Bondholders tied to the American Dream megamall are accusing its owners and a North Jersey borough of playing valuation games that torpedoed the collateral behind roughly $800 million in municipal debt.
In a lawsuit filed in Bergen County chancery court, U.S. Bank Trust, acting as trustee for bondholders led by Nuveen, alleged that the Borough of East Rutherford and mall owner Triple Five Group colluded to slash the assessed value of the 3.5 million-square-foot retail and entertainment complex, according to Bloomberg. The cuts, bondholders say, have left annual payments covering less than half of the interest owed on the bonds.
At the center of the dispute is American Dream’s assessment, which dropped sharply over the past year.
After carrying a valuation between roughly $2.6 billion and $3.3 billion from 2019 through 2024, the borough lowered the figure last year to $2.5 billion. A New Jersey tax court judge then reduced it again, to about $1.65 billion. Because bond payments are tied to the mall’s assessed value, the reductions flowed directly through to investors.
The bonds are backed by payments in lieu of taxes, or PILOTs, a structure frequently used in New Jersey to finance large developments. American Dream’s PILOT bonds were part of a $1.1 billion tax-exempt financing package that helped bankroll the long-delayed mall, which includes an indoor ski slope, water park and amusement park adjacent to MetLife Stadium.
Bondholders claim the process behind the new valuation was anything but neutral. American Dream pressured East Rutherford to replace its longtime appraiser with a less experienced firm that produced a “dramatically reduced” appraisal, according to the bondholders. The borough and the mall’s owners then ensured the valuation lacked sufficient data to withstand scrutiny in tax court, the suit alleges.
The incentives, bondholders argue, were skewed from the start. East Rutherford receives its share of the PILOT payments before bondholders, regardless of the mall’s valuation, insulating the town from the downside.
The American Dream mall, meanwhile, benefits directly from a lower assessment through reduced payments, according to the suit.
Nuveen holds nearly 90 percent of the outstanding PILOT bonds, amplifying the stakes of the case for the municipal market.
A spokesman for American Dream did not immediately respond to a request for comment from The Real Deal and East Rutherford officials also did not respond to Bloomberg.
— Holden Walter-Warner
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