iStar files $100M lawsuit against Long Beach

Superblock developer: City failed to support tax breaks, variance


A year after the developer of the Superblock property, iStar Financial, threatened to sue the city for more than $100 million, the Manhattan-based firm filed a lawsuit Wednesday in Nassau County State Supreme Court, claiming that the city reneged on an agreement in which it would support tax breaks the developer is seeking from the Nassau County Industrial Development Agency.

In its suit, iStar claimed that the city breached its contractual obligations as part of an agreement both parties reached in 2014.

Last year, the city told residents at a heated meeting at City Hall that iStar — which is looking to build two 15-story luxury apartment towers and retail space along the boardwalk — would take legal action against the city if it did not submit a letter to the IDA supporting the developer’s request for a 20-year, $82 million payment in lieu of taxes, or PILOT, program.

Though iStar claimed that the project would generate millions of dollars’ worth of economic activity and tax revenue, the IDA rejected two previous requests for tax abatements, including a $109 million proposal in 2016, amid an outcry from former U.S. Sen. Al D’Amato and many residents who maintain that the city would lose out on the full tax benefits of the development.

iStar filed its lawsuit amid a fiscal crisis in the city that could lead to service cuts and layoffs. The city is also facing a separate $50 million legal judgment that many say could potentially lead to bankruptcy.

“It is with a great deal of reluctance that iStar filed this suit today,” said iStar Executive Vice President Karl Frey. “For nearly a decade, we’ve worked closely with the City of Long Beach to create a development plan that would be both economically viable and provide extraordinary benefits to the city and its residents. We can say with certainty that if the city had honored its obligations, this project would be well underway to completion, there would be no concerns about the project’s economic viability, and the city’s financial situation would be significantly improved.”

On April 10, the city’s Zoning Board of Appeals held a court-ordered public hearing to determine whether a building permit and variance granted to the developer were still valid and should be extended, four years after the board approved a variance for the buildings. The zoning board is expected to make a decision next week.

“IStar has been clear in its view that the project would be economically inviable if either the PILOT agreement could not be secured or the zoning variance not renewed,” iStar said in a news release. “The city obligated itself to use its best efforts in support of the PILOT, to cooperate with iStar in obtaining the variance and to join with iStar in defending against any challenges to the zoning variance once in place. The city failed to keep any of those promises, repeatedly breaching its binding contracts with iStar.”

In the complaint, the developer argued that comments made by “multiple” city officials opposing the PILOT application undermined the project. The developer specifically called out City Council President Anthony Eramo, claiming that on his campaign website, he said he believes “private developers should pay their fair share of taxes,” and that he “does not support, and “has never supported, giving our tax dollars to any development.”

Eramo said he was unable to comment because the city had yet to be served with the suit. The city also declined to comment.

County Legislator Denise Ford, one of the more vocal opponents against the developer’s request for tax breaks, disagreed that the city had not shown support for the project.

“I think they’re wrong in doing this to spite the city,” she said of iStar. “I thought our city representatives went above and beyond to push this project forward — and I was at odds with them. I thought they were a little too in favor of the project.”

In 2014, the City Council voted to settle the city’s lawsuit against iStar for $5.25 million, the terms of which included the city’s support for a PILOT, albeit for an unspecified term.

In 2014, the zoning board gave the developer approval to move forward with the project. Representatives of iStar said at the time that the project would generate $4.8 million per year in property tax revenue for the city and its school district, and told trustees and residents that it had the financial wherewithal to fund the project.

The council voted to approve a community host agreement in 2015, which reaffirmed its support for the tax abatement. As part of that deal, iStar agreed to pay the city $4.1 million to mitigate the project’s impact. City officials faced harsh criticism, however, when residents learned about the developer’s initial request for a 25-year tax break. Officials and council members had declined to speak for or against both tax abatement proposals, citing potential litigation.

“City officials expressly acknowledged that the company’s receipt of the PILOT was ‘crucial to the successful development of the [Superblock] project,’ and that iStar would not have agreed to undertake the development on the agreed-upon terms absent ‘the unequivocal support of the city’ in connection with the PILOT,” the firm said.

Officials have long argued that the settlement ended years of costly litigation and paved the way for the developer to seek zoning board approval, which they said had the authority to approve the project. Officials also said that it was up to the IDA to decide whether the developer should be granted a PILOT.

But in its complaint, iStar said that the city had agreed to support both the zoning board application for the variance — and defend any challenges against it — as well as the developer’s request for tax breaks from the IDA.

“The city’s express agreement to support the project was a critical inducement to the company’s execution of the settlement agreement, without which it never would have agreed to pay $5 million to the city,” the complaint states.

“Though the Nassau County IDA was prepared to approve iStar’s PILOT application upon receiving notice of the city’s support, the city willfully breached its contractual obligations in failing to indicate support for the PILOT,” iStar said in a statement. “The project cannot move forward without that support.”

Last year, former IDA Executive Director Joe Kearney told Newsday that while a local municipality’s support for a PILOT was helpful, it was not a deciding factor. A spokesman for iStar said that the developer has yet to submit a third PILOT application.

Critics contend that the developer delayed the project after it began pursuing tax breaks. Last year, a group of Long Beach residents, represented by D’Amato, filed a lawsuit against the zoning board in an attempt to overturn a variance and permit it issued the developer.

That suit sought to revoke a building permit, for work on the foundation, issued to Shore Road Long Beach Superblock LLC, a subsidiary of iStar, in May 2015, which the suit claimed was invalid because the variance had expired. The suit also claimed that iStar would have to go before the zoning board to obtain a new variance.

In its complaint, iStar claims that the city also did not provide support against that litigation and “has not assisted in defending the variance.” The developer claimed the city’s attorneys sided with the third party opposed to the variance and that "local elected officials spoke out publicly in opposition to the variance."

“The city blatantly failed and refused to support or defend the continuing validity of the zoning entitlements at [the April 10 hearing] in flagrant breach of the settlement agreement,” iStar said in its complaint.