A private company has paid $1 rent for decades for this public property. A new appraisal sets market rate at $330,000.

For three decades, the Delaware River Port Authority has leased land underneath the Walt Whitman Bridge about the size of Rittenhouse Square to a private company for $1 a year.

Now, in response to scrutiny from government auditors, the port authority is seeking to renegotiate the lease for the 5.8 acres in Gloucester City with Holt Logistics Corp.

An appraisal commissioned by the DRPA — a bistate public agency that owns and operates four bridges and the PATCO commuter line between Philadelphia and South Jersey — valued the property’s annual market rent at $330,000, assuming a 10-year lease.

“Our mandate is to negotiate a market value lease,” DRPA chief executive John Hanson said. “The appraisal is a starting point for a negotiation. … I expect to arrive at a fair deal for DRPA and for the lessee as well.”

Not so fast, says Holt, a Gloucester City-based, family-owned company that created a portion of the land decades ago when it developed a new wharf at its adjacent marine terminal facility. Today the company says it employs almost 1,000 people there.

Holt spent $25 million on the work around the bridge, starting in the 1960s and continuing through the ‘80s, according to spokesperson Kevin Feeley.

“Before the Holt improvements, the parcel in question was worthless,” he said, adding that the appraisal does not account for the company’s role in developing the Gloucester waterfront.

The negotiations come after the DRPA’s Office of the Inspector General in 2022 found that the lease hadn’t been updated since 1993.

Auditors also reported that the authority lacked any “policies or procedures related to management oversight of lease arrangements, and real estate activity in general” — a situation that the DRPA says it has since rectified.

The DRPA — which is governed by a board whose 16 members are mostly appointed by the governors of Pennsylvania and New Jersey — has faced criticism in the past over its stewardship of public funds.

In 2012, an investigation by the New Jersey comptroller found the authority wasted millions of dollars in tollpayers’ money through political cronyism and mismanagement. The comptroller credited DRPA with correcting certain deficiencies, and the agency says it has since moved past that chapter, including by limiting its involvement in economic development.

Now the comptroller, under new leadership, has taken renewed interest in the DRPA, issuing a subpoena in July demanding records related to the authority’s procurement policies, contracts, and leases — including “any and all documents” related to the Holt agreement, according to court records.

The port authority is fighting the subpoena in court, saying the comptroller lacks the legal authority to investigate the agency.

The DRPA says it has offered to share the records voluntarily. Attorneys for Acting Comptroller Kevin D. Walsh wrote in a court filing that without using subpoenas, his office “could not verify the completeness of DRPA’s production or hold the DRPA accountable for withholding responsive documents.”

The DRPA’s main source of revenue is bridge tolls, collecting $317 million in 2023, according to its most recent annual report.

In addition to its transportation activities, the DRPA leases land and office space — it owns the One Port Center building in Camden — to tenants. The lease agreements generated $8 million in revenue from 2018 through 2021, according to the inspector general’s report.

The DRPA’s lease with Holt dates to 1984, when the company was building a new wharf, with annual rent set at $19,000. The development benefited the DRPA because it “provided additional protection for the bridge footings, which to that point were surrounded by water,” said Feeley, Holt’s spokesperson.

He said the company uses the DRPA-owned land as a roadway that connects “parcels on either side, both of which are owned by Holt,” serving the 125-acre Gloucester Marine Terminal. The terminal is one of some two dozen port facilities along the Delaware River that support thousands of jobs and connect the region to international trade.

In 1993, the DRPA reduced Holt’s rent to $1 as part of an unrelated deal. That year, the port authority bought out a competing container-transfer yard owned by Railport Inc. — a company partly owned by the Holt family — for $3.2 million.

Later that year the DRPA opened its own yard — which cost $3.7 million to develop but had been unused for more than a year — seen as vital to increasing trade by making the movement of cargo between ships, rail, and trucks more efficient, The Inquirer reported at the time.

The $1 lease agreement with DRPA came in exchange for Holt’s “willingness to reduce the cost of selling its interest in Railport Inc.,” as well as the company’s costs to develop the land, Feeley said.

The lease came under scrutiny in 2022, when the DRPA’s Office of the Inspector General conducted an audit of the authority’s lease and rental agreements. The audit, spanning 2018 through 2021, reviewed agreements involving eight plots of land and office space leased to more than a dozen tenants.

Auditors determined that “most property lease and rental agreements are in compliance with current executed contracts” but found that “opportunity exists to define responsibilities and improve management oversight,” the inspector general’s report said.

For example, the report said, lease agreements with Holt and one other tenant — the Collingswood Japanese restaurant Sagami, which rents 16 parking spaces — “did not have clearly defined lease termination dates” and have “continued at historically agreed upon payment rates for many years without renegotiation of terms.”

“All leases should have a clearly defined lease term,” the auditors wrote. “Renewals should be negotiated at current market rates.”

In addition, they said, “Roles and responsibilities for monitoring lease and rental arrangements are decentralized and not clearly defined.”

Management agreed to implement the auditors’ recommendations, the report said. Management of real estate matters is now centralized under the authority’s deputy CEO, “and a real estate committee meets quarterly to discuss land use,” said DRPA spokesperson Mike Williams.

“DRPA also has established a formal process for handling real estate inquiries,” he said.

In September 2023, the DRPA’s board voted to extend a 1974 agreement with Sagami — also known as Fukuyoshi Enterprises Inc. — for five years, increasing rent from $362.50 a year to $500 a month, or $6,000 annually.

Determining fair market value for the Holt parcel is more complicated than doing so for a parking lot, in part because of the improvements the company has made.

The property includes two sites adjacent to Holt’s marine terminal facilities. The area is zoned for port cargo handling, permitting piers and warehouses and prohibiting uses such as residential and retail, according to the July 2023 appraisal commissioned by the DRPA.

In addition, vertical and permanent structures cannot be constructed underneath the Walt Whitman Bridge, limiting potential uses, says the appraisal, conducted by King of Prussia-based Valbridge Property Advisors.

Valbridge determined the value of the land — $3.8 million — by reviewing sales of comparable parcels and adjusting for market conditions. Market rent was then calculated “by converting anticipated future income into a present value by a capitalization process,” the appraisal says.

The report suggests DRPA could command even more than the $330,000 figure it cited.

“Typically, adjacent property owners buy and rent for a premium due to scarcity of adjoining properties to their own site,” wrote Reaves C. Lukens III, Valbridge’s senior managing director. “The subject serves as a connector parcel and could demand a premium. Our opinion of rent for the subject does not reflect either of these factors.”

However, Lukens wrote, the analysis “does not punish the subject for its interior location, size, and irregular shape,” which would reduce the land’s value “on a stand-alone basis.”

In the interview, DRPA CEO Hanson said he didn’t want to negotiate via the news media but shared the appraisal with The Inquirer at the news organization’s request because it’s a public record and he wanted to promote transparency.

“There are probably going to be a lot of discussions, a lot of arguments, for higher value, and for lower value from Holt,” he said. “I don’t want to speculate about any of it at this point.”

Feeley said Holt looks forward “to direct discussions with the agency to reach a better understanding of the important contributions that both sides bring to the issue of valuing the land in question.”

As for why the lease hasn’t been updated for more than 30 years, Hanson said, “It did not rise to a level of urgency that sort of superseded the core business” of the port authority — keeping bridges safe and secure, and allowing for the free flow of goods on the Delaware River.

“I’m not gonna second-guess anything that anybody did,” Hanson said.

The DRPA’s primary focus, he said, has been keeping bridge tolls low. The agency last year raised tolls for the first time since 2011 — from $5 to $6.

Lauren Cristella, president and CEO of the Philadelphia good-government group Committee of Seventy, said it’s “nuts” that the $1 lease went unchanged for so long.

Even if the DRPA had periodically reviewed the agreement over the decades and decided it remained a fair deal, the agency “owed the public an explanation,” she said.

“Make your deals,” Cristella said. “If you think there’s a justification for why it should be that, offer it to the public.”