(Bloomberg) — A tax court judge cut the assessed value of New Jersey’s American Dream mega mall by $850 million on Thursday, the latest reduction that brings the property’s valuation down about 50% this year.

The reduction hands a win to the property’s owners who sought to lower payments tied to the valuation, but deals a blow to bondholders who own the roughly $800 million of debt backed by those payments, called payments in lieu of taxes, or PILOTs.

Gregg Schwartz, an American Dream spokesperson, didn’t immediately respond to a request for comment.

Judge Michael Gilmore determined that the 3.5 million square-foot venue, which includes an amusement park, water park and ski slope, should be assessed at about $1.65 billion for the current tax year. 

The Borough of East Rutherford, where the venue is located, had assessed the property at $2.5 billion for the quarter ending June 30. That’s down from $3.3 billion for the mall’s previous appraisal. American Dream has appealed its tax assessments from East Rutherford from 2019 through 2025. Gilmore didn’t rule on prior years’ assessments.

At the new assessed value, American Dream will be on the hook for roughly $24 million in PILOTs annual to holders of the mall’s municipal debt — less than half of the $54.1 million in annual interest they’re owed. 

Nuveen LLC, holds about 90% of American Dream municipal bonds backed by PILOTs. Sally Lyden, a Nuveen spokesperson, declined to comment.

The $800 million in PILOT debt was part of a $1.1 billion package of tax-exempt municipal bonds to help finance the construction of the mall. State officials pitched the project as a boost to New Jersey’s economy, saying it would generate tax revenue and jobs. 

Lawyers for American Dream owners, Triple Five Group Ltd, argued East Rutherford’s appraisal had significant flaws, including using an artificially low capitalization rate — a measure of profitability used to assess the rate of return of real estate. 

The complex has been assessed at values exceeding the assessments for The Mall at Short Hills, Westfield Garden State Plaza, Willowbrook Mall, The Shops at Riverside and Six Flags Great Adventure combined, American Dream’s attorneys said. 

“Considering the comparisons, it does not require a scintilla of tax assessment expertise to recognize the ridiculousness of American Dream’s assessments,” lawyers for American Dream said in a court filing. 

If American Dream wins tax appeals for tax years 2019 through 2024, and the property’s value continues to decline or doesn’t increase enough in the future, the likelihood that investors will be paid back on time will be at greater risk. Per the bond documents, failure to pay interest or principal when due isn’t an event of default. 

Principal on the $800 million of bonds matures in balloon payments scheduled in 2027, 2037, 2042 and 2050. The trustee for the bonds had roughly $38 million in reserve to cover debt service shortfalls as of December last year, according to a bond filing.

If the trustee doesn’t have enough money to make the principal payments, the maturity of the bonds is extended until they’re paid in full or Dec. 1, 2056. If the bonds aren’t paid by that date, PILOT bondholders aren’t entitled to more payments.

(Updates throughout to include details from bondholders and implications of the reduced value assessment.)

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