Facing criticism over how they’re going about the massive land deal with Luminati Aerospace, Riverhead Town officials will seek additional outside help vetting the prospective purchaser, with which the town has signed a letter of intent for a $40 million cash sale of 1,400 acres inside the Calverton Enterprise Park.
In prior land transactions, Riverhead Town has relied on the Riverhead law firm of Smith, Finkelstein, Lundberg, Yakaboski and Isler to negotiate contracts and oversee the process by which prospective purchasers are determined to be “qualified and eligible” as required by state law for the sale of municipal land in an urban renewal zone.
This time around, the town is going to bring in additional consultants to help with the “qualified and eligible” process.
Councilman Tim Hubbard said he’s been urging fellow town board members to hire a different lawyer to handle the contract — and the vetting.
“I love Frank Isler,” Hubbard said, “but this isn’t something he does on an everyday basis. There’s so much to investigate,” he said.
“Who are his financial backers?” Hubbard asked, referring to Luminati CEO Daniel Preston. Their identities have not been disclosed to council members, he said. “What would they want to do with the site if Luminati can’t perform? The investors will end up owning it. We need answers to these questions.”
Hubbard said he’s heard that Luminati has “a formidable investment firm” behind it. “But I’m not sure if it’s the head of the firm or the firm itself. We haven’t seen proof at this point,” he said. He said the board has not seen any documentation to back up Luminati’s claims about contracts with defense contractors or Dupont.
“Maybe Sean [Walter] has, but not the rest of the board. That’s the problem. Everything has gone through Sean up to this point,” Hubbard said. “I’m not going to vote on something if I haven’t seen everything myself and if I’m not satisfied that the buyer has been properly vetted.”
“I don’t want to be part of an EPCAL blunder,” the councilman said.
Hubbard was exasperated that Walter went on vacation just as the negotiations with Luminati were getting under way.
“He picked the worst time to be away for 12 days,” the councilman said Sunday. The two had spoken on the phone, he said. “He is not happy with me,” Hubbard said. “But it doesn’t matter. This is too important.”
Supervisor Sean Walter, who returned home from vacation on Saturday, was indeed unhappy with Hubbard’s public dissent and his plan to force a vote on a new lawyer.
“It seems inappropriate,” Walter, who has been an outspoken supporter of Luminati Aerospace, said in a phone interview Monday morning. “It almost seems political.”
Though all five members of the town board are Republicans, Walter lost the party’s support in the last election, when Giglio ran for supervisor. Walter lost a primary election and then won in November on the Conservative line in a three-way race. He is seeking re-election to a fifth two-year term this year. So far, no Republican has come forward to challenge him for the nomination. The party nominating convention is usually held in late May. Democrat Laura Jens-Smith of Laurel — who ran for council in 2015 but lost to incumbent Councilman James Wooten and Hubbard — declared her candidacy for supervisor in January. She has been a critic of the proposed Luminati sale and the town’s vetting process overall.
Hubbard said he wasn’t afraid of being accused of siding with “the opposition” on the Luminati sale.
“You can’t not take an idea from somebody just because they’re from the other side of the political coin,” he said. “A good idea is a good idea no matter who comes up with it.”
The supervisor said he is dead set against replacing Isler, who he said has the qualifications and experience to handle the transaction.
“There’s no denying Luminati is a startup,” Walter said. “How do you vett a startup? Facebook was a startup. Google at one point was a startup.” Luminati has already made a significant investment in the Town of Riverhead, he said.
The town would get documentation from Luminati of its existing contracts and would meet with Luminati’s financial backers, he said.
“I have the utmost confidence and faith in Frank Isler and Smith Finkelstein,” Walter said. “They negotiated the Rechler contract. They negotiated the Riverhead Resorts contract – they got $8 million for the town [in option fees due under the contract]. They’ve been involved in the subdivision process.”
Later on Monday, Walter and Hubbard had a face-to-face meeting and both said afterward they agreed the town should seek more professional assistance with the transaction.
“I don’t know what kind of firm it would be,” Walter said.
“Maybe a private investigator, maybe a forensic accountant — or both,” Hubbard said.
The supervisor said he and Hubbard are now “on the same page.”
Hubbard, who was ready to push forward to hire a new law firm, with or without the supervisor’s support — he said yesterday he had three votes with the support of Councilwoman Jodi Giglio and Councilman John Dunleavy — was satisfied that the board would be moving in the right direction with the review.
“Nobody wants to sell that property more than me,” Hubbard said. “But it has to be done the right way and the buyer has to be vetted thoroughly. We can’t afford another ski mountain fiasco,” he said, referring to the $155 million Riverhead Resorts deal signed by former supervisor Phil Cardinale in 2008.
Riverhead Resorts, a joint venture of Bayrock Group, owned by Russian expatriate Tevfik Arif and Baldragon Homes, owned by Scot John Niven, said it would build eight theme parks, including an indoor ski mountain, at EPCAL. The controversial — and much-ridiculed — deal was canceled by the town in November 2010, after the buyer failed to meet contract deadlines for two past-due extension payments. By then, Riverhead Resorts had paid the town $7 million under the contract.
“This has to be the real deal,” Hubbard said.
A brief history of the Enterprise Park at Calverton
The Enterprise Park at Calverton was once the home of Grumman Aerospace Corp., which beginning in the early 1950s manufactured, assembled and tested military aircraft on a 2,900-acre site owned by the U.S. Navy. When Grumman moved out of the facility in 1996, Riverhead lost 3,000 jobs and $1 million a year in real estate tax revenues (technically payments in lieu of taxes, known as PILOT payments, because the land was government-owned and tax exempt.)
Legislation authorizing the transfer of the site to the town was passed by Congress in 1994, after word of the impending closure was made public. The Navy deeded the site to the town in 1998, after the town had developed a reuse plan required by the federal government as a condition of transfer.
The town sold the 491-acre “industrial core” of the site to developer Jan Burman for $17 million in 2001. Since then it has struggled with the redevelopment of the remaining mostly vacant land, much of which was zoned for recreational and entertainment uses pursuant to a reuse plan adopted by the town in 1996.
After the deal with Riverhead Resorts died in late 2010, the town in 2011 began working on updating the reuse plan and subdividing its land inside the enterprise park. Town officials say their planning consultants and attorneys have spent much of the last five years negotiating with the State Department of Environmental Conservation about environmentally sensitive lands to be preserved inside the enterprise. The subdivision map — which the town planning board has not yet approved — was drawn with the input and assistance of the DEC, according to the town. The DEC does not have jurisdiction over the subdivision itself, but must sign off on various permits required to move forward — including an “incidental take” permit required under new state regulations that went into effect in 2010 aimed at protecting species listed by the state as threatened or endangered.
Town officials say the their negotiations with the DEC left the town with about 600 “developable” acres.
The town board adopted new zoning for the site in 2016. The zoning contains a controversial “supportive use”: up to 300 residences. The zoning code requires any residential use to be “supportive” of an as-of-right commercial or industrial use; the residences must be attached dwelling units and must be on the same lot as the commercial or industrial use. Community opposition to the housing component of the zoning has recently rekindled with the formation of a coalition of civic groups dubbed the “Coalition Against EPCAL Housing,” which is asking the town to change the planned industrial park zoning to remove housing as a use and to take other measures, such as filing covenants and restrictions, to prevent housing from ever being built at EPCAL.
How Luminati changed the town’s course
Luminati Aerospace, which bought the Skydive Long Island site in 2015, and is leasing a large space in Plant Six, has offered the town $40 million for most of the town’s remaining acreage at EPCAL, including the two runways. The total acreage to be sold — about 1,400 acres, according to the supervisor — would include more than 700 acres that the state DEC won’t allow to be developed. The town would retain ownership of the Pfeiffer Community Center and land around it — which it hopes to redevelop as an animal shelter — the municipal recreation facilities and parklands and the Calverton Sewer District property, including the sewage treatment plant.
Walter said if the site were to be sold to Luminati, the town would no longer pursue its subdivision plan. Luminati would seek a two-lot subdivision of the land it hopes to purchase, he said. The supervisor said he expects no objection from the state DEC to the two-lot subdivision and expects the agency will approve an “incidental take” permit.
Riverhead Town and Luminati’s letter of intent — signed by the supervisor on April 10 — requires the parties to begin negotiating a binding “definitive agreement” for the sale of the site and agree to the terms of the definitive agreement “in principle” within 30 days. If the parties can’t agree on the terms within 30 days, either side may cancel the letter of intent.
Once the parties agree to the terms of the definitive agreement “in principle,” the town will schedule a public hearing for the purpose of determining whether Luminati is a “qualified and eligible sponsor” under governing state law. If the town board determines Luminati is a “qualified and eligible sponsor” the parties will sign the definitive agreement within 10 days after the “qualified and eligible sponsor” determination is made by the town. If the town determines Luminati is not a “qualified and eligible sponsor” the letter of intent is terminated.
What is a ‘qualified and eligible sponsor’?
The “qualified and eligible sponsor” determination is required by the N.Y. General Municipal Law when any urban renewal agency sells or leases real property. The Riverhead Community Development Agency holds title to the EPCAL site, which is a designated urban renewal area. The town board sits as the board of the CDA.
The town in May 2004 adopted rules for determining whether an entity seeking to buy or lease land at EPCAL is a “qualified and eligible sponsor” for purposes of the General Municipal Law.
The rules set forth criteria for making the determination:
- experience of the individual, firm or corporation with development, construction, management and financing of similar projects in size and scope to the proposed project;
- demonstrated ability to finance the acquisition and development of the specific project proposed, including a review by the CDA of the applicant’s certified personal and corporate financial statements, proposed sources of funds, financial commitments from lenders, proposed security, business plans and economic analysis and past compliance with municipal laws, rules and regulations;
- demonstrated integrity and responsibility of the applicant based upon appropriate investigation by the town attorney; and
- a presentation by the applicant at a public hearing called to determine if the applicant is a “qualified and eligible sponsor”.
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