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New Jersey tax credits turned a Camden office complex into a lucrative investment. Now the feds and state AG are investigating

The scope or subjects of the investigations into the L3 transaction aren’t yet clear; a state task force has said businesses or their principals could face charges of fraud or other crimes if they misled the state to get tax credits.

Cooper University Health Care, Lockheed Martin, and L3Harris Technologies are tenants in the 575,000-square-foot campus known as L3.
Cooper University Health Care, Lockheed Martin, and L3Harris Technologies are tenants in the 575,000-square-foot campus known as L3.Read moreTOM GRALISH / Staff Photographer

When Cooper Health System was awarded $40 million in tax credits five years ago to move jobs to Camden from Cherry Hill and Mount Laurel, hospital executives and local officials celebrated the deal as a sign of progress in the long-struggling city.

The health-care network’s decision to lease space a few blocks from the Delaware River was supposed to contribute to the city’s revitalization. But it also bolstered a lucrative new investment opportunity in the brick building where Cooper Health would use the tax credits to pay its six-figure rent each month.

That building was part of a 575,000-square-foot campus known as L3. It was owned by the New Jersey Economic Development Authority (EDA), the same state agency that approved Cooper Health’s tax-credit package on Dec. 9, 2014. Three weeks later the agency sold L3 for $32.7 million to a Camden nonprofit that on the same day transferred the property for the same price, plus a fee, to two investors.

Nearly five years later, the transaction is one focus of the state and federal criminal investigations into New Jersey’s multibillion-dollar tax-break program for businesses, sources familiar with the probes told The Inquirer. Their scrutiny of the deal has not been previously reported.

The scope or subjects of the investigations aren’t yet clear; a task force appointed by Gov. Phil Murphy to look into the program has said businesses or their principals could face charges of fraud or other crimes if they misled the state to get tax credits that saved them millions of dollars.

But previously undisclosed documents obtained by The Inquirer help to explain how a law meant to help one of the state’s poorest cities also created a potential windfall for developers.

The records show that the EDA’s sale of the complex in December 2014 was based on a year-old appraisal that did not account for how the tax-credit program — one the agency administered — would boost Camden’s real estate market. The records also suggest the L3 property may have been worth at least $20 million more than its sale price, and possibly twice that amount.

When it applied for the incentives, Cooper Health told state officials in its sworn application that it intended to lease space at the building, not become an owner. But in the days after Cooper won its tax breaks, its board approved a 49% investment in the property, giving it an ownership stake. That same week, an appraiser for the bank working with the two investors reported that the building was worth at least $54 million.

Both private investors, Philadelphia financier Ira Lubert and South Jersey commercial landlord Howard Needleman, had previously worked with Cooper Health or its board chairman, George E. Norcross III, the political power broker and businessman who has overseen the health network’s emergence as a major employer and economic engine. The year before the L3 purchase, Norcross and Lubert had been partners in an unsuccessful $10 million bid to buy a Cherry Hill golf club.

This month, ProPublica and WNYC reported that Norcross and his brother Philip, a lawyer, steered the L3 property to the two men after effectively wresting it from the Camden nonprofit, Cooper’s Ferry Partnership. Through their representatives, the Norcross brothers deny the claim.

For decades, Cooper’s Ferry had promoted economic development in Camden through a mix of public and private investment. The nonprofit saw buying the building as a step toward fortifying its future while also helping to keep jobs in the city. Months before they handed over the property, Cooper’s Ferry executives estimated the complex might eventually be worth as much as $70 million.

In the end, they got $575,000.

Cooper Health officials maintain they salvaged the sale of the property. They claim that Cooper’s Ferry Partnership lacked the financing to acquire the L3 complex, or the tenants to support it, and that its hopes to buy the site were pinned almost entirely on luring the hospital into an above-market rental agreement. In the end, they say, the partnership with Needleman and Lubert saved Cooper Health millions of dollars in rent.

In a statement, a representative for the hospital network said Cooper’s Ferry had embarked on the property deal with “what can only be described as a ‘hope’ strategy” to find a willing investment partner, financing, and tenants.

“Hope isn’t enough,” said the spokesperson, Thomas Rubino. “Commitments are, and Cooper’s Ferry didn’t have any."

Cooper’s Ferry records obtained by The Inquirer show that the nonprofit had been pursuing multiple prospective tenants, negotiating more favorable terms with other potential investment partners, and quoting rental rates that were in line with its broker’s analysis at the time — all while L3’s value climbed in the post-tax credit market.

The $32.7 million purchase price was already locked into a contract between Cooper’s Ferry and the Economic Development Authority. Under that agreement, the agency could not renegotiate the price regardless of changes in the market, a spokesperson said.

Stuart F. Ebby, a veteran Philadelphia real estate attorney who teaches a course on real estate transactions at University of Pennsylvania Law School, said he was puzzled by the nonprofit’s decision to relinquish its rights to the property.

“It’s hard to understand," he said, "how a buyer — for-profit or not-for-profit — which has a right to purchase real estate for $32 million, when it is appraised at over $50 million by a qualified expert, gives up that right for $600,000.”

‘Only viable option’

For years, George Norcross and his brothers have played a key role in a development boom in Camden and been among the city’s bigger boosters.

Philip Norcross, CEO of the Mount Laurel law firm Parker McCay, helped write the new tax-credit legislation. Donald Norcross, now a U.S. congressman, was in 2013 one of the state lawmakers who championed the bill in Trenton. George Norcross recruited other businesses to Camden, and in 2017 his insurance brokerage was awarded $86 million in tax breaks to build an office tower and bring jobs to the city.

The acquisition of the L3 building came as the incentives unleashed a wave of jockeying for real estate in Camden. By the end of 2014, the EDA had awarded more than $600 million in tax breaks for companies willing to move to the city, including Holtec, the Philadelphia 76ers, Subaru, and defense contractor Lockheed Martin, which ultimately moved into L3.

The campus was built in the early 1990s with public and private funding in a bid to keep General Electric from leaving the city.

By 2012, the building’s namesake tenant, L-3 Communications (now L3Harris Technologies, a defense contractor), was looking to downsize its space. The company no longer wanted to occupy the entire building, and approached Cooper’s Ferry for help. The nonprofit saw a chance to buy the property from the EDA — which oversees New Jersey’s marquee economic development programs — rework the lease with L3, and attract other businesses.

In June 2013, the EDA agreed to open negotiations. Because it received an “unsolicited offer” from Cooper’s Ferry to pay close to fair market value for L3, the EDA did not have to competitively bid the property, an authority spokesperson said.

Meanwhile, drafts of the new tax-credit legislation were circulating in Trenton. Then-Gov. Chris Christie signed the 2013 Economic Opportunity Act in September, though it would be months until the EDA would start approving grants.

The EDA commissioned an appraisal of L3, which was conducted in November 2013, before the first tax credits had been awarded. At the time, the building had just the one tenant, with a lease due to expire in a few years. The appraisal came in at $36.3 million, and two months later, the authority reached an agreement to sell the property to Cooper’s Ferry for 90% of that amount.

Thanks to the tax-credit law the building became even more attractive. Businesses could use the credits to reduce their own tax bills or sell them to others for cash.

In one spring 2014 assessment, a real estate broker Cooper’s Ferry had hired wrote that L3 "is the only viable option for any tenant looking to locate to quality office space greater than 10,000 [square feet] in Camden for the next two to three years.”

‘Really light’ deal

In memos from late March 2014, Cooper’s Ferry executives ticked through their progress on the property purchase, according to documents reviewed by The Inquirer. In addition to lease negotiations with L-3 Communications, the nonprofit had proposed leases to five prospective tenants. Cooper’s Ferry expected to close on the sale by the end of June.

“We continue to assess the risk of this deal to the company as low,” one memo concluded.

The same document raised an issue: Potential development partners had expressed concerns about whether Camden was a place where “private investors can work in good faith through a transparent process.” The memo cited the season’s award-winning, A-list movie about early 1980s corruption in South Jersey.

“It may be a product of American Hustle,” the memo said, “but we have assured people that this is not something that they need to worry about.”

A few days later, a new potential tenant emerged for the building: Cooper Health.

Cooper Health CEO John P. Sheridan Jr. was also the board chairman of Cooper’s Ferry. In a late March email exchange reviewed by The Inquirer, Sheridan asked Cooper’s Ferry president Dave Foster for an estimate on a lease at L3. Foster told him that the tax credits would not only cover the cost of the hospital network’s rent, but enable Cooper Health to generate an additional $1.9 million a year.

“No other option can touch it,” the hospital’s chief financial officer told Sheridan in an email the next day.

Cooper’s Ferry was also taking steps to fortify its financing options. Internal documents reviewed by The Inquirer show it had reached an agreement in principle to retain a 50% stake in the property under a joint venture with Mack-Cali Realty Corp., based in Jersey City, and Keystone Property Group, of Conshohocken.

Around the same time, Lubert and Needleman also emerged as prospective buyers. In a statement, a spokesperson for their L3 venture said Philip Norcross and representatives of Cooper Health reached out to them in the spring of 2014 “to ascertain our willingness to explore the purchase” of the site.

ProPublica and WNYC reported that the Cooper’s Ferry leaders came under pressure to relinquish their plans for the property.

Sheridan’s own notes — first reported by ProPublica and WNYC but also reviewed by The Inquirer — said Philip Norcross had told the Cooper’s Ferry CEO in April that he and the nonprofit’s president were “persona non grata” with him and George Norcross, and that they would lose their jobs if Cooper’s Ferry didn’t “get out of the real estate business.”

(In response to questions from The Inquirer about the reported warnings, representatives for Cooper Health wrote: "We are not going to respond to documents we have not seen.”)

In early May, Needleman and Lubert reached out to Cooper’s Ferry leaders with an offer. They told Foster they were prepared to pay the nonprofit $1 million in exchange for its rights to L3. In addition, the nonprofit would get a share of the future rent from the property.

Cooper’s Ferry leaders were not sold. A bank had expressed confidence that the building would be appraised at $45 million, according to a May 2014 internal document. The nonprofit projected that the value would jump to “over $70 million” — or more than twice its planned $32.7 million purchase price — when leases were in place, records show.

In an email that month, Foster reminded Needleman and Lubert that the sale price was based on the EDA appraisal "done before the new L-3 lease and the N.J. Economic Opportunity Act.”

To his colleagues at Cooper’s Ferry, he described Needleman’s offer as "really light for us,” adding: “We stay in the deal as a minority partnership — no say on the management of the asset, capital contributions, etc. ...”

But outside influences were weighing on Cooper’s Ferry executives. One would later write that the nonprofit had faced “political pressure related to CFP’s involvement in real estate development.”

Cooper Health officials maintain that they told Sheridan he couldn’t represent the best financial interests of both the nonprofit where he was board chairman and the hospital network where he was CEO. They say they asked him to recuse himself from any negotiations involving the property, and that by mid-June he “was not involved in any substantive discussions.”

Late that month, the nonprofit relented. On June 23, a Cooper’s Ferry executive emailed the EDA that it wanted the property to go to Lubert instead. The email, from CEO Anthony Perno, described the proposed change in ownership as "an opportunity that better meets the goals as original[ly] envisioned by this transaction.”

A spokesperson for Lubert and Needleman’s L3 venture said they were better equipped to develop the property. The spokesperson, David Cohen, said Cooper’s Ferry “overestimated potential revenue, and underestimated many substantial costs of this transaction,” one reason why Lubert and Needleman cut their offer from $1 million, plus lease revenues, to $575,000.

He said Lubert and Needleman identified $2.2 million worth of environmental remediation, deferred maintenance, and other costs at the site.

Cohen also said L3′s value increased because of the leases negotiated by Needleman and Lubert that year. That included one, he said, that allowed Cooper Health to move into the building at a cheaper rental rate than they would’ve gotten from Cooper’s Ferry.

Foster, the nonprofit’s president, left Cooper’s Ferry that summer. He declined to comment for this article, as did Perno, who has also since left the organization. The nonprofit’s current leadership also declined comment.

Sheridan died in September 2014.

His son, Mark Sheridan, disputes the contention his father had a conflict of interest because of his dual roles at the hospital and the nonprofit.

“His only conflict,” Mark Sheridan told The Inquirer, "was with those who were demanding he take a deal that was not in the best interest of Cooper’s Ferry.”

A 49% stake

As Lubert and Needleman moved forward with the deal, they sought a $2 million loan from the Economic Development Authority.

The loan application documents, which The Inquirer obtained under New Jersey’s public records law, show that an appraisal for Lubert and Needleman’s mortgage bank, dated Dec. 18, 2014, put the property’s value at $54 million.

They also show that Cooper Health had been considering buying a stake in the property as early as September 2014. “This purchase however, cannot occur until after loan-closing, in order for Cooper to take advantage of economic incentives,” the credit-approval document says.

On its tax-credit application to the same agency two months later, however, the hospital network said only that it intended to lease space at the L3 building.

Murphy’s task force has said Cooper Health may have misled state officials about whether it had considered moving hundreds of jobs out of state. Had those jobs not been deemed “at-risk” of relocating to Philadelphia, Cooper would have qualified for about $7 million in tax breaks — not the $40 million it got, according to the task force.

Cooper denies the allegation. It says it only provided an estimate of costs to move to Philadelphia at EDA’s request.

The authority is reviewing the matter and says it won’t comment until its inquiry is complete.

In a statement to The Inquirer, Cooper Health said its tax-credit application was accurate, and that the incentives were “a material factor” in order to move employees to the new offices in Camden. It noted that at the time it filed the application, “Cooper did not have an agreement to acquire an interest in purchasing the L3 building.”

A spokesperson from the U.S. Attorney’s Office in Philadelphia said the office would neither confirm nor deny any investigation into the transaction. The New Jersey Attorney General’s Office declined to comment.

A Cooper Health subsidiary, Cooper Medical Services, still owns a 49% stake in the building.

Cooper Health’s most recent financial statements don’t break out how much money the health-care network has made off the building. But an audited statement shows it generated $928,000 in income in 2015. The next year, the income stream increased to $973,000.

Staff writers Joseph N. DiStefano, Jeremy Roebuck, and Allison Steele contributed reporting.