Attorneys defend action in Golden Triangle deal
Councilman believes mortgage agreement was bad for township
BY VINCENT TODARO
Staff Writer

EAST BRUNSWICK - An agreement signed by Mayor William Neary that allows a bank to take title to the Golden Triangle property in the event of a default by the redeveloper is standard procedure, according to attorneys representing the township.

The agreement allows National City Bank's claim to the property to trump the township's if the redeveloper, Toll Brothers, defaults on its purchase of the Route 18 land from the township. Toll Brothers purchased the property from the township in November 2005 for about $31 million, to be paid in increments over six years.

The township entered a mortgage subordination agreement with Toll Brothers and National City Bank in August 2006 for a $20.5 million loan from the bank to Toll Brothers, with the property as security for the loan.

Township Councilman David Stahl raised concerns about the mortgage agreement, and about Neary signing it without council members' knowledge. Though he supports the sale of the land to Toll Brothers for the construction of a mixed-use development, he said the subordination agreement is not in the best interests of East Brunswick residents.

When Stahl made his comments at the May 14 council meeting, Mayor WIlliam Neary was not in attendance, nor was redevelopment attorney Frank Regan, and Township Attorney Michael Baker was not present at the moment. Neary later deferred the question to the attorneys.

Baker has since said that he spoke with Regan about the issue in August, and Regan explained that the action did not require council approval. Regan has also prepared a new memo to outline his opinion. There is general language in the redevelopment agreement, Baker said, that allows Toll Brothers to seek mortgage financing. Language in the mortgage documents allows the township to subordinate its mortgage to the bank's.

Without the township agreeing to the mortgage subordination, Toll Brothers would have been unable to secure financing, Baker said.

Regan, noting he has been involved in more than 40 redevelopment agreements, wrote in a memo the subordination agreement is a "typical" action on the part of the town.

"It is not unusual for a municipality to agree to subordinate a mortgage or other interest in order for a redeveloper to secure financing for property acquisition and construction related to a project," Regan wrote. "In fact, in most instances, an agreement could not even be reached between the parties if this was not an agreed upon term. No financial institution will provide financing to a redeveloper for property acquisition or construction if a mortgage encumbers the property. Only if a mortgagee agrees to subordinate its interest [the mortgage] will financing be approved."

The original mortgage, Regan noted, was $25.96 million, and to date, Toll Brothers has paid the township $9 million, bringing the balance to $16.96 million. It is due to pay the township another $4.5 million by Dec. 31.

Stahl was dissatisfied with the explanation and said that in this day of "creative financing," Toll Brothers could have come up with the money. Stahl said he had no idea that Toll Brothers would have turned away had it not gotten the mortgage from the bank, but if that was the case, he would consider the deal to be precarious and would have had "real doubts" about it.

He said he would not have agreed to allow Neary to sign the subordination agreement, and that Toll Brothers could have found other financing, though it may have been more costly.

"Why risk the township for them to save a few bucks?" he asked.

He said no one has responded directly to his comments and questions from the last council meeting in May, and that his feelings haven't changed. And while people may disagree, he said he does not believe that Neary was authorized to sign the agreement. He also does not believe there is anything in the redevelopment agreement that forced the township to allow itself to be subordinated to a bank mortgage.

Stahl said that East Brunswick receives nothing in return for allowing itself to become second in a money-collecting line.

"There's no debate that there was no benefit," he said. "It's the duty of the attorney and mayor to not put us at an increased risk."

Baker maintained that the benefit to the township was the redevelopment deal itself. Without the subordination agreement, Toll Brothers would not have signed the deal.

"No bank or lender will lend unless they're the first mortgage," Baker said. "They could not have gotten financing without this agreement."

Baker also said the fact that the township is second in line is of no real consequence. If a foreclosure does occur, the bank would get its $20 million by selling the land. The township would receive the remaining value of the property, which would be about $10 million if one uses the sale price of $30 million as a gauge. But he said one cannot forget the $7 million Toll Brothers has invested into the property by way of engineering work, design, soil samples, architectural work and gaining permits.

"All the things you need before you put a stick in the ground," Baker said.

He estimated that, with all factors considered, the township would come out even in the event that the redeveloper defaults, which he does not expect to occur.

Stahl said he does not believe that the investments Baker mentioned on the part of Toll Brothers raise the value of the property.

Baker said he can understand how someone not experienced in such redevelopment issues would be concerned about the subordination agreement. However, they are standard practice, and the township is secure, he said.