Should buyer in $40 million Calverton land deal be required to submit financials? Board members disagree

A fundamental split dividing the Riverhead Town Board along party lines broke wide open in full public view this morning: How much financial disclosure should be required of the company that wants to buy and develop the Calverton Enterprise Park?

The town asked Triple Five Group for its financial statements but  the family-owned conglomerate declined to provide them.

Instead, the company’s attorney submitted an April 11 letter from GrantThornton, a large Edmonton, Alberta public accounting firm, stating that Triple Five had the $40 million required to buy the Calverton property as of March 9. The attorney also submitted documentation of an $800 million municipal bond authorization to partly finance the construction of Triple Five’s American Dream mega-mall in East Rutherford, New Jersey,  as well as a letter confirming an A rating for the Triple Five affiliate that owns the West Edmonton Mall.

James Catterson of the NYC law firm Arnold and Porter said the accountant’s letter, bond authorization and rating letter constitute “proof of more than sufficient financial resources.”

Riverhead officials on both sides of the debate say the town’s outside counsel — Frank Isler and Michael Heller — have advised them they can move forward with the sale without seeing financial statements, relying on the documents provided by Catterson.

A partisan divide?

Supervisor Laura Jens-Smith and Councilwoman Catherine Kent argue that the existing rules and procedures for designating a buyer as a “qualified and eligible sponsor” for purposes of the state law governing a no-bid sale of town land in an urban renewal zone require the financial statements.

They say if the town is going to accept any other type of proof, the rules should be amended to clearly authorize it.

The board majority — Councilman James Wooten, Councilwoman Jodi Giglio and Deputy Supervisor Tim Hubbard — say no rule change is needed, as per lawyers Isler and Heller.

The rule at issue reads:

The CDA shall ascertain whether the applicant is “qualified and eligible” pursuant to Section 507 (2) (c) of Article 15 of New York State General Municipal Law and in accordance with the following criteria:
…

b. demonstrated ability to finance the acquisition and development of specific project proposed including the review by the CDA pro forma financial statements for the proposed project, including sources and uses of funds, certified personal and corporate financial statements of the applicant sponsor, financial commitments of participating lenders, proposed security for the project, business plans and economic analysis of the project and past compliance with municipal laws, rules and regulations.

Sharp disagreement and a heated debate

Discussion grew heated today when the supervisor offered a resolution to amend paragraph (b) to add language that specifically authorizes the board to accept “such documentation as it deems appropriate under the particular circumstances of the application before it.”

The board majority pushed back against her proposal, arguing that it is unnecessary and suggesting Jens-Smith and Kent were merely seeking to delay consummating the deal with Triple Five.

Hubbard became animated as he objected to the proposed amendment.

“I’m concernd this is just another tactic to muck up and delay,” he said. “We’ve been told time and again that how it’s set up is proper. I don’t think we need to delay and muck it up again. I do not support this.”

Giglio objected to the resolution even being put forward for a vote.

“You have asked our outside counsel every way you can to get the answer you want,” Giglio told the supervisor. “You’ve asked five different ways till Sunday. Counsel says it can be put in the resolution of the determination. It’s not a requirement to do it this way,” Giglio said. “The rules allow the board discretion to detmerine if what has been submitted is sufficient.”

“The rule – paragraph B — requires the financials,” Jens-Smith countered.

“No. You’re reading it wrong,” Giglio answered.

“That’s exactly what it says,” the supervisor shot back.

“You’re changing the rules of the game in the middle of the game and asking for litigation,” Giglio said.

Wooten and Hubbard both said that a private company can’t be held to the same rules as a public company.

“The rules are different for them,” Hubbard said. “They are not required to present pro forma financial statements. This is totally allowed and totally legit and totally legal,” he said.

“This to me is just throwing another cog in the works and not needed — and that’s what our attorneys have told us,” Hubbard said.

Riverhead Town financial administrator William Rothaar, who serves as the chief financial officer of the Community Development Agency, said a pro forma financial statement contains the company’s projection of how much money it will require to develop the property. “It’s a go-forward statement,” said Rothaar, a CPA. “That was not in any information I received.”

“They don’t know how much its going to cost until they know where it’s going,” Giglio argued.

Jens-Smith said the company, when it signed off on the purchase agreement, represented that it can perform the actions in the intended development plan. The town should require documentation of that before finding the company qualified and eligible, she said.

Looking at past practice for clues

The Riverhad Town Board sits as the governing body of the Community Development Agency, which holds title to the Calverton Enterprise Park land. The outgoing board at the last meeting of 2017 approved an agreement to sell 1,643 acres of undeveloped land — including the site’s two runways — to Calverton Aviation and Technology, a newly formed limited-liability company owned by two other limited-liability companies: a Triple Five affiliate and Luminati Aerospace.

The agreement is subject to the town board determining that the buyer is a “qualified and eligible sponsor” pursuant to the state General Municipal Law. The “qualified and eligible” determination allows the community development agency to convey land in a designated urban renewal zone without an appraisal and without a public bid. The state statute requires the municipality to make that determination in accordance with its own adopted rules.

Until last June, Riverhead’s Q&E rules — adopted in 2004 — incorporated the Riverhead Development Corporation, a local development corporation formed by the town in 1996 and dissolved a decade later. The purpose of the RDC, whose members were appointed by the town board, was to vett prospective buyers and tenants for the EPCAL site and make recommendations to the town board. The RDC was intended to remove “politics” from the process.

The rules in place until last year also incorporated the “RDC Calverton Proposal Review Policy.” The policy explicitly required detailed financial disclosure.

“The RDC shall before consideration of [a] proposal shall require submission of …evidence of financial capability to acquire the property and develop the site as proposed. A sources and uses of funds proforma must be provided,” the policy stated. “Personal and/or corporate financial statements must be provided. LLP and LLC structures will be considered only with appropriate guarantees by the principals.”

When the town board in June 2017 revised the Q&E rules to eliminate references to the RDC, the review policy was eliminated as well.

In the 22 years since Riverhead officials began considering proposals for the EPCAL site — which actually predated the town’s ownership of the property — the sponsors of all major proposals that have come before the town board have been required to submit financial records, including Burman, who purchased the industrial core at the site, and Rechler Equities, Wilpon and Riverhead Resorts, who each sought to purchase several hundred acres of undeveloped land.

The history of the site is replete with proposals that didn’t get past the RDC for consideration by the town board precisely because the sponsors either failed to submit the financial record required by the RDC or submitted records that did not satisfy the RDC board: Northeast Motorcross, Utopia Studios, Project Calverton, Camelot Realty and Calverton Studios, to name a few.

“When the RDC and its reveiw policy were removed, it becme even more incumbent on the town board to do the investigation,” Jens-Smith said in a phone interview today after the meeting.

Jens-Smith said she intends to put forth her proposed resolution amending the rules to specifically allow the board the discretion to forego requiring financial records. That would force the majority to vote against a provision that spells out the very course of action they’re looking to take.

“These are the things we need to be able to see in order to make the determination,” the supervisor said. “These aren’t delay tactics. These are questions that need to be answered.”