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New Jersey Economic Recovery Act Set to Jumpstart Redevelopment Projects with Substantial Tax Credits
New Jersey Economic Recovery Act Set to Jumpstart Redevelopment Projects with Substantial Tax Credits

New Jersey’s business and development leaders will soon get the help needed to try and turn the page on 2020 and some of the turmoil caused by COVID-19, as Governor Phil Murphy has signed the New Jersey Economic Recovery Act of 2020 (S3295/A4) into law. The bipartisan legislation modifies and replaces key aspects of the State’s prior “Grow New Jersey” and “Economic Revitalization & Growth” programs with new and unique approaches to economic development, including up to $11.5 billion in incentive programs to generate business, employment and redevelopment opportunities throughout the state. This article explores key measures of the legislation impacting the real estate industry, with a particular focus on programs designed to stimulate urban redevelopment. 

The New Jersey “Aspire” Redevelopment Program

One of the larger tax incentive programs under the new law is the “New Jersey Aspire Program,” which targets economic relief for redevelopment projects with a mixed-used, transit-oriented component. Specifically, “Aspire” provides an avenue for qualified developers to seek tax credits to cover a “project financing gap,” i.e., the remaining amount of the project to be financed after accounting for the developer’s contributed capital and other capital or loans contributed by investors or other financial entities. The statutory formula requires that developers applying for tax credits must have contributed at least 20% of the total project cost and exhausted all reasonable efforts to raise additional capital. Further, they must show that without the incentive award, the redevelopment project is not economically feasible.

The Aspire Program authorizes the New Jersey Economic Development Authority (EDA) to issue tax credits relative to an applicant’s particular financing gap and subject to various limitations depending on where the redevelopment project is located, whether it has a residential component, and numerous other factors. Where residential construction is involved, any awarded tax incentives will be conditioned upon the project complying with applicable affordable housing set-aside requirements, which will very likely vary from town to town. Given the various nuances presented under the statute, we encourage developers to consult with legal counsel in order to determine the potential tax incentives that may be available for a particular redevelopment project and to help navigate the application process.

Brownfields Redevelopment Incentive Program

Another key aspect of the Economic Recovery Act is the “Brownfields Redevelopment Incentive Program,” which is designed to generate economic relief for developers facing the often-burdensome costs associated with redeveloping historically contaminated properties. The program earmarks $50 million in tax credits each year for the next six years to help developers cover remediation costs on redevelopment projects located on brownfield sites. Broken down on a per-project basis, the available relief is capped at 40% of eligible remediation costs or $4 million per project. Qualified developers are eligible for these incentives where they have not already commenced any remediation or cleanup efforts other than preliminary assessments and investigations. Among other factors, developers must also establish that the redevelopment project is not economically feasible without the tax credit and that a project financing gap exists. Again, the standard for such financing “gap” requires that developers will have contributed at least 20% of the total remediation cost and made good faith efforts to raise capital from other sources.

Historic Property Reinvestment Act

The 2020 Economic Recovery Act also authorizes tax credits for certain “transformative projects” that involve rehabilitating qualified historic properties in a manner that generates increased business activity to the surrounding area. Referred to as the “Historic Property Reinvestment Act,” the program targets improvement projects to qualified historic properties as determined by the National or State Registers of Historic Places, the Pinelands Commission, or municipalities. The statute makes up to $50 million in tax credits available generally each year for the next six years, with a 40% cap on rehabilitation costs incurred by a particular recipient. Much like the programs discussed above, the applicable tax credits may be issued by the EDA upon a showing that a project financing gap exists and that the rehabilitation project is not economically feasible without such relief.

New Jersey Community-Anchored Development Act

Perhaps one of the more unique aspects of the 2020 Economic Recovery Act is an incentive program for large-scale development projects centered around non-profit and governmental “anchor institutions” -- referred to in the statute as the “New Jersey Community-Anchored Development Act.” The law makes tax credits available to anchor institutions -- such as colleges and universities, health care institutions and other community-based nonprofit organizations -- for the purpose of investing in targeted development projects, with a particular focus on State-designated opportunity zones and metropolitan areas. This category of incentives is capped at $200 million in tax credits available annually for the next six years.

The above discussion provides a general overview of the New Jersey Economic Recovery Act of 2020, a comprehensive statute with many terms and limitations. Please contact our Real Estate and Land Use Group to evaluate any project-specific questions or for assistance with applications for the available tax credits.

  • W. Nevins  McCann
    Partner

    Nevins McCann has been at the frontline of New Jersey’s legal and political landscape for many years. From major real estate projects to high-stakes litigation, he advises clients on some of the state’s most significant and ...

  • Michael J. Affrunti
    Associate

    Michael Affrunti represents clients on a variety of matters involving land use, construction, labor and employment law, and commercial litigation. With a strong knowledge of federal, state and local government laws, including ...

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