Developers: Incentives, credits get new projects ‘over the goal line’It’s been a month since the New Jersey Economic Stimulus Act was signed into law, and already there is a line of real estate developers looking to take advantage of its benefits, which they say will plug financing shortfalls and move projects forward.
Since the enactment of new legislation, Jerold L. Zaro, chief of the state Office of Economic Growth, said he has spoken with dozens of developers and companies interested in taking advantage of the stimulus act’s benefits. The state is in “very active discussions” with more than a half a dozen of the world’s largest companies, Zaro said: “In a short period — perhaps 30, 60 days — I would be very disappointed if we weren’t making major announcements of major companies of major significance availing themselves of these programs.”
These programs “could mean the difference between treading water with these projects until the economy recovers in three, four, five years from now, or commencing work within a year,” said Carl Dranoff, president of Dranoff Properties, a Philadelphia-based multifamily developer. “There’s going to be dozens of projects throughout the state that will really get to the finish line.”
Dranoff plans to use the Urban Transit Hub Tax Credit program for Two Center Street, a mixed-use residential and retail development on a 1.2-acre site in Newark, and Radio Lofts, an 86-unit loft condominium project on the Camden waterfront.
Under the stimulus act, the tax credit program has been amended to allow developers of residential projects in an urban transit hub to receive a credit of up to 20 percent of its capital investment. To qualify, the developer must make capital investments of at least $50 million and demonstrate that the project would not be feasible without the credit.
Two Center Street, which will cost more than $200 million, could yield a $20 million tax credit, while the tax credit for the $65 million Radio Lofts could be worth up to $7 million, Dranoff said. “This tax credit puts you over the goal line to get the final funds to make a project workable,” he said. The financing gap for Two Center and Radio Lofts could be as much as 10 percent, he said.
Without the credit, it would have been difficult to obtain the additional funds needed to proceed with both projects, Dranoff said. “In this environment, there’s many, many potholes and obstacles to secure financing,” he said, particularly in “the more hard-pressed cities and towns in the state.”
Within the next 60 to 90 days, the company will submit detailed financial pro-formas to the state Economic Development Authority, which will determine the financing need of the project, said Dranoff, who hopes the company will be able to secure a commitment for the tax credits within three months of submitting the application.
The Hoboken Brownstone Co., a residential developer based in the Mile Square City, also faced a shortfall in the financing for its Van Leer Place project in Jersey City.
The developer is in the process of obtaining a nonrecourse loan through the U.S. Department of Housing and Urban Development, and has a preliminary financing commitment of $29 million for the first phase of the project — the $35 million construction of 159 rental apartments, said George Vallone, president of Hoboken Brownstone. The project — which also would include 260 condominiums — carries a $120 million price tag, he said.
Filling that $6 million gap seemed like a major challenge, he said, but “then the governor’s economic stimulus program came out, and it was almost like a godsend,” he said, since a 20 percent tax credit under the Urban Transit Hub Tax Credit program would essentially fill the financing gap.
Hoboken Brownstone expects to meet with the EDA this month to determine if they are eligible for the credit, Vallone said. If the project is ineligible, he said he’ll try to renegotiate the terms of a $3 million seller mortgage on the property, put more of his own money into the project and convince investors to contribute more funds.
“But that’s a tough, tough road in this economic climate right now,” he said. “The ultimate backup plan is to shut everything down and mothball the project.”
Meanwhile, a provision in the stimulus act that exempts certain projects from a 2.5 percent development fee “definitely could be a positive boost to us,” said Rick Cureton, president of Whitesell Construction Co. Inc., in Delran.
The suspension of the fee could help the developer to potentially save a total of $50,000 on its proposed Lumberton Professional Office Building, a two-building, 15,000-square-foot office property in Lumberton, he said. The savings will in turn allow the developer to be more competitive in its rents for tenants, Cureton said. Whitesell is applying for building permits based on a revised site plan for the $2.25 million project, which is expected to break ground in September.
“Hopefully, the market recovers quickly enough next year that we could take advantage of the moratorium,” Cureton said.
Without sufficient demand, a project wouldn’t make financial sense, even with the moratorium, he said: “There still has to be some sort of market out there.”
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