HUDSON — While the future of the Downtown Phase II project remains unclear, a legal battle may be mounting between the city and the project’s former developer.

On March 28, city leaders announced they had parted ways with the project’s developer, Testa Companies. At that time, little detail was shared on why the relationship ended after the parties had worked on the estimated $80 million public-private development project for three and a half years. The project was envisioned to include Class-A (top quality) office space and housing for empty nesters and young professionals on about 20 acres in the center of town.

Hudson City spokesperson Jody Roberts said last week that city council has not discussed the future of the Phase II project since the city’s announcement in late March.

With new details emerging, it appears the beginning of the end was set in motion by the city’s response to the advisory election results in May 2019. Voters at that time rejected an earlier version of the project by a tally of 2,578 to 2,395.

Following that advisory issue vote, the city asked residents to share what they wanted to see changed on the project.

The resulting scaled-back plan reduced the square footage of office/commercial space 18% — from 138,000 square feet to 114,000 square feet. Commercial uses were limited to a single building for firms that would support businesses in the development, rather than destination retail that would compete with the existing downtown.

About 125 residential units that had been initially planned were reduced to 101 units.

The planning commission unanimously approved the residential portion of the dialed down plan in August 2019 and council backed it by a 5-2 vote in September 2019. The city and Testa then began working on a development agreement for the scaled-back project. 

About a half year later, the parties parted ways after they were unable to come to a consensus on a deal. More information has emerged that shows the inability to concur on a development agreement was related to the scaled back plan that the city adopted last year.

On April 1, Aaron Evenchik, an attorney with Hahn Loeser & Parks LLP — which represents Testa Companies — sent a letter to Hudson City Solicitor Matt Vazzana and Hudson Special Counsel R. Todd Hunt stating that Testa would still like to move forward with the Phase II project. However, if the city does not wish to go forward, Evenchik wrote that Testa Companies "is entitled to reimbursement of its costs and will not agree to a no cost walkaway."

Evenchik’s letter does not specify how much money Testa is seeking, nor does he state how much money his client has spent on the project.

At the end of last week, Roberts said the city had not responded in writing to that April 1 letter from Hahn Loeser & Parks LLP.

Joel Testa, chief operating officer for Testa Companies, told the Hudson Hub-Times May 16 that his attorneys have asked him "not to comment on the negotiations at this time."

A message left for Evenchik was not returned by press time.

Roberts and other city officials did not respond to specific questions about the dispute between the city and Testa by press time.

City Manager Jane Howington said in a news release issued March 28 that the municipality had parted ways with Testa Companies on "good terms."

Lower density led to ‘financial complexities’

According to information provided to the Hub-Times, the city offered a development agreement proposal based on the downsized plan to Testa Companies on Dec. 23, 2019. Testa responded to the proposal and Howington sent a letter on Feb. 24 to Joel Testa in which she wrote that council "cannot support the provisions you have offered."

Howington said city officials were particularly concerned about proposed financing arrangements.

"City Council does not want to be a mortgage holder especially subordinate to development financing," wrote Howington. "Joel, I understand the revisions made to the residential side of Phase 2 created a different density than what was initially envisioned and has created financial complexities for both the Testa Companies and the City of Hudson. Realistically, the proposed project is no longer a viable option for either party."

Howington sent another letter to Joel Testa on March 2 after discussing options with "individual City Council members."

"The impressions that I gained from those discussions are that [the council members] are not interested in pursuing those options and … any monetary payment to Testa as a result of the project not moving forward," wrote Howington on March 2. "… both parties pursued this project at their own risk and at their own costs."

Howington wrote the city "will not be moving forward with this project with Testa," and suggested it "may be best" for further discussions to occur between the attorneys for each party.

Roberts told the Hub-Times the city has spent approximately $8.7 million on land acquisition, site preparation and demolition, bus garage and salt dome construction, and a sanitary pump station.

In his April 1 letter to the city, Evenchik noted Testa incurred costs based on a Memorandum of Understanding (MOU) the company had with the city. His client also, Evenchik wrote, made "good faith efforts to advance the project."

Evenchik wrote that Testa was willing to move forward with the purchase agreement, ground lease and development agreement, which includes allowing Testa "to pay on sales as units are sold."

However, If the city was not going to finalize a deal, Evenchik wrote that Testa is "entitled to a ‘commercially reasonable termination’ payment under the MOU."

The MOU, which was set up between the parties on Jan. 3, 2017, outlines each party’s responsibilities on the project. In the MOU, under the heading of "termination," it states, in part, "the development agreement must have a termination procedure which addresses what happens if some or all of the Project is deemed not to be financially or otherwise feasible."

If the city does not work with Testa, Evenchik said his client also wants the city to return all of Testa’s plans and other work product related to the project.

"Testa objects to Testa’s work product being used by any other developer or the City without reimbursement to Testa and Testa’s agreement and release on the same," wrote Evenchik.

Evenchik also wrote "because chances of litigation on this project/dispute are high," his client demands the city and its consultants work to prevent the deletion of documents, files, emails and other communications related to the project. Evenchik requested all documents related to the project since Jan. 1, 2018, including Howington’s "entire file."

Evenchik concluded by saying that they would pay for the records and added his client is "willing to meet and review these issues at any time."

Reporter Phil Keren can be reached at 330-541-9421, pkeren@recordpub.com, or on Twitter at @keren_phil.