The developers of the American Dream megamall have been accused of colluding with New Jersey officials to slash the 3.5M SF shopping and entertainment complex’s valuation and skimp on payments to bondholders.

The borough of East Rutherford cut the mall’s assessed value from $3.3B in 2019 to $2.5B last year. Then, a tax court judge further dropped the assessment to just $1.65B, according to a lawsuit filed by the bondholders' trustee, U.S. Bank Trust Co.

The new assessment reduces American Dream’s payments to the bondholders to less than half of the annual interest they’re owed, according to the suit, which was first reported by Bloomberg. Bondholders allege that $800M in municipal debt, backed by payments in lieu of taxes, is on the line.

Nuveen, the investment arm of TIAA, holds almost 90% of the PILOT bonds, according to an analysis by Bloomberg. American Dream’s financing totals more than $2.8B, including a $1.1B package of tax-exempt municipal bonds.

But the town of East Rutherford’s share of the payments in lieu of taxes is senior to bondholders. As a result, any loss "falls dollar-for-dollar" on the bondholders, according to the filings.

The lawsuit claims the mall’s valuation was "artificially collapsed" after American Dream’s longtime appraiser was replaced by a less qualified one. The new appraiser allegedly underestimated the mall’s value, including by excluding revenue from American Dream's observation wheel in its report.

“The bondholders’ lawsuit is a deceptive attempt to pressure public institutions through litigation and to overturn a lawful, judicial tax appeal decision after a trial,” a spokesperson for American Dream said in a statement. “This is a direct insult to the integrity of the municipality, the court and the judicial process. American Dream will vigorously defend itself, pursue all available remedies, and will not be intimidated by inflammatory allegations that have no basis in fact or law.”

New Jersey officials originally approved the financing, arguing that the mall would generate local tax revenue and jobs. The mall opened in late 2019 just months before the pandemic locked down shopping centers, which delayed store openings and eliminated foot traffic.

The Ghermezians, the Canadian family behind developer Triple Five Group, have repeatedly refuted that the mall is in any state of financial hardship. They've boasted about the mall's increased occupancy, though sales figures fell behind projected numbers, even years after Covid-19 restrictions were lifted.

It was previously reported that the bond maturity would be extended until fully paid or Dec. 1, 2056. Afterward, bondholders would no longer be entitled to payments.

The bondholders aim to stop American Dream from "coercing, colluding with or otherwise influencing the borough’s assessment function for tax year 2026 and all subsequent tax years, including any attempt to rely on the 2025 stipulations or judgment to anchor future assessments."

UPDATE, FEB. 9, 6:15 P.M. ET: This story has been updated to include a statement from American Dream.