Court approves Short Hills Mall reassessment

Wednesday, August 02, 2006

By PAT KELLEY

MILLBURN — In a surprise decision, the state's Tax Court has sided with the township and agreed that Millburn's largest taxpayer, the Mall at Short Hills, should have a new property tax assessment for 2006 despite last year's tax settlement.

Township Tax Counsel John Lloyd appeared before Tax Court Judge Vito Bianchi in Newark on July 21 to present oral arguments challenging the tax assessment Freeze Act which would have allowed mall owners, the Taubman Company, to have their property tax assessment frozen for a three-year period following their 2005 tax case settlement with Millburn Township.

Township officials had said they did not expect a decision at the July 21 hearing. However, Judge Bianchi ruled from the bench in favor of the township.

The decision clears the way for the tax appeal which township officials filed in April, contending the mall's value may now be higher than the compromise which settled the tax appeal by the mall last year.

"The town was pleased that the courtallowed the 2006 case to proceed and is looking for all information it needs to ascertain what the correct value of the mall is," said Mr. Lloyd last week.

"It was a very good day last Friday," said Millburn Mayor Dan Baer. "This is just the first step and now we have to see what steps the mall is going to take."

The mayor said he thought the decision would have "a very positive effect" on the township's future tax situation. In a township with approximately $6 billion of total assessed property value, $1 billion of that amount is made up of commercial properties. The mall accounts for about half that amount and makes up approximately 8.5 percent of the township's total tax base.

When contacted at Taubman's Michigan headquarters, Director of Communications Karen MacDonald said the company would have no comment. "We don't comment on pending litigation," she said.

The Taubman Company originally appealed the township's 2001 reassessment which raised the tax assessment on the mall to $489 million. In March 2005 both sides agreed on a compromise assessment of $445 million, which required the township to reimburse Taubman for $2.9 million in tax over-payments. The money to pay the mall was raised through taxation and is being paid back to Taubman in the form of credits to this year's tax bill.

Last December, township officials learned that Taubman had applied to MetLife for a $540 million mortgage during which township officials believe the mall's value was stated as $900 million, more than double the fair market value of the settlement reached at virtually the same time with the township.

In April the township filed a 2006 complaint to challenge last year's assessment as it applies to this year, citing both the fair market value from the mortgage application and a 2005 zoning change which allowed Taubman to expand the mall's gross leasable area by 50,000 square feet from 1,350,000 to 1,400,000 square feet.

"The case will proceed like any other tax appeal," Mr. Lloyd said. He said the township is now seeking discovery and the case ultimately will either be settled at trial or through a settlement. If the case goes to trial it will not be this year. "It's too big a case," Mr. Lloyd said.

Mr. Lloyd said he is now trying to obtain information from Taubman as to how the mall was valued in applying for the $540 million mortgage from MetLife.

With 2006 more than half over, the question of the mall's 2007 assessment, especially in light of a planned town-wide valuation scheduled for next year, will also come into play. The township postponed the town-wide reassessment from 2006 due to the unsettled issues regarding its largest taxpayer. "I would hope we would be in discussions with the mall on both the pending '06 appeal as well as the '07 assessment," Mr. Lloyd said. "There could be a nexus to some extent in discussions of the '06 appeal and the assessment."

Prior to the mall's 2001 re-valuation, it was assessed at $136,527,300 with a $7,154,030 property tax bill. After the revaluation, the assessment jumped to $489,009,900 and the tax bills ranged from $8,333,955 in 2002 to $9,584,594 in 2004.

[From Independent Press August 2, 2006 story. Actual link to story]

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From previous WeLoveMillburn articles about
The Short Hills Mall.

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Millburn Township Committee, in a special public meeting,
voted to take new legal action against The Short Hills Mall.

March 28, 2006 — The unscheduled public meeting, held March 28, 2006, started late (8:45pm) after a closed door session held first with the township attorney involved in the original Short Hills Mall tax case, John Lloyd. The Township Committee members entered the meeting room without the township attorney but under his advice to say very little about the details of that closed door meeting.

Mayor Dan Baer read a resolution to take legal action against the Mall regarding their 2006 tax assessment. The Township Committee members voted unanimously for the resolution. Since the township had agreed to a settlement for tax years 2002, 2003, 2004, 2005, it would appear that the only recourse the Township Committee members had was to challenge this years 2006 assessment which is the same as the 2005 agreement of $445 million. The reason for the special meeting is that by law tax appeals for a given year must be filed no later than April 1st.

The Mayor responded to almost all questions saying that they were under the advice of counsel and they could not answer most questions or discuss rationale for their decision as their answers could be used later.

It is believed that the Township is starting the legal case now to get new tenant contract/rent information from Taubman Centers since it is assumed that they have not been forthcoming with new information.

A WeLoveMillburn Officer asked to be recognized and read the following statement to the Township Committee hoping to be helpful with the following information.

"The NCREIF or the National Council on Real Estate Investment Fiduciaries, found at www.ncreif.org, is a group which is universally recognized as having the most complete data on the value of the institutionally owned, unleveraged (i.e. appraised and/or market valued upon sale) commercial real estate properties. The data shows that the index of retail (includes regional and strip malls, also supercenters) properties went up approximately 18% per year over the past 4 years*. That means on average, these types of retail properties doubled in that time period."

      *this means 18% annualized over four years.

As a point of reference, The Short Hills Mall was assessed in 2001 for $136 million (this assessment goes back before 2001). When the town was reassessed in 2002, the Mall was reassessed for $496 but did not accept that. They won their case and settled for a 2002, 2003, 2004 assessment of $452 million and $445 million for 2005.

Taking the settlement figure of $452 million for 2002 and increasing it by 18% for the next four years it would appear that the assessement for 2006 should be a lot higher than the current rate of $445 million (same figure as 2005). If one were to use the NCREIF figure for the average mall increase of 18% for past four years, that would mean the Short Hills Mall would be valued at closer to $800 million.

Another resident asked if the Township Committee had looked into changing the legal and assessor/appraiser advisors used for the last case. The Mayor said they had not discussed that at this time. That same resident suggested the town seriously consider hiring new experts for the next round of legal action.

The meeting ended by 9:15pm. Now the work begins for the Township Committee.

Many questions about the cancellation
of the 2006 Millburn reassessment were answered
at the Feb. 28th Township Committee meeting.

But these answers lead to other questions.

March 2, 2006 — The Township answered many of the questions WeLoveMillburn.com and other residents have raised at their regularly scheduled Township Committee meeting held Tuesday night, February 28, 2006.

Township Tax Attorney John Lloyd said that he was asked to speak to residents because of new information that came out since the Short Hills Mall tax case settlement. The new information revealed that the Short Hills Mall had received a new mortgage from MetLife for $540 million and received a valuation for a much larger amount than that. This news came after the town had settled for a valuation in 2005 of $445 million.

John Lloyd spent over two hours explaining what a reassessment means, why they suddenly cancelled the 2006 reassessment and some of the details of the recent Short Hill Mall tax case settlement.

John Lloyd, presenting from PowerPoint slides, explained that there is a difference between how a mortgage company values commercial retail property and what NJ taxation law allows for valuation or assessment. Lloyd made it clear that he made a judgment call in his recommendation to settle the case last year. He did so based on what he was hearing from the judge assigned to the trial. The settlement agreement was for one amount for years 2002–2004 and an assessed value of $445 million for 2005. This settlement was made in spite of the Township appraiser reportedly valuing the Mall at $640 million and the owner of the Mall Taubman Center's appraiser valuing the Mall at $374 million.

Attorney Lloyd also reminded the audience of what many may have forgotten. He explained the term "corridor" which applies to both residential and commercial property. It means, he explained, that a tax court cannot give relief unless the party proves that the assessment is 15% or more over the fair value.

But in spite of much information and answers to questions,
new questions come to light.

• If the Township accepted the settlement for years 2002 through 2005 and promised to reassess the total town, meaning residential and commercial, in January of 2006, why the hold up?
  
• Is the Township saying that new information about a new MetLife mortgage and possible large valuation is the only reason for the postponement?
  
• Does this postponement mean that since the 2006 valuation of residential and commercial property was completed by the end of January that the town wants to review their own work?
  
• Did the Township Committee fear that if they got the 2006 Short Hills Mall assessment "wrong" again it would lead to another lengthy court battle?
  
• If the Township cannot get additional information from Taubman Centers, the owner of the Mall, will they go to court to get that information?
  
• Was it unanimous to cancel the 2006 reassessment? How did the five Committee members vote?
  
• Is the Township categorically promising that there will be a reassessment regardless of any further negotiations with The Mall in 2007?

The Township Committee said at the Township meeting that they have not taken any action yet but are still attempting to gather more information. They said they would be meeting in closed-door session after the Township meeting Tuesday night February 28th.

MILLBURN, NJ — Feb. 18, 2006   

The residents and taxpayers of Millburn will want to know the correct facts.

The Mayor and the Township Committee have promised to answer many of the outstanding questions at the next regularly scheduled Township meeting to be held at Town Hall on February 28th.

How does the new Short Hills Mall taxation settlement issue affect not going ahead with the town-wide reassessment?

Is it true that the recently reduced settlement appraisal for The Short Hills Mall is worth considerably less than their new current mortgage of $540 million?

Why did the Township feel they had to settle a four-year tax case reducing the old assessment of $489 million to the new amount of $445 million?

If the Mall tax settlement was agreed to in principle in March of 2005, why did it take until January 6, 2006 to announce it publicly?

After a comprehensive meeting with the Taubman representative, the representative sent a letter summing up their position and allowing any and all portions of that letter to be quoted. Here is a portion of that letter dated February 16, 2006. "It is unfortunate that the apparent confusion regarding the 'value' of the shopping center was created by a brief mention in a mortgage lending publication of our recent financing with MetLife. We have not been able to confirm the accuracy of or source for that story. Regardless of the report's veracity, there are significant differences between the estimated enterprise value used by a bank to determine lending capacity and a municipality's assessment of a real estate property." The letter ends with the Taubman executive writing: "We are proud to be a productive part of your community and look forward to continuing our dialogue."

After a meeting between a representative of WeLoveMillburn and Township officials at City Hall, here is what Mayor Dan Baer had to say about the current situation: “The reassessment has been postponed by the Township for the purpose of obtaining additional information from the Taubman Company and MetLife prior to affixing a value to the Mall at Short Hills. Our ability to place the correct value on the mall property will be in the best interest of the Township in the over reassessment and will result in a move thorough and comprehensive reassessment.”

Millburn Township and owner of the Mall, Taubman Company, went to trial from December 2004 through February 2005 regarding the assessment of The Short Hills Mall. After a portion of the trial, the New Jersey Tax Court judge encouraged both sides to settle.

At the March 15, 2005 closed-door portion of the Township meeting, the township attorney, John Lloyd, was informed that the Township Committee voted to settle the case for the assessment of $445 million (down from $489 million that had been the assessment during the period 2002-2005).

This decision took a long time to get to the Judge and then for the Judge to issue the formal statement from Trenton.

While it may not relate, during the preceding time period, there was a township election for Township Committee members on November 8, 2005. And also during this time the Short Hills Mall requested and was granted the right to add 50,000 square feet of new store area to the already 1,350,000 square foot mall.

It was not until November 14, 2005 that both the Taubman Company attorney and the Township attorney actually signed the settlement papers.

Then it took until December 9, 2005 for the actual agreement document to be issued for the tax year of 2005 and December 16th for a second agreement document for years 2002 through 2004.

The agreement said that the actual monies would not be exchanged until 2006 and then in four checks in February, March, August, November.

According to the Millburn Item January 6th issue, the judgment concerning the settlement was certified by the Tax Court Division of Superior Court in December of 2005.

In spite of all of this activity, it was not until the January 6, 2006 issue of The Millburn Item that a story ran stating that the town had settled a four-year tax appeal with The Short Hills Mall owned by Taubman Company based in Bloomfield Hills, Michigan. The story stated that the 2001 town-wide revaluation had raised the assessment of The Short Hills Mall to $489 million for the tax year 2002 and that The Short Hills Mall owner had disputed the assessment which was when the town entered into the long legal process.

The same issue of the Millburn Item reported that both sides agreed on a new assessment for the Mall setting the 2005 assessed value at $445 million based on an 85 percent ratio of assessed value to fair market value.

Taubman executives state that the actual assessment settlement was: "The first three years of the settlement, 2002, 2003, 2004, was for $452,500,000 and for the tax year 2005 it was $445,000,000."

The Short Hills Mall had been assessed a tax of $9.6 million from 2002-2005 before this agreement. The agreement called for Millburn to lower the assessment for those prior years and to reimburse the Mall $2.9 million in 2006. In the same issue of The Item, Millburn’s former Mayor was quoted saying that he supported the settlement as opposed to litigation because — "The liability was tremendous."

WeLoveMillburn has also discovered a financial guidance report put out by Morgan Stanley Equity Research department dated December 15, 2005. Part of that short report is copied here. "The Short Hills refinancing provides information about TCO's (Taubman) most valuable asset. The new $550MM loan implies an appraised value of $720MM, assuming 75% LTV underwriting (which we believe is normal today)."

On February 1, 2006, the local organization WeLoveMillburn discovered a trade publication dated January 13, 2006 Commercial Mortgage Alert (www.CMAlert.com). That issue stated that The Short Hills Mall owner Taubman Centers had applied for and was approved by MetLife for a new $540 million mortgage based on a valuation of the Mall property of $900 million.

Taubman should now disclose when it began seeking the mortgage and whether or not it was based on a $900 million valuation. Then Millburn can assess whether or not this valuation for a mortgage was being sought at the same time that a different valuation was being used for tax purposes to lower the $489 million assessment.

WeLoveMillburn published the information from the trade publication Commercial Mortgage Alert on their website on February 9, 2006 after attempting to get information from Township officials as to whether or not the reassessment was being postponed. Calls and questions placed to the tax assessor, the tax collector and members of the Township Committee were met with either no response or no comment.

Then, on February 14, 2006, Township attorney John Lloyd sent out a press release that stated in part: "The concomitant impact upon any reassessment tax list for Millburn Township is so significant that the Township believes it is inappropriate to go forward with a reassessment of the entire Township without having a better basis for determining the appropriate assessment on the Mall." The Township attorney said he made this statement based on new information and that they were not sure of the appropriate next steps the town should take.

WeLoveMillburn Inc.
(973) 271 3135
Contact Mike Becker

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