that iStar now maintains that the city’s support for the project was insufficient and intends to sue for breach of contract, and that the lawsuit could mire the city — and property — in costly litigation for years.

Spolzino told residents that it was unclear whether the Republican-controlled IDA would hold another public hearing to discuss the new proposal, and that the city held Tuesday’s forum, overseen by Spolzino and Comptroller Kristie Hansen-Hightower, to inform residents about the financial impact as well as the legal implications for the city.

Residents criticize city over meeting, new PILOT

But many who attended the meeting, including former U.S. Sen. Alfonse D’Amato and County Legislator Denise Ford (R-Long Beach), blasted the “greedy” developer’s third attempt at a tax break, saying it was still excessive.
D'Amato and others in attendance also criticized the city over the format of the meeting, at which residents were only permitted to submit written questions on index cards.

Some attendees said afterward that they felt Spolzino had not answered many of their questions — mainly pertaining to the details of a settlement agreement the city reached with the developer in 2014 that included the city’s support for a PILOT — and accused City Manager Jack Schnirman and other city officials of hiding behind outside legal counsel. Spolzino said that some questions were “beyond the scope” of the presentation.

“A takeaway is that the City Council and city manager are not representing the wishes of the residents on this issue,” John Bendo, president of the West End Neighbors Civic Association, said after the meeting. “They entered into a secret deal with iStar, withheld the information from the residents and now that the residents have learned details and are against it, they’re trying to distance themselves from their actions.”

D’Amato also accused the city of making a secret agreement with the developer, claims that city officials have called a baseless political attack. Some also accused the city of intimidating the public with the threat of the lawsuit, though Spolzino insisted that was not the case.

“We’re not here to scare anyone with a big lawsuit,” he said. “We actually believe the city possesses some very good arguments in defense of the lawsuit. But if iStar were to recover half or even just a third of what it’s seeking, the loss would be devastating to the city. And we know for sure the lawsuit will cost the city a lot of money to defend.”

“This is a disgrace,” Ford said of the meeting, adding that she would push the IDA to hold another public hearing. “I’m against this agreement and I was always against it,” she added, referring to the PILOT.

In 2014, the City Council voted to settle the city’s lawsuit against iStar for $5.25 million, the terms of which included the city’s support for a PILOT, albeit for an unspecified term. The city filed the suit in 2011, claiming that millions of dollars in condemnation costs and legal fees needed to be paid as part of a development agreement with the former owner of the property.

In 2014, the city’s Zoning Board of Appeals gave the developer approval to move forward with the project. Representatives of iStar said at the time that the project would generate $4.8 million per year in property tax revenue for the city and its school district, and told trustees and residents that it had the financial wherewithal to fund the project.

The council voted to approve a community host agreement in 2015, which reaffirmed its support for the tax abatement. As part of that deal, iStar agreed to pay the city $4.1 million to mitigate the project’s impact. City officials faced harsh criticism, however, when residents learned about the developer’s initial request for a 25-year tax break, and had declined to speak for or against both tax abatement proposals, citing potential litigation.

Asked by the Herald whether they thought the 2014 settlement was responsible, city officials said in a statement, “The city’s attorneys at the time settled long-standing litigation. As always, there are aspects of every agreement that are open to second-guessing, especially when one portion of the settlement agreement is detached from the whole. The focus now is on where do we go from here. The presentation laid out the city’s options and associated costs and benefits very clearly.”

Spolzino said that it is up to the IDA to decide whether the developer should be granted a PILOT, and that iStar has the right to make such a request.

County Comptroller George Maragos, who became a Democrat to run for county executive this year, was also at the meeting and, on Facebook, called the iStar proposal Long Beach’s “Green Acres Mall nightmare,” referring to a controversial tax incentive granted to the mall by the Town of Hempstead IDA in 2015. Unlike that project, however, Hansen-Hightower said that the iStar PILOT would not lead to an increase in property taxes.

Joseph Kearney, the county IDA’s executive director, told the Herald after the meeting that the agency had yet to receive an application from iStar, but that another hearing would be held, in addition to an economic and real estate analysis of the new proposal.

“The IDA is going to do its due diligence, as it does with every project that comes before it,” Kearney said. “We haven’t even started because we don’t have an application.”

City presents options

Hansen-Hightower presented a financial analysis of the new proposal — which did not include the project’s impact on the school district — and said that if iStar is granted the PILOT, the city stands to receive $34.7 million in total revenue over the next 20 years, which includes $15.8 million in PILOT payments, as well as fees and the community host agreement.

The developer may also agree to an 8 percent cap on profits from the project, which would likely mean additional payments to the city, she said.

Without the tax abatement, and with no development on the property, it would generate just $5.3 million for the city over 20 years, a number that Hansen-Hightower said did not include costly litigation that would likely offset much of that revenue.

But residents challenged those numbers, saying they did not include the impact on school and county taxes and the overall impact on taxpayers. Residents also said that the analysis did not show what the project would generate in taxes if it were built without a PILOT.

Hansen-Hightower said that if the project were built without the tax abatement, the city alone would see $57.4 million over 20 years. But she and Spolzino emphasized that iStar would not build without a tax break and has no plans to sell the property. He said, “iStar isn’t going anywhere.”

Kearney said that a letter to the IDA from the city is “helpful if the local jurisdiction where the project is being built is fully supportive of that,” but a letter alone is not a guarantee that the project would be approved.

The city said it has yet to decide whether to submit the letter. Asked whether iStar would sue the city if it ultimately decides to support the PILOT but the IDA denies the developer’s request, Spolzino said, “That would be a hard claim for them to make if the city actually supported the IDA benefits.”