New Jersey developers can soon take advantage of the Residential Economic Redevelopment and Growth (ERG) Program...
New Jersey developers can soon take advantage of the Residential Economic Redevelopment and Growth (ERG) Program. The program, which was relaunched under the Economic Recovery Act of 2020, will begin accepting applications on June 1, 2021.
As discussed more fully in prior articles, Gov. Phil Murphy signed the Economic Recovery Act into law on January 7, 2021. The new law authorizes up to $11.5 billion in new economic development incentives over a seven-year period. The programs are designed to foster redevelopment, create jobs, and attract new businesses to the state. While many of the incentives are new, others are revamped versions of existing programs, such as the ERG Program. It expired in 2019.
“The extension of the residential portion of the ERG Program will support investment in projects that offer attractive housing options for families while revitalizing surrounding neighborhoods,” New Jersey Economic Development Authority (NJEDA) Chief Executive Officer Tim Sullivan said in a press statement. “The inclusion of $50 million for the ERG program by Governor Murphy and the Legislature will help advance projects that are ready to move forward now, while the new programs created by the Economic Recovery Act are taking shape.”
Updated Residential ERG Program
The ERG Program is an economic incentive intended to help developers and businesses address revenue gaps in development projects. It can also apply to projects that have a below-market development margin or rate of return. The grant is not intended to take the place of conventional debt and equity financing, and the NJEDA advises that applicants should generally have their primary debt financing in place before applying.
Under the Economic Recovery Act, residential ERG projects can receive tax credits of up to 30 percent of total eligible project costs. Projects in five cities — Atlantic City, Camden, Paterson, Passaic, and Trenton – are eligible to receive tax credits up to 40 percent of eligible project costs.
To participate in the program, residential projects must meet the following eligibility requirements:
Include multi-family residential units or dormitory units for purchase or lease.
Be located in a qualifying incentive area and have projects costs totaling $5 million, $10 million or $17.5 million, depending on location
Not have commenced any construction at the site of a proposed redevelopment project prior to submitting an application, except that if the NJEDA determines that the project would not be completed otherwise, or in the event the project is to be undertaken in phases.
Demonstrate that a project financing gap exists.
Reserve at least 20 percent of units constructed for occupancy by low or moderate-income households with affordability controls as required under the rules of the Council on Affordable Housing, unless the municipality in which the property is located has received substantive certification from the council and such a reservation is not required under the approved affordable housing plan, or the municipality has been given a judgment of repose or a judgment of compliance by the court, and such a reservation is not required under the approved affordable housing plan.
The expanded ERG program will be administered based on pre-existing ERG regulations and statutes, as amended by the Economic Recovery Act. Under the amendments to the ERG program, program participants must comply with new prevailing wage and minimum wage requirements. In order to receive ERG support, projects must also meet Green Building Requirements. Any construction contracts associated with the project must use prevailing wage labor rates and meet affirmative action requirements. The developer must also submit satisfactory evidence of actual project costs prior to the first disbursement of funds under the agreement or issuance of the tax credit under the approval letter, as applicable.
What’s Next?
According to the NJEDA, it plans to publish a solicitation (or call for applications) document with further information about this process in early April. In the meantime, interested entities should review the program’s eligibility requirements and determine if their projects may qualify.
The NJEDA is also working to launch the Aspire program, which will eventually replace the ERG program. Like its predecessor, the Aspire Program will serve as a gap financing tool to support commercial, mixed-use, and residential real estate development projects. Under the new program, developers can obtain up to 45% of project costs in the form of tax credits if the project meets certain requirements. The NJEDA is expected to announce additional detail about the program in the coming months.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Junjuan Song, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
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