In this current economic environment, financing is key to any development project. It can make it come to life and it can keep it alive. Government grants can be critical components in real estate development projects, providing a significant source of revenue without interest and without any loss of equity. A relatively new arrow in the quiver of such government financing programs is the Economic Redevelopment and Growth (“ERG”) Program offered through the Economic Development Authority of the State of New Jersey.
This program, established by the New Jersey Economic Stimulus Act of 2009, provides incentive grants to developers of real estate in the State. The property involved may be a “Brownfield” or a “Greenfield”. Grants of up to 20% of the total project cost can be authorized based on the incremental tax revenue generated from the project. Developers are eligible to receive up to 75% of the incremental increase in approved State revenues directly realized from the businesses operating in the redevelopment project.
What is appealing about this program is that it may be utilized with the other reimbursement and grant programs. For example, monies recovered pursuant to the Brownfield Reimbursement program, that allows for reimbursement of up to 75% of qualifying remedial expenses, can be supplemented with an ERG grant. Moreover, the ERG program reimburses costs that are not reimbursable under the Brownfield program such as the cost of property acquisition, legal fees and other soft costs. For that reason, it is important to look at all of the grant or incentive programs together, determine which may be applicable and evaluate how best to maximize potential grant contributions.
Eligibility criteria for an ERG grant include the following:
- The project must be in Planning Area 1 or 2 as designated pursuant to the State Development and Redevelopment Plan. This covers much of the urban and suburban areas of the State.
- The developer must not have commenced construction (limited exceptions are allowed to this requirement).
- There must be a financing gap. The EDA defines such a gap as the difference between the projected rate of return on the particular project and the market rate of return calculated by the EDA. The EDA has created a number of scenarios in which they predict standard, market rates of return by various types of projects. If the subject project can demonstrate a lower rate of return than the default predicted rate of return, the EDA will agree that there is a financing gap.
- The overall public assistance provided to the project must result in a net benefit to the municipality and state. A net positive economic benefit is defined as at least 110% of the amount of the grant.
- The developer must have an equity stake of at least 20% of the project’s total cost.
- For projects consisting of newly-constructed residential units, the developer must reserve at least 20% of the residential units constructed for occupancy by low or moderate income households.
ERGs are available on both the local and state level.
There are a number of other programs that offer various incentives. One of the most significant of these is the Business Employment Incentive Program that is available to companies that are relocating or expanding in New Jersey. This program offers an annual cash grant equivalent to a percentage of state income tax withholdings for new hires. A company is eligible if it creates at least 25 net jobs (10 in the case of businesses in the HighTech/Biotech industry cluster). Lieutenant Governor Kim Guadagno has pledged her personal support for companies looking to relocate to or expand in New Jersey and promises to work closely with them to identify all relevant incentives.
In short, not only is there a light at the end of the tunnel, but there are a number of lights in the tunnel itself that should be thoroughly explored in all development projects in the State.