creative financing methods to fund project finance-ppp projects
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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