New Jersey Offers Financing Incentives for Real Estate Investments
On September 18, 2013, Governor Christie signed the New Jersey Economic Opportunity Act (the “Act”) into law. The Act is intended to spur job creation, promote redevelopment of underutilized urban and suburban areas, and attract new businesses to New Jersey by expanding state programs that offer tax incentives. In general, the Act extends tax incentive programs to wider geographic areas to include most of the state and significantly lowers program eligibility thresholds. The Act consolidates the State’s five existing economic development incentive programs into two streamlined versions: Grow New Jersey Assistance Program (“Grow NJ”); and the Economic Redevelopment and Growth Grant Program (“Grant Program”). This article provides a general overview of the Grant Program and its potential benefits to any business undertaking a capital investment in a real estate project located in New Jersey.
Under the Act, the Grant Program is now designated as New Jersey’s only redeveloper incentive program and is administered by the New Jersey Economic Development Authority (“EDA”). In particular, the Act expands the existing grant program for economic redevelopment under the Act to close project financing gaps, incentivizes rebuilding public infrastructure vital to redevelopment efforts, and rehabilitates areas impacted by Hurricane Sandy.
For redevelopment, the Grant Program establishes a $600 million cap for qualified projects, which must have a minimum total project cost ranging between $5 million and $17.5 million, depending on the location of the project. A qualified residential redevelopment project refers to a project that is predominantly residential and includes multi-family residential units for purchase or lease, or dormitory units for purchase or lease. Disbursements of the residential redevelopment cap are determined by several categories, broken down by factors such as: county; municipality; net benefits to the community; proximity to urban transit areas; level of economic distress; and designation as a Garden State Growth Zone (“Growth Zone”), presently, Camden, Trenton, Passaic City, and Paterson. Non-residential projects have no financing cap.
For redevelopment grant incentive agreements, the maximum financing disbursement is 100 percent of total project costs for municipal governments or redevelopers, 40 percent for projects located in a Growth Zone, and 30 percent for all other developers. Alternatively, a developer can apply for a state or local incentive grant agreement to recover a credit from the state or local authority of up to an average of 75 percent of the projected annual incremental state and local tax revenues generated by the project or 85 percent of such revenues for projects in a Growth Zone. In the case of a qualified residential project where the state revenues from the project are inadequate to fully fund the grant, the grant award can be converted, at the discretion of the EDA, into tax credits equal to the full amount of the incentive grant.
Each incentive grant agreement entered into is only eligible for funding for a period of 20 years, and the applicant bears the burden of proof to demonstrate the amount required to achieve project feasibility. Developers who have entered into incentive grant agreements are also eligible to sell or assign their rights and interests in their agreements, as well as the incentive grants payable thereunder, to other entities or individuals.
The Act is also designed to achieve a number of laudable public policy objectives by providing a bonus incentive of up to 10% of project costs to projects that fall within one of eleven categories, including: (a) super markets in distressed municipalities; (b) health care facilities in distressed communities; (c) transit projects; (d) disaster recovery projects; (e) tourism destination projects; (f) substantial rehabilitation or renovation of existing structures; or (g) projects located in a Growth Zone. Furthermore, the Act expands the definition of what constitutes a “capital investment” in a Growth Zone to include any and all redevelopment and relocation costs, including, but not limited to, site acquisition, if made within 24 months of application to the EDA, engineering, legal, accounting, and other professional services required; and relocation, environmental remediation, and infrastructure improvements for the project area, including, but not limited to, on-and off-site utility, road, pier, wharf, bulkhead, or sidewalk construction or repair.
As an important reminder, the deadline for developers to apply to the EDA for incentive grants or tax credits under the Grant Program is July 1, 2019.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.
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