Funding/Financing Redevelopment Projects

Funding/Financing Redevelopment Projects

Panelists:

Joseph P. Baumann, Jr., Esq. – McManimon & Scotland, L.L.C.

Lawrence F. Jacobs, Esq. – Farer Fersko, P.A.

Cheryl J. Oberdorf, Esq. – Wilentz, Goldman & Spitzer, P.A.

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Challenges for Funding/Financing Redevelopment Projects

Capital IntensiveProperty acquisition

Environmental assessment and remediation

Design

Permits and approvals; escrows

Infrastructure improvements

Utilities/utility relocation

Construction of project

Post-construction responsibilities

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Lead Time for ProjectArea in need of process/redeveloper designation/redevelopment agreement

Environmental due diligence

Land acquisition/condemnation

Permits/approvals

RisksRising construction costs

Risk of loss/force majeure

Market risk/viability of project

Interest rates

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Long Term Tax Exemption Law (LTTE)N.J.S.A. 40A:20-12, staged increases and minimum and maximum requirements

PILOTs based upon formula in LTTE may not amortize a large amount of debt

No statutory authority for municipality to pledge PILOT payments to debt service

No priority lien status for PILOT payments to provide security for payment of bonds

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Legislative SolutionsRedevelopment Area Bond

Financing Law (RAB)

Revenue Allocation District

Financing Act (RAD)

Brownfield and Contaminated Site

Remediation Act

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Jersey Gardens

Financed by NJEDA using the Large Site Landfill Reclamation and Improvement Law, N.J.S.A. 40A:12A-50 et seq. Precursor to RAB

Projects FinancedProjects Financed

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1180 Raymond Boulevard, Newark, New Jersey

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Case Study ICase Study I

Project Site

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Historical BackgroundTotal site area = 100+ acres

3 landfills = 70 acres

Onsite disposal operations terminated in mid-1980’s

Landfills not closed in accordance with NJDEP

regulations and present environmental hazard

SiteClose to port facilities, airport and major roadways

Underutilized land

Perfect location for commercial uses

Urban Enterprise Zone

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ProjectRemediation/capping of landfills

Construction of buildings to be used as a distribution

and warehouse center – 1.25m square feet

500 construction jobs

500 permanent jobs created

Remediation Costs Exceed $40 million

Total Project Costs Exceed $120 million

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30-Year Financing Structure Contemplated in Redevelopment Agreement

Use of RAB or RAD to finance all or a part of remediation costs

Conventional financing to pay for vertical development and other remediation costs

Developer’s equity and grants fund remainder

Annual Service Charges = Pledged Annual Service Charges (debt service plus

land taxes) from $1.8 million to $2.9 million over 30 years

Unpledged Annual Service Charges – from $75,000 to $200,000 over 30 years

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Financing Structure for Remediation CostsRAB

NJEIT

Public Entity Guaranty of Debt Service on NJEIT Bonds

Parent Guaranty of Financial Obligations under Redevelopment Agreement and Reimbursement Obligations to Public Entity

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Features of RAB

Redevelopment Project in Redevelopment Area

Tax Abatement granted on project site improvements

Tax Abatement and Financial Agreement authorized through adoption of ordinance after tax abatement application is submitted, accepted and approved pursuant to LTTE

Special assessments in lieu of or in addition to tax abatement also authorized by ordinance

Under RAB, provisions of LTTE, N.J.S.A. 40A:20-12, -13, do not apply to redevelopment projects financed with bonds (minimums, maximums and required staged increases and relinquishment of status)

Bonds authorized to be issued and bonds may be secured by both PILOT payments/special assessments

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PILOT payments constitute a continuous municipal lien on the subject property with super priority over non-municipal liens; ordinance is recorded on site, upon payment of bonds, lien terminates Payments are assigned to bond trustee as payment/ security for the bondsPayments are not included in public entity’s general funds and are not subject to laws regarding receipt, deposit, investment or appropriationBonds are considered non-recourse obligations unless public entity agrees to guarantee such bonds; full faith and credit leases also authorizedConduit financing entities may be utilized to finance projects (NJEDA, State Redevelopment Authority or any other authority with the power to incur debt and issue bonds)

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Local Finance Board review and approval required: Comments solicited from the office of State Planning, NJEDA

and the public

Does project or plan promote concepts to reduce congestion, enhance mobility, assist in redevelopment of municipalities and improve quality of life for citizens?

PILOTS may be secured by a mortgage on the property and may be pledged to repayment of bonds

Compliance with public bidding laws not required

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Zero percent interest rate on fund loan - 50% of remediation costs

Market interest rate on trust loan – 50% of remediation costs

Level debt service payments

Twenty year amortization

NJEIT

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Financial CommitmentAnnual Service Charges = Pledged Annual Service Charges + Unpledged Annual Service Charges

Pledged Annual Service Charges

Level Debt Service on NJEIT Bonds = to approximately $2,500,000 annually amortized over 20 years PLUS an amount equal to land taxes paid in the preceding year

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Unpledged Annual Service Charges to Public EntityYear 1 - 5 $107,000

annually

Year 6 - 10 $143,000 annually

Year 11 - 15$179,000 annually

Year 16 – 20$215,000 annually

County Portion = 5% of the total Annual Service Charges

Credit for Land Taxes paid in the preceding year

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Advantages of RAB/NJEIT Financing

Ability to pledge PILOT payments to repay debt

Ability to structure debt repayment based upon cash flow of project

Blended interest rate – 2005 effective interest rate = 2.13% (tax-exempt) (NJEIT)

Facilitates public private partnerships

Public bidding of construction contracts not required