11-23-12

4C — November 23 - December 6, 2012 — Professional Services — Mid Atlantic Real Estate Journal

www.marejournal.com

l and u Se a TToRney

By Nicholas F. Talvacchia, Cooper Levenson, Attorneys at Law ERGG: An effective tool for economic development

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n 2009, New Jersey adopted an Economic StimulusAct (the “Act”),

up to 75% of certain State and municipal incremental taxes and fees generated by a project. The New Jersey Economic Development Au- thority (“EDA”) administers the State ERGG program. Municipalities and the State Local Finance Board admin- ister local ERGGs. The Act allows annual redevelopment incentive grants to be paid for up to 20 years. Grants are capped at 20% of eligible project costs. Eligible project costs are costs incurred until a Certification of Completion

is obtained. It includes costs for land, buildings, improve- ments, remediation, and soft costs. It excludes costs for which a project receives funding from a State grant. ERGGs may be approved for only certain areas in- cluding: Planning Area 1; Planning Area 2; a center designated by the State Plan- ning Commission; Pinelands regional growth areas, town management areas, villages and certain federally owned land; Federal military bases scheduled for closure; and certain Meadowlands Com-

mission areas. Eligibility requirements for an ERGG approval in- clude: (i) the project must be located in a qualifying incentive area; (ii) existence of a financing gap; (iii) net benefits to the State and/or municipality equal to at least 110% of the grant; and (iv) 20% developer equity con- tribution which may include local and federal grants and federal tax credits. Taxes and fees eligible for rebate include: (i) State Taxes: Corporation Business TaxAct; distributive share of

partnership income, or a pro rata share of S corporation income under the New Jersey Gross Income Act; the Sales and Use TaxAct; tax imposed from the purchase of materi- als used for remediation, con- struction of new structures, or the construction of new residences at the site of a re- development project; and the hotel and motel occupancy fee; and (ii) Municipal Taxes: incremental payments in lieu of taxes made pursuant to the Five-Year Exemption and Abatement Law, or the Long Term Tax Exemption Law; and the property tax increment. A State ERGG requires approval by the EDA. A Lo- cal ERGG requires approval by the municipality and the State Local Finance Board. A municipality must adopt an ordinance to establish a Local ERGG program. Developers may apply for a Local ERGG or State ERGG or both. The EDA must validate the project financing gap and undertake the net benefits analysis for both State and Local ERGG applications as follows: (i) Evaluate proposed proj- ect costs; (ii) The financing gap anal- ysis includes an evaluation of total project costs, proposed rental rates, vacancy rates, internal rate of return, net profit margin, return on in- vestment and cash on cash yield in comparison to mar- ket ranges for such items; and (iii) Determine whether the grant provided will result in net positive economic ben- efits in terms of new taxes. The financing gap analysis is a determination that the project without the grants has a below market rate of return and with the grants has an acceptable rate of return to the developer. Once approved, a developer must execute a Grant Agree- ment. State ERGGs have affirmative action and pre- vailing wage provisions for construction of the project. The annual grants may be pledged or assigned. Nicholas F. Talvacchia is a partner with Cooper Lev- enson, Attorneys at Law and chairman of the Land Use practice group. n

which cre- a t e d t h e E c o n om i c Redevelop- ment Grant G r o w t h p r o g r a m ( “ERGG” ) . ERGG is a State tax in- crement fi-

Nicholas F. Talvacchia

nancing law that authorizes incentive grants to develop- ers in the form of rebates of

NEW JERSEY IS OPEN FOR BUSINESS! OUR CLIMATE FOR NEW DEVELOPMENT IS BETTER THAN EVER!

Let us help with your project. Land use, environmental, redevelopment, tax

Our Land Use attorneys, led by Department Chair Nicholas Talvacchia, help developers obtain local and state approvals for projects and development incentives for those projects. Nick has extensive experience in obtaining land use approvals, including state environmental permits. He has negotiated a multitude of redevelopment agreements. Clients depend on Nick to guide them through the application process: • Municipal Land Use Throughout New Jersey • New Jersey Department of Environmental Protection • Coastal Area Facility Review Act ("CAFRA") • Green Acres Program, including diversion applications • Waterfront Development permits • New Jersey Department of Transportation

incentives, and more. Representative projects - $2.4 billion oceanfront resort redevelopment project

- $280 million 600 room hotel tower - $35.5 million oceanfront pier with restaurant and retail - $50 million 280 room hotel tower - $70 million 359 room hotel tower casino expansion - $245 million 1200 room hotel tower - telecommunications/cell site approvals for major cell phone carriers - $10 million electric substation - national chain approvals, including home improvement and pharmacy stores

Nick has successfully litigated denials of state and local permits.

Contact Nick at 609.572.7544 or ntalvacchia@cooperlevenson.com

www.cooperlevenson.com NEW JERSEY PENNSYLVANIA DELAWARE NEVADA

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