On appeal from a Final State Agency Decision of the New Jersey Housing and Mortgage Finance Agency, Docket No. HFA 12102-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued telephonically October 2, 2008
Before Judges Carchman, R. B. Coleman and Sabatino.
Petitioner, Marineview Housing Co. No. 1 ("Marineview"), the owner of a large, government-financed housing project, appeals from a November 28, 2007 final agency decision of the New Jersey Housing Mortgage and Finance Agency ("HMFA" or "the agency"). The agency substantially reduced Marineview's request for a thirty-three percent rent increase for calendar year 2005. The agency also made certain determinations concerning the project's reserve accounts for repairs and renovations, allocating less to those reserves than the sums that had been sought by Marineview.
Marineview's primary contention on appeal is that, in considering the rent increase application, the HMFA misconstrued a series of mortgage modification agreements governing the project. The agency thereby allegedly deprived Marineview of revenues Marineview had earmarked to pay down its significant debt. Marineview also claims that the HMFA arbitrarily eliminated from its budget various funds that are allegedly needed at this time to make repairs. Additionally, Marineview contends that the agency's decision violated the Takings Clause and was otherwise improper.
Marineview is the owner of Grogan Marineview Plaza, a 432-unit apartment complex in Hoboken. The project was built in the early 1970s. It was subsidized with public financing furnished by the HMFA's statutory predecessor, the New Jersey Housing Finance Agency ("the HFA").
The 1973 MLA and The Agency's Oversight of Rental Increases On May 7, 1973, Marineview and the HMFA entered into a Mortgage Loan Agreement ("MLA"), in which the HMFA agreed to provide financing to Marineview for the development of a moderate-income housing project. Under the terms of the MLA, the agency provided Marineview with a $12,700,000 mortgage, and Marineview became the fee simple owner of land on which it built a twenty-five-story high-rise apartment building. A corresponding Mortgage and Regulatory Agreement of the same date provided that:
(c) [Marineview] shall have the right to charge to and receive from any occupant such amounts as from time to time may be mutually agreed upon between the occupant and the Owner and approved in writing by the [a]gency for any facilities and/or services which may be furnished by the Owner or others to such occupant upon his request, in addition to the facilities and services included in the approved "Rental Schedule or Carrying Charge Schedule."
(d) The [a]gency will at any time entertain a written request for an increase in rentals or carrying charges properly supported by substantiating evidence and with[in] a reasonable time shall:
(1) Approve a schedule that is necessary to compensate for any next increase, occurring since the last approved schedule, in taxes (other than income taxes) and operating and maintenance expenses over which the Owner has no effective control, or;
(2) Deny the increase stating the reasons therefore. [Emphasis added.]
The agency's oversight role over Marineview's rental increases, as contractually specified in the MLA, is consistent with applicable HMFA regulations. See N.J.A.C. 5:80-9.1 to-9.14.
Tenants began to occupy the apartment building in 1975, but the building did not reach full occupancy until 1978. Because Marineview is designated as a "market" project, it is not eligible to receive federal subsidies. Instead, Marineview has relied on periodic rent increases to cover its operating costs. Those rent increases, particularly in the early years of the project, caused tenants to vacate the building and difficulties in obtaining new tenants. The revenue shortfalls, in turn, caused Marineview to default on the MLA. Marineview also defaulted on a separate rental agreement that it had with the Hoboken Parking Authority ("HPA").
Rather than foreclosing on the property when it fell into default, the agency entered into a Mortgage Modification and Settlement Agreement (the "1980 MMSA") with Marineview on April 30, 1980. In effect, the 1980 MMSA allowed Marineview a period of ten years to cure the default.
The 1980 MMSA recited that the outstanding principal balance of the mortgage was then $12,642,328, with $81,382 immediately due and owing at that time. The agreement further stated that Marineview owed an additional $4,007,421, a sum which consisted of the following: $2,066,943 in Construction Period Interest Arrearages; $1,808,186 in Operating Period Interest Arrearages; and $132,292 in mortgage fees and charges. In exchange for agreed-upon future payments from Marineview, as specified in the 1980 MMSA, the agency agreed to treat these defaults as if they had been cured. The agreement also noted that the HPA had agreed to defer collection of its judgment against Marineview in the amount of $192,400.
More specifically, the 1980 MMSA contained nineteen Articles, several of which are pertinent to this appeal and Marineview's present indebtedness. We summarize those relevant provisions as follows.
Article FIRST obligated Marineview to make a $955,000 payment to the agency, applying $81,382 to the principal arrearages and $837,618 to the Operating Period Interest Arrearages. Additionally, Marineview agreed to pay a $200,000 Initial Fixed Payment, to be applied to the Construction Period Interest Arrearages and interest.
Article SECOND stated that Marineview additionally would pay a total of $700,000, in four yearly installments, known as Future Fixed Payments. These amounts were also to be applied to the Construction Period Interest Arrearages.
Article FOURTH stated that Marineview would pay the Adjusted Original Indebtedness, which consists of both the Construction and Operating Period Interest Arrearages, in accordance with a debt service table attached to the agreement. The first 120 payments on the debt service would be treated as Priority Payments.
Article FIFTH provided that if Marineview produced excess cash flow during a year within the ten-year Deferral Period, i.e., the period between May 1, 1980 and April 30, 1990, it would make a Cash Flow Installment Payment. That sum was to be applied to the unpaid balance of Priority Payments.
Article NINTH provided that if the balances of the following items are not paid at the end of the Deferral Period, they shall become due on the maturity date of the First Mortgage in the year 2025: (1) Construction Period Interest Arrearages and interest; (2) Operating Interest Arrearages and interest; (3) any sums due and owing on Mortgage Fees; and (4) all interest that has accrued on an unpaid portion of a Priority Payment.
Article TENTH, a balloon provision, stated that the unpaid balance of Priority Payments, up to a maximum amount of $900,000, shall be deferred and payable with interest on the maturity date of the note. This Article further provided that if the unpaid balance exceeded $900,000, it was to be paid by Marineview as a balloon payment on May 1, 1990.
Article ELEVENTH stated that at the end of the Deferral Period, the monthly payments shall be due from Marineview each month thereafter as set forth in the debt service table. In the event that Marineview did not have adequate cash flow to make such monthly payments, the amount of those payments were to be deferred and payable on the due date of the First Mortgage, up to a sum of $900,000.
Article THIRTEENTH declared that Marineview is not entitled to any Return on Equity ("ROE") during the Deferral Period, unless the Mortgage, Parking Charges, Increased Indebtedness, and ...