Last week, the New Jersey Economic Development Authority (NJEDA) Board approved a new $20 million pilot program to support “rising real estate developers”. The Emerging Developer Fund is designed to help developers gain access to capital and build additional capacity to expand their existing portfolio.
Access to capital for “small-scale developers” in the real estate development industry continues to be a challenge according to the NJEDA. These barriers include predatory lending, excessive carrying costs, and predevelopment expenses a developer may encounter. These pre-development costs are incurred by the developer before they can seek short-term construction financing. Often times, new developers lack the resources to cover these types of costs which they are pursuing projects – including design costs, environmental due diligence, site work diligence, permitting costs and the costs to prepare a financial model for a particular project.
The Emerging Developer Fund will provide grants of up to $200,000 to assist small-scale developers with up to 50% of their pre-development soft costs. The program will support “small-scale developers” that have completed at least two – but no more than five – commercial and/or mixed-use properties of similar scope. The creation of the program is intended by NJEDA to address various difficulties that continue to be a constant burden to emerging developers, which limit opportunities to expand their portfolios.
“As we work to revitalize communities across the state, we must ensure new, emerging developers have access to the same opportunities and advantages in order to create an inclusive economy,” said NJEDA Chief Executive Officer Tim Sullivan. “The Emerging Developer Fund will better position small-scale developers to grow and succeed, which will ultimately help build stronger communities. The program’s focus on developers in underserved communities underscore’s Governor Murphy and Lieutenant Governor Way’s commitment to creating a stronger, fairer economy and improving the lives of hardworking New Jerseyans.”
“Projects located in Opportunity Zones or in a Government Restricted Municipality (GRM) will receive an additional $50,000 bonus, increasing its award to $250,000. There are 169 designated Opportunity Zones and three GRM’s, including Atlantic City, Paterson, and Trenton.
According to the NJEDA press release, “soft costs eligible to be covered by the program include, insurance costs, legal fees, utilities, property taxes, construction drawings, and design fees. Costs associated with purchase of property or construction are not eligible.”
Follow the Yellow Brick Road – this program is a nice supplement to the NJ approved federal Opportunity Zone program and recognizes that smaller developers (as well as others) often times have trouble cobbling together the initial costs to pursue change in the various neighborhoods where Opportunity Zones exist in NJ (and beyond). NJEDA’s program will help address some of these issue by providing assistance to help with various soft costs and assist in getting a project moving from ideation to reality. While this may not be sufficient to get a large scale project off the ground, $250,000 can indeed go a long way to helping with environmental review, site review, planning and contracting to get control of a site and help move it to a more likely ability to execute.