Judge Chops American Dream Valuation By $850M

9 minutes read

Municipal bondholders in New Jersey’s American Dream Mall are running out of runway.

A state tax judge last week slashed the megamall’s assessed value by $850 million, bringing it to $1.65 billion for the current tax year. That’s down about $800 million from what the Borough of East Rutherford pegged it at earlier this year and nearly $1.7 billion less than the property’s previous appraisal, according to Bloomberg.

The reduction is the latest blow to bondholders carrying $800 million in debt backed by PILOTs — payments in lieu of taxes — meant to fund the mall’s development. At the latest assessed value, annual payments on those are expected to drop to just $24 million, far short of the $54 million needed to service the debt.

The cut comes months after East Rutherford had already lowered the mall’s value by $800 million to $2.5 billion, a move that had dropped PILOT payments to $36.5 million, already insufficient to cover interest due. The bond trustee had to dip into reserves last year and with just $38 million left as of December, the math isn’t in investors’ favor.

Owner Triple Five Group has appealed tax assessments going back to 2019, citing the pandemic’s drag on performance. Its lawyers argued East Rutherford’s appraisals were inflated by flawed methodology and unfair comps. They claimed American Dream had been valued higher than a batch of top-tier malls and even Six Flags Great Adventure combined.

Bondholders are exposed to valuation cuts and structural quirks in PILOT financing. The bonds don’t technically default if payments fall short. Instead, balloon maturities originally scheduled from 2027 to 2050 can be pushed out as far as 2056. If they’re still unpaid, holders are out of luck.

Triple Five opened the 3.5 million-square-foot mall in late 2019, just months before the onset of the pandemic tanked its outlook. The project has since limped along through missed projections, lawsuits and looming debt. A $1.7 billion construction loan matures next year, adding to the pile.

For now, American Dream’s tax victory buys time for its owners, but investors dreaming of a smooth ride just woke up to a harsher reality.

— Holden Walter-Warner