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In re Tax Credit Application of Pennrose Properties

January 15, 2002


Before Judges Wefing, Lesemann and Parrillo.

The opinion of the court was delivered by: Lesemann, J.A.D.


Submitted October 23, 2001

Eastampton Center, L.L.C. (ECLLC), a developer in the Township of Eastampton ("Eastampton" or "the Township"), appeals from a decision of the New Jersey Housing and Mortgage Finance Agency (HMFA) which awarded Pennrose Properties, Inc. (Pennrose), another developer in Eastampton, over $1,000,000 in low income housing tax credits to facilitate construction of a 100 unit rental townhouse complex for low income families. Construction of the project by Pennrose would satisfy Eastampton's Mount Laurel *fn1 obligation respecting construction of affordable housing.

ECLLC is, in a sense, a competitor of Pennrose. It is pursuing its own development within Eastampton, a 577 unit "inclusionary development" which involves some low income housing that would also satisfy the Township's Mount Laurel obligation. ECLLC does not claim that it should have received the tax credits awarded to Pennrose. Indeed, ECLLC did not apply for those tax credits, but rather maintains that it is, in essence, simply protecting the public interest by protesting a decision which it claims violates the HMFA's own regulations.*fn2 Those regulations prohibit a developer's receiving a tax credit benefit if it has also received a "density bonus subsidy." ECLLC maintains that Pennrose did receive such a density bonus subsidy and is thus ineligible for the second subsidy benefit — tax credits. Pennrose maintains that it received no such density bonus subsidy and also argues that ECLLC has no standing to maintain this appeal. While we find that the standing issue is certainly debatable, we prefer, given the public interest in a matter such as this, to resolve the issue on its substantive merits. On that basis, we are satisfied that ECLLC has not met the heavy burden placed on one seeking to overturn the decision of an administrative agency such as HMFA and, accordingly, we affirm.

Although the detailed interplay of the land use transactions, conveyances, court determinations and Mount Laurel requirements in this case are complex, the significant facts of the matter, stripped to their essentials, are relatively uncomplicated. In 1985, Toll Brothers, Inc., which owned a 310 acre tract of land in Eastampton, was engaged in Mount Laurel litigation with the Township. That litigation was resolved by a consent order entered on June 18, 1985, which granted Toll Brothers the right to construct 900 housing units on those 310 acres, with 180 of the units to be "affordable housing," designed to meet the Township's Mount Laurel obligation.

In 1986, Toll Brothers conveyed its 310 acres to an entity known as Land Bank Associates (Land Bank). At the same time, Land Bank acquired two contiguous lots known as Lots 2 and 4 in Block 300 on the Township's tax map. Those two lots comprised approximately seventy acres and had not been included in the original 310 acres owned by Toll Brothers at the time of the 1985 judgment, nor had they been covered by or mentioned in that judgment.

In May 1988, pursuant to an application by Land Bank, the Law Division judge who was supervising the Eastampton Mount Laurel litigation, entered a new consent order which added the seventy acres represented by Lots 2 and 4 in Block 300, to the 310 acres covered by the 1985 order. That order also reduced the Township's Mount Laurel "fair share obligation," reduced the aforesaid 900 units of proposed construction to 350 units, and extended the period of protection and repose to which the Township was entitled under the 1985 settlement of the Mount Laurel litigation.*fn3

In 1994, Land Bank filed a bankruptcy petition and on January 13, 1998, its property was acquired, through the United States Bankruptcy Court, by Rancocas Investments, L.L.C. (Rancocas). On January 27, 1999, Eastampton, Rancocas and Pennrose entered into a Developer's Agreement respecting the property originally owned by Toll Brothers (310 acres) plus the additional seventy acres (Lots 2 and 4 in Block 300) which Land Bank acquired elsewhere at the time it bought from Toll Brothers.*fn4 The Agreement provided that the overall tract owned by Rancocas would be re-subdivided to carve off a 25.85 acre portion, consisting of parts of Lots 2 and 12, upon which Pennrose would construct 100 units of affordable housing. The parties acknowledged that Pennrose intended to apply for low income housing tax credits to facilitate that construction. The Agreement specifically noted that "Block 300, Lot 2 was not previously a part of the affordable housing zoning relief entered by the Court as part of the Toll litigation" (the 1985 consent order) [and], "As such, the parties acknowledge that Block 300, Lot 2 was not provided with a 'bonus density' as a result of Toll's builder's remedy suit and is entitled to receive 9% tax credits from HMFA." To accomplish the foregoing, the Agreement provided that Rancocas would convey the 25.85 acre parcel to the Township and the Township would then reconvey the parcel to Pennrose.*fn5

The Developer's Agreement also provided that Pennrose would not construct any housing units on the remainder of its property — constituting approximately 342 acres — although it could use that remaining property for "non-residential, wetlands mitigation, conservation, recreational, or other uses" set out on a list of permitted uses, most of which involved some form of commercial enterprise.*fn6

The low income housing tax credit (the tax credit) is a federal program which provides a credit against federal income taxes. It is available to owners of rental properties who agree to lease the property to low income tenants. Although it is a federal program, it is administered by the states, with each state being provided a defined annual dollar amount of tax credits which it may allocate for housing projects within its borders. In New Jersey, pursuant to N.J.A.C. 5:80-33.1, the HMFA is the agency which administers the program.

As noted, the amount of tax credit which a state has available is limited. The program is popular and desirable for developers of low income housing and there is competition for the limited number of awards available. For the year 1999, the HMFA was able to grant only approximately one out of every four applications received. For the year 2000, New Jersey was allocated $10,143,763 in tax credits. The HMFA received 29 applications requesting total credits of $15,536,137, and was able to grant fifteen of the twenty-nine requests. The agency described the year 2000 as "sort of a low" year, but said it anticipated that 2001 would be more competitive, and that in 2001, it would probably be able to grant only one out of every four or five applications received.

Presumably, at least in part because of the limited resources available, regulations adopted by the HMFA provide that tax credits are not available to a developer who has already received another form of incentive for subsidized housing — a density bonus subsidy. N.J.A.C. 5:80-33.2 defines density bonus subsidy as "an economic benefit for low and moderate-income housing resulting from a zoning change that increases permitted density." And N.J.A.C. 5:80- 33.13(a) embodies the prohibition against double subsidies, reading as follows:

If a municipality has created a density bonus subsidy to assist the low or moderate income units in a project, the project may not compete for tax credits (ceiling tax credits). This subsection shall not be evaded by failing to apply all or any portion of the subsidy to the low or moderate-income units, by diverting all or any portion of the subsidy to other uses or by using any other ...

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