The Aspire Tax Credit Program (Aspire), administered by the New Jersey Economic Development Authority (NJEDA), is 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, the program has quickly become an important tool for real estate developers, with the NJEDA having approved over $2,000,000,000 in tax credits for 22 development projects in municipalities across state.

Despite the success of the program, there are common misconceptions in the real estate community regarding how the program functions in financing development projects. In this post we look to address some of the basics of turning a tax credit award into funding for a development project.

What is an Aspire award?

An Aspire award is the granting of the right to offset either Corporate Business Tax (CBT) or Insurance Premium Tax (IPT) liability in the State of New Jersey, and comes in the form of a Tax Credit Certificate.

When do developers receive their award?

After a development has attained its Certificate of Occupancy, the developer undergoes a process where the NJEDA confirms compliance with the rules of the program. This includes adherence to the prevailing wage guidelines, affordability requirements, the EDA's Green Building Standards, and the terms of a developer's Incentive Award Agreement. The NJEDA will certify the project's eligible costs and establish the size of the award.

The tax credit certificates are then awarded in equal annual installments for the project's eligibility period, which is generally a 10-year period (i.e., a $100,000,000 award is paid over ten years in $10,000,000 installments).

How do developers use Aspire to fund their development?

Developers who receive an Aspire award can either use the tax credit to offset their own tax liability, or sell them to another entity. Generally, real estate holding companies and/or single-purpose entities do not incur CBT or IPT liability, so the sale of the tax credit is necessary to monetize an Aspire award. A developer can find a buyer annually as they receive the tax credit certificates, and retain the funding as cash flow. Alternatively, they can enter an agreement to sell all of the future tax credits, either for an upfront payment or by agreeing to sell all future tax credits at a stipulated price. Lastly, a developer could find a lender to provide upfront funding for the project in the form of a bridge loan that will be serviced by the future sale of those tax credits.

At what price do Aspire tax credits sell for?

The sales price will depend on the developer's negotiations with a potential buyer or lender, but must exceed the minimum price of $0.85 per dollar ($0.75 if utilizing Low-Income Housing Tax Credits).

Although none of the approved Aspire projects have yet to complete construction and sell their tax credits, the NJEDA awards the same type of tax credits (CBT/IPT) through their other incentive programs. The Grow New Jersey Assistance Program (GROW NJ), the Economic Redevelopment and Growth Grant (ERG), and the Emerge programs all award the same type of tax credit, the majority of which are sold.

Additionally, the NJEDA periodically sells the same tax credits through an auction process. A 2023 auction of CBT/IPT tax credits yielded an average price of $0.91 per dollar, and another round of auction sales is awaiting EDA approval.

Lastly, the New Jersey State Legislature is currently contemplating legislation that would require the Department of the Treasury to purchase any unused tax credits for a payment of $0.90 per dollar of tax credits. We are actively tracking this legislation and will provide further updates.

The sale of tax credits involves risk, and the price will fluctuate based on the particulars of a project and market demand, but the monetization of Corporate Business Tax and Insurance Premium Tax certificates is an established process. With $2,000,000,000 in tax credits already awarded through the Aspire program and progressing towards potential monetization, the market will likely become further standardized and structured in the coming year.

For more information, please contact:

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

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