Osborn Avenue apartment building could begin leasing this spring, developer says

The investor who took over the company developing the mixed-use building on Osborn Avenue and Court Street — a project stalled by the financial and legal woes of developer Gregory Derosa and G2D Group —hopes to start leasing apartments this spring. Hanover Bank is lined up as an anchor tenant for roughly 2,200 square feet on the ground floor, he said.

Investor-turned-developer John Paci III has been working hard to get the project back on track, cleaning up financial, legal and construction-related messes. 

The site was a hive of activity Monday morning.

“We’re getting very close,” Paci said, as he strode through the hallways and still-barren apartments, where the air was thick with the distinctive aroma of fresh spackle. 

The building will have 24 one-bedroom and 11 two-bedroom apartments. It will also offer three studio apartments, All apartments are market-rate units; the rents are not subsidized by the government.

Project construction manager Ken McAvoy of MacX Construction Corp. was at Paci’s side. They described how they’ve had to piece together what had been completed by G2D, what was left unfinished and why. There were some harsh surprises along the way, like missing electric feeder cables and HVAC duct work. 

“I’m focused on moving forward, not looking back,” he said.

Paci was on site for a meeting with Hanover Bank architects to finalize details of the space. The lease terms are already fully negotiated, he said. 

But the lease won’t be signed until after the Riverhead Industrial Development Agency acts on Paci’s request to extend the company’s sales tax exemption. The sales tax exemption was one of the IDA benefits approved for the project in 2022. The exemption factors into the lease terms, because the bank is calculating its build-out costs, he said.

Paci and attorney Peter Curry of Farrell Fritz asked the Riverhead IDA at its Dec. 16 meeting to extend the sales tax exemption. The exemption was not fully used by the prior developer, they told board members. There is about $500,000 remaining in the sales tax exemption originally approved by the IDA.  

Paci is not seeking to increase the exemption amount to obtain any additional benefits, Curry said.  

Paci also asked the IDA to delay the start of a payment-in-lieu-of-taxes (PILOT) agreement until December 2026. 

The IDA board did not approve the requested extensions at that meeting, saying it needed to assemble and review the updated submission.   

Curry pressed the agency to act quickly.  Board members sought assurance that the request does not increase overall benefits, which could trigger additional procedural steps, and said they needed clarity on which documents constitute the amended application now before taking action. The retirement in November of longtime RIDA Executive Director Tracy Stark complicated the board’s review, board chairman James Farley told the applicant. 

Paci said he is working to refinance and clear title issues tied to the project’s earlier financing, including a defaulted $5 million personal loan made to Derosa by Dime Community Bank, that was partially secured by the project property,  and contractor claims totaling more than $2 million. 

Curry suggested the IDA could hold a special meeting to act sooner than the next regular meeting.  The board chair said the agency needed time to review the amended submission before making any determinations.  

Town officials have said the project at 205 Osborn Avenue is a key part of the Transit-Oriented Development plan for the area around the LIRR station. It was the first project application filed under the overlay district in the area, adopted in 2021, that allows higher density development as an incentive for investment. IDA chair Farley also expressed that sentiment during the meeting. 

The project had a price tag of $19.6 million when it was proposed, which has risen to roughly $24.4 million, with increases attributed to issues involving the prior developer/investment, rising costs, and interest rates, and said some work had to be redone, Curry told the IDA board.

Derosa’s and G2D’s financial and legal troubles extend far beyond the Osborn Avenue project in Riverhead. The company and its principal are defendants in numerous lawsuits in State Supreme Court in both Suffolk and Nassau counties, with claims totaling tens of millions of dollars. Paci himself sued Derosa and G2D, alleging fraud, and in April secured a $5.4 million judgment in default.