On Thursday, December 19, 2024, the New Jersey State Senate and Assembly passed legislation (S1323/A2076) (“Aspire Amendment”) that will significantly change the Aspire Tax Credit Program (“Aspire”), the state’s main developer-focused incentive program, designed to spur residential and commercial development through the provision of tax credits. Established under the Economic Recovery Act of 2020, Aspire has quickly become an important tool for real estate developers, with the New Jersey Economic Development Authority (“NJEDA” or “Authority”) having approved over $2,000,000,000 in tax credits for 25 development projects in municipalities across the state.

The purpose of the memorandum is to provide a detailed overview of the Aspire Amendment, which is anticipated to be signed by Governor Murphy in the coming weeks. The updates to the Aspire program have significant implications for which projects qualify, the size of the potential tax credit and several key aspects that have financial implications for a project that uses the Aspire program.

Below is an overview of the key programmatic changes contained in the Aspire Amendment:

1. Government Restricted Municipalities

The Aspire program has different eligibility thresholds, potential awards, and regulations for projects that are located in municipalities designated as Government Restricted Municipalities (“GRM”). Under the previous statute, only Atlantic City, Patterson and Trenton qualified as GRMs. The Aspire Amendment expands the definition of a GRM, which results in the inclusion of New Brunswick, Camden and East Orange.

Qualifying projects in these newly designated municipalities are now eligible for awards of up to 80% of eligible costs (not to exceed $120M), with reduced thresholds for qualifying for Transformative Projects.

For projects located in municipalities that were previously designated as GRMs (Atlantic City, Paterson and Trenton), the maximum potential award has been increased to 85% of eligible costs (not to exceed $120M).

Further, the Aspire Amendment now allows projects located in a GRM to include the cost of land in their Eligible Costs (up to 20% of Eligible Costs), and also reduces the maximum Eligibility Period to 5 years.

1. Special Mission Non-profit Projects

The Aspire Amendment creates a new potential designation for projects located in a GRM or an Enhanced Area. Those requirements include, among others, projects that:

• Serve a special mission, as determined by the Authority;
• Include no more than 100 units of 100% supportive housing for tenants requiring special needs or social services; and
• Include no more than 25,000 square feet of commercial space for the provision of social service programs.

Projects that qualify as Special Mission Non-profit Projects (“SMNPs”) are exempt from the requirements for the Net Benefits Test, affordable housing, market study, and the Community Benefits Agreement.

These projects are eligible for an award up to 85% of eligible costs (not to exceed $120M).

1. Transformative Projects

In order to qualify as a Transformative Project, the primary benefit being an increased maximum potential tax award of $400M, a project must meet certain thresholds, including a minimum size (number of units and square footage requirements). The amendment reduces the amount of commercial square footage required to qualify as a mixed-use residential development, as follows:

• 200 new residential units in a GRM;
• 300 new residential units in an Enhanced Area;
• 400 new residential units in all other eligible areas; and
• 30,000 square feet of commercial space (reduced from the previous threshold of 50,000).

1. Eligibility Period

The Eligibility Period dictates the period of time under which the developer is required to adhere to certain program requirements, as well as when they will receive their award of tax credits. This has implications for the value of those tax credits and the ability to monetize them.

The Aspire Amendment reduces the maximum Eligibility Period from 15 to 10 years for most projects, and to 5 years for projects located in a GRM or for Special Mission Non-profit Projects. It further allows the NJEDA to approve an Eligibility Period shorter than the prescribed limits.

1. Certification and Reduction in Tax Credit Award

Pursuant to the previous Aspire statute, the NJEDA reserved the right to verify the need for the tax credit up until project completion and conclusion of the certification process. That process could include a project cost audit and confirmation of the financing sources, among other requirements. If the resulting financial analysis showed a return greater than that included in the project’s Board approval, the NJEDA reserved the right to reduce the size of the approved tax credit award.

The Aspire Amendment removes the ability of the NJEDA to decrease the size of the award in the event of excess returns prior to certification but creates a mechanism by which the developer will be required to fund a profit share. The implementation of this profit share will be contingent on the established Eligibility Period and whether the developer has chosen to redeem their tax credits with the New Jersey Department of Treasury.

1. Department of Treasury Purchase of Tax Credits

Under the Aspire program prior to the amendment, developers were allowed to either use the tax credits against their own tax liability or sell them on the market to another entity for the same purposes. The Aspire Amendment allows the developer, if a year has passed since the tax credit has been issued, to sell those credits to the Department of the Treasury for $0.85 per dollar.

If a tax credit is sold to the Treasury after the sixth year of the Eligibility Period, any required payment of excess returns would increase to 50%.

1. Additional updates

The Aspire Amendment further updates several key aspects of the Aspire program:

• Incentive Area. The NJEDA has expanded the Aspire eligible areas.
• Commercial Projects. Amended to include warehouse distribution and fulfillment centers as long as they have at least $10M in qualifying environmental remediation costs.
• Commercial vacancy. Commercial projects must reach 60% occupancy by the 4th year or must forfeit tax credits for that tax period and until the deficiency has been remedied.
• Sale of an Aspire project. The new rules allow the developer to sell the building during the eligibility, “subject to such rules and regulations as may be adopted by the Authority.”
• Phase projects. To qualify as phased, the project must have $50M in Eligible Project Costs, updated from Total Project Costs.
• Prevailing wages. The amendments clarify that the prevailing wage requirements for building services do not apply to residential tenants.
• Previously approved projects. The Aspire Amendment clarifies which regulations apply to projects previously approved for an Aspire award.
• Community Benefits Agreement (“CBA”). Updated requirements concerning community engagement and reporting requirements in the CBA approval process.

For more information on the Aspire Amendment, please contact us:

Chris J. Murphy, Esq.
Chair, Tax Credits & Incentives
Phone: (973) 705-7421
Email: cmurphy@murphyllp.com

Brendan Pytka
Director of Tax Credits & Incentives
Phone: (862) 418-3702
Email: bpytka@murphyllp.com