Developer Says Deal to Remake Newark High School Hospital Is Canceled
A developer who agreed to turn a former Newark hospital into a high school and lease it to the district said Friday the deal was canceled and it would convert the building to apartments instead.
“The lease sucks,” developer Albert Nigri told NJ Advance Media in a phone interview Friday. “We are transforming the building into a residence.
“The return on our investment would be much greater,” added Nigri, who runs Manhattan-based Summit Assets and is the managing member of its subsidiary, 155 Jefferson Street Urban Renewal LLC, which was developing the former hospital.
The LLC’s name is derived from the address of the former St. James’s Hospital, a 5-story specimen of modern orange-brick architecture that dominates the corner of Jefferson and Elm streets amid smaller townhouses and oldest in the Ironbound section of Newark.
When asked if he informed the district of the decision to call off the deal, Nigri said he believed his partner did.
None of the nine members of Newark’s Board of Education responded to requests for comment. And a district spokeswoman, Nancy Deering, declined to comment on Friday, citing separate tenant litigation and a state labor complaint against Nigri.
Nigri and board chair Dawn Haynes signed a lease agreement in December calling for her company to reconfigure the hospital with classrooms and other educational spaces, offices, a gym and a auditorium, in time for occupancy by September 2023.
A press release issued following an unannounced ribbon-cutting ceremony in May quoted Superintendent of Schools Roger Leόn as saying the facility would be known as Newark High School of Architecture & Interior Design. He said he would offer courses in real estate, architecture, engineering, interior design, electrical systems, heating and ventilation, plumbing and other building trades.
The school would admit one new class per year from its inaugural freshman class and build a 9- to 12-year-old high school by 2026. But the project has been beset by legal and other issues.
In May, the project was the subject of a lawsuit filed with the state alleging that the developer had violated New Jersey law by not paying school project workers the prevailing wage in the area, a rate hours comparable to union pay than the state labor commissioner sets for non-union jobs.
The lawsuit was filed by Local 3 of the Workers’ International Union of North America, or LiUNA, whose attorney noted the irony of the situation in light of the school’s planned curriculum.
Tom Wright, a Labor Department spokesman, confirmed there was “an open investigation” but declined to elaborate. Nigri denied the underpaid workers, insisting that the current wage law did not apply to the project because the school district did not occupy the building and it remained a private enterprise.
In addition to the wage complaint, the owner of Olshin Pharmacy, which leases a small building on hospital property, has a temporary restraining order against 155 Jefferson LLP granted by the state Superior Court judge. This after Olshin’s landlord claimed the company tried to force her out of the space when she had 34 years left on her lease.
Nigri countered that the pharmacy violated the terms of its lease, among other things, by making unauthorized changes to the property.
He said he was withdrawing from the agreement with the district when contacted by the NJAM to explain the terms of the lease.
Among its provisions, the lease directs 155 Jefferson LLC to spend no more than $78 million to renovate the building, an investment the company would recoup from the neighborhood with an “ROI,” or return on investment, of 8 percent. in the form of payments over a period of 20 years.
Lease payments would start at $6.2 million for the first year of the agreement, paid in monthly installments, and automatically increase by 1.5% per year to reach $8.3 million in its 20th year.
After the first 20 years, the district would have the option to extend the lease twice, for an additional five years each, under similar monetary terms.
In total, the 20 years of payments would total $144 million, or $67 million more than the cost of renovating the building. Of course, inflation would devour much of the value of this apparent profit. At first glance, at least, the difference would represent an 85% return, more than 10 times the 8% rate specified in the lease, over the 20-year term.
Asked to reconcile the numbers, Nigri seemed to acknowledge the apparent inconsistency of these or other terms of the lease.
“The numbers don’t make sense,” he said.
But he moved on before elaborating, declaring the lease void, its terms moot and the school development agreement dismissed.
People familiar with school construction say the arrangement is not unheard of for traditional public school buildings and is common among charter schools, which receive per-student operating funds from the state but no money for construction.
Carter Schools in New Jersey receives per-student operating funds from the state, but no money for buildings. So a lease provides space without requiring a large amount of cash or upfront credit as building a school, said David Malansky, CEO of Civic Builders, a Manhattan-based nonprofit that funds charter building projects.
A district seeking to build a regular public school will typically seek voter approval to issue bonds to pay for the project, which are repaid through a school tax increase. A lack of binding capacity or a desire to avoid a referendum are other reasons a district might choose a lease, Malansky said.
Another potential funding source is the State Schools Development Authority, or SDA, a state agency that provides low-interest loans to 31 largely poor urban school districts. However, the SDA has been virtually insolvent in recent years, and it was only last month that state lawmakers approved a $1.5 billion cash injection for the agency.
David Sciarra, executive director of the Education Law Center in Newark, which advocates for the state’s urban districts, said the High School of Architecture & Interior Design should be approved by the state’s education commissioner regardless of or how the school was developed.
Sciarra noted that a resolution approved by the Newark School Board directed district officials to seek the school’s approval from the commissioner. However, he did not know if the approval had been granted.
A spokesman for the Ministry of Education could not immediately say whether the school had been approved.
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Steve Strunsky can be reached at [email protected]