Once St. Mary's Hospital, apartment building sells for $46 million. How it helps Passaic

PASSAIC — Twelve years after the St. Mary's Hospital building on Pennington Avenue was bought and turned into a residential complex of 147 one-, two- and three-bedroom apartments by Pennington Passaic LLC, a new buyer has acquired the building.

The Birch Group, a Jersey City-based company, purchased the building, which had been renamed The Pennington, on 3.5 acres of land in recent weeks for $46 million, officials said.

While the Birch Group did not respond to requests for comment, its website states the company buys top-value properties and takes "the long view" in regard to investing in and around the New York Metro area. The website describes the company as the "owner and operator of the region's top real estate assets."

"Since 2014, we have deliberately expanded our portfolio of income-generating properties to include more than 6.5 million square feet of value-add office assets in strategic markets that demonstrate sound fundamentals and growth potential," the company website stated.

A 'good' tax deal

In 2012, Pennington Passaic LLC purchased the site for $6.5 million, state records show. For the better part of the last decade, the company redeveloped the onetime hospital and negotiated a 30-year-tax abatement, called a PILOT, or payment-in-lieu-of-taxes, with the city.

The LLC agreed to undertake major improvements to the building while getting some but not all of its tax obligations reduced.

Passaic Mayor Hector Lora said the deal was a good one.

"We are getting revenue from a property that was not on the tax rolls," Lora said.

While there are still unknowns about just how much revenue the site will produce, it should add at least $500,000 in revenues to the city's budget, he said.

When negotiating the abatement details, the city calculated it would earn more with a percentage of the gross revenue from the apartment rentals than it would through a traditional PILOT, where the tax abatement applies only to the lot's improvements, said city Business Administrator Rick Fernandez.

The land's value where The Pennington sits gets taxed at 100%, Fernandez said. In 2020 the land was valued at $4.4 million and paid about $170,000 in taxes, officials said.

Once the apartments are rented, the city will receive 10% of the gross income for the first eight years, with the percentage gradually climbing to 13% in the last eight years.

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If all 147 apartments are rented at $2,000 a month, the gross income would be about $3.5 million. The city's cut would be $350,000.

The apartments are currently leasing for $2,500 a month.

Chava "Eve" Kagan of Dwell Realty said just over a third of the apartments have been leased in the few weeks since they went on the market.

History of The Pennington

St. Mary's Hospital was first set up as a 12-bed facility with four doctors operating in an outbuilding of St. Nicholas Church on Washington Place in 1895, said local historian Mark Auerbach.

Within two years, a teeming city needed a bigger hospital, and in 1897 the cornerstone for a four-story hospital was laid on Pennington Avenue. At the time St. Mary's moved to its current building on 300 Boulevard in 2007, it had 229 beds in a five-story building.

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From its closure in 2007 until the building was purchased in 2012, it remained empty. The apartments were completed and went on the leasing market last month.

Alex Horn, of BridgeInvest, the Miami firm that loaned The Birch Group $34.5 million of the $46 million to buy The Pennington, said when he looked at the deal, he found it highly favorable. The challenge of converting the property to apartments added the charm and value of the apartments

"The apartments, because they converted it from a hospital, are really good sized," Horn said.

The Pennington is near mass transportation. The bus stop to Manhattan is about a block away and the NJ Transit train station is a short walk away. The apartment building has a number of amenities including gyms and top-of-line appliances.

This article originally appeared on NorthJersey.com: Once St. Mary's Hospital, apartment building sells for $46 million. How it helps Passaic