By Chris J. Murphy, Esq.
Partner, Murphy Schiller & Wilkes LLP
Direct: (973) 705-7421
Email: cmurphy@murphyllp.com
In December of 2020, after nearly a year and a half without statewide real estate incentives, the New Jersey Legislature passed the Economic Recovery Act (EOA) of 2020. The EOA created multiple incentive programs, including the Aspire Program, a gap financing tool to support commercial, mixed-use and residential real estate development project throughout New Jersey. After receiving significant stakeholder feedback and the release of proposed regulations, the New Jersey Economic Development Authority (NJEDA) started accepting applications in January of this year.
This aggressive tax credit program was designed to encourage redevelopment projects using incentive awards to reimburse developers for certain project financing gap costs. The Aspire Program includes incentives for the development of both commercial and residential projects. As with its predecessor, ERG, developers must show that the project is in a qualified incentive area, that without the incentive award the redevelopment project is not economically feasible, and that a project financing gap exists. There are additional requirements based on the nature and overall scope of the project.
Upon project completion, a developer granted an award under the Aspire Program (prior to the project commencing) is entitled to a tax credit ranging from 45 to 60 percent of the total project costs (depending on location and other criteria). Notwithstanding the percentage threshold, awards are further limited to between $42 million and $60 million of the total project costs. Developers seeking awards for newly constructed residential projects are required to reserve at least 20 percent of the residential units for affordable housing and pay prevailing wage in connection with the construction of the project and post-construction building services. Applicants are also required to obtain support from the host municipality’s governing body (and, in specific cases, the municipality’s chief executive officer). The maximum term for commercial or mixed-use projects is 15 years. The maximum term for residential projects is 10 years.
While the NJEDA has yet to approve an award under the Aspire Program, developers are excited about the possibility of a new incentive at the state level. With high costs of construction, and mandates at the municipal level related to affordable housing requirements as part of market-rate development projects, the need for a gap financing tool is critical and welcomed by those trying to operate in a tight market.
Chris J. Murphy, Esq. is a partner at Murphy Schiller & Wilkes LLP, a boutique law firm specializing in commercial real estate, with robust transactional, corporate, finance, land use, and litigation expertise. He leads the firm’s Incentive Advisory Practice Group, along with its Land Use, Zoning and Redevelopment Practice Group. Chris is the co-author of the Financial Incentives Chapter of Commercial Real Estate Transactions in New Jersey (2019, 4th Edition), published by the New Jersey Institute for Continuing Legal Education, a division of the New Jersey State Bar Association. His insight on the topic of real estate incentives has been featured in both regional and national publications, including NJBIZ, Real Estate NJ and The Wall Street Journal.
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