A closer look at Monmouth Park development lease: 298 rental units, hotel, a future for racing?

Posted by Admin September 10, 2024 Horse Racing

The new 85-year lease on Monmouth Park and its surrounding property provides a path forward for development of the 80 acres, including a plan to maintain horse racing at the site.

The principals are the New Jersey Sports & Exposition Authority, which owns Monmouth Park, and Darby Development LLC. Darby is partnering with developer Morris Bailey, chairman of JEMB Realty, on a Phase 1 buildout that includes 298 rental units of 55-and-up housing, a 200-room hotel and a youth sports recreation area.

Oceanport Mayor Tom Tvrdik said the borough has requested scalebacks that have been agreed to.

“Being our largest taxpayer, the track is an economic driver for the area, like Fort Monmouth was, and then that closed and the impact was catastrophic to the area for many, many years,” Tvrdik said Monday.

“Of course the town is concerned about the amount of traffic and development that is going on in the area as a whole, but we do see there is a need for 55-and-up housing rentals, especially the affordable aspect. The original proposal was almost 400 units, and after coming in front of our planning board and council and hearing feedback, they made great changes to the property, building sizes, a reduction in units. We’re working hand-in-hand with the developers.”

Darby was set up by Red Bank attorney Dennis Drazin, its chairman and CEO, and his family in 2012 to operate Monmouth Park for the New Jersey Thoroughbred Horsemen’s Association when then-Gov. Chris Christie privatized the administration of the state-owned racetracks.

“We’re trying to be a good neighbor, and Morris wants to work with the town to try to create something special for Oceanport,” Drazin said.

MBD Development applied for a PILOT (Payments In Lieu Of Taxes) exemption from Oceanport but was turned down by the Borough Council. And in an effort to secure one, an updated master plan that includes a 7,500 seat concert venue on the property is in the works.

“The biggest concern is more housing on that property, and the developers have said there will not be residential in future phases,” Tvrdik said. “We don’t want to see the rest of the track become more housing. So maybe putting something there to give the residents the confidence in them that they are going in a commercial avenue, with the 7,500 seat arena for concerts.

“What they’re doing is they are updating the development plan, and we share that right on our borough website. The last go around with the conceptual plan shows the hotel closer to Blu Grotto, which they are looking to shift, and put a little concert venue back in there.”

More: Can these changes to Monmouth Park hotel, condo plan save the racetrack?

Monmouth Park currently receives a $10 million annual purse subsidy from the state. It’s part of a $20 million annual subsidy for the state’s racing industry, with a bill extending the subsidies through 2029 on Gov. Phil Murphy’s desk awaiting his signature.

Here is a closer look at details in the Monmouth Park lease:

The rent

* Long gone are the early days of leasing the track for $1-a-year, which was the cost from 2012-15. The current annual ground rent for the track is $250,000, or five percent of Darby’s net operating profits, whichever is greater. That number jumps to $500,000, or five percent of net operating profits, in 2027.

While 5 percent of net operating profits isn’t much now, it will be if the development begins turning a profit.

* The NJSEA gets 5 percent of Darby’s take of account wagering revenues. The 2023 N.J. Racing Commission annual report has Darby with account wagering revenues of $7.5 million, which puts the state’s cut at $375,000.

* Darby must pay all Racing Commission fees, which come to approximately $1.5 million annually and had previously been paid by the NJSEA. In addition, Darby must pay the costs associated with the new Horse Racing Integrity and Safety Authority, which oversees the sport nationally. That number for Monmouth Park will be $1.7 million in 2024.

* Darby must also pay $1.7 million over 10 years, at three percent interest, to the Two Rivers Water Reclamation Authority, one of a number of environmental stipulations.

* Darby pays the property taxes to Oceanport, which total around $1.9 million, according to Drazin.

The Development

* Darby owns 50 percent of MBD Development LLC, with Baily owning the other half. For the first five years, Darby receives 35 percent of MBD’s revenues, with the other 15 percent used for racetrack expenses.

* In years six through 10, the percentages shift until Darby and the racetrack each get 25 percent of MDB’s revenues, with those percentages in place for the remainder of the lease. Of the racetrack’s percentage, 20 percent goes to purses. So if, for example, there’s $10 million of revenue, Darby and Monmouth Park get $2.5 million each, with $500,000 of the track’s share going to purses.

The MBD deal stipulates that Bailey puts up all the money for construction and then gets his money back over time at an interest rate of 10 percent, allowing revenues to flow to racing before he’s fully repaid.

Other interesting details

* There are a number of references to what happens if “there occurs a cessation of live racing because of governmental action.” If horse racing is banned by state or federal government, the NJSEA would get Monmouth Park’s 25 percent share of the development.

* The NJSEA will try to renegotiate a higher ground lease based on the addition of sports betting, which provides around $7 million annually for Monmouth Park. And it can renegotiate the lease if additional gaming, including a casino or slot machines, comes to the track.

* There are provisions for expansions of gaming, one of which states the NJSSEA will treat Monmouth Park and the Meadowlands equally when it comes to expansion.

* The racing commission gets office space and a parterre box at Monmouth Park, at no charge.