American Dream PILOT trustee sues mall developer, local government

Bondholders are suing the American Dream mall and the New Jersey local government where it sits, alleging mall developers colluded with local government officials to lower its property value assessment.

Bonds sold to finish the mega-mall are backed by payments to local governments made in lieu of property taxes. The lawsuit claims the mall's developers pressured East Rutherford into lowering its property assessment, thus lowering the payments due to bondholders.

There are $800 million of bonds backed by these payments in lieu of taxes, or PILOT payments. The bonds were part of a $1.1 billion package issued by the Public Finance Authority in 2017.

The bonds' trustee, U.S. Bank Trust Company, acting under direction of holders of a majority of the principal, filed a complaint with the Superior Court of New Jersey Chancery Division on Friday, and posted a notice of the lawsuit posted on the Municipal Securities Rulemaking Board's EMMA disclosure website. U.S. Bank has hired Milbank attorney and former New Jersey Attorney General Gurbir S. Grewal for the litigation.

The complaint alleges American Dream's developer, Ameream, convinced the borough of East Rutherford to switch to a less experienced property value appraiser, who produced a far lower valuation for the mall. American Dream and East Rutherford then worked to ensure that the new, lower appraisal wouldn't hold up in court.

The mall was valued at $3.3 billion at the beginning of 2025, but the borough of East Rutherford lowered its value assessment to 2.5 billion in May.

Ameream sued, arguing its valuation should actually be lower. And in July, a judge dropped the mall's value assessment again, to $1.65 billion.

That means its PILOT payments will be $24 million, less than half of the $54.1 million of interest that bondholders are supposed to receive annually. The PILOT payments that the mall pays are supposed to be "equal to 90% of the ad valorem property taxes that the Developer would otherwise owe to the Borough," according to the lawsuit.

Bondholders argue that the lower valuation and even the legal proceedings were premeditated, which would constitute a default, according to U.S. Bank's filing.

The lawsuit alleges that the bond structure creates "fertile ground for collusion."

"Because it is first in priority to be paid from the PILOTs, the borough has no financial incentive to preserve, let alone increase, American Dream's assessed valuation. To the contrary, it has an incentive, which as alleged here it acted on, to expend the least amount of funds and do the least amount of work to realize its contractual benefits," U.S. Bank wrote in the filing.

American Dream's PILOT agreement was supposed to benefit a dozen small municipalities, but those governments ? led by East Rutherford ? have said the mall has been delinquent in those payments. A court found in the municipalities' favor last year.

American Dream has been beset by legal battles. The mall's developers have been fighting local governments on property assessments since 2022, and were also sued by construction lenders.

In the same disclosure filing that introduced the lawsuit, the trustee said it had transferred $26.7 million from a reserve account to fund the regular Dec. 1 interest payment. Thus far, PILOT bond interest payments have been made using reserve draws; but less than $2.4 million remains in the reserve account, according to the filing.

Holders of the other piece of the deal, $287 million of limited obligation grant revenue bonds, have endured a series of missed interest payments since 2022.

The grant revenue bonds are to be paid with a portion of revenue from American Dream's sales taxes, through New Jersey's Economic Redevelopment and Growth Incentive grant program.

At publication time, neither an American Dream spokesperson nor East Rutherford officials had replied to requests for comment.