Month: December 2024

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.

2. 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).

3. 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).

4. 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.

5. 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.

6. 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%.

7. 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

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

As New Jersey and the world approaches 2025, the convergence of evolving zoning laws and breakthroughs in Artificial Intelligence (AI) promises to revolutionize the historically slow-moving real estate sector. This article explores anticipated changes and the strategic impact of AI, providing a blueprint for lawmakers, financers, investors, and developers poised to navigate this new terrain.

Evolving Zoning Laws: A Look Ahead

Zoning laws form the backbone of urban planning and real estate development. In 2025, I anticipate several transformative trends in New Jersey:

1. Flexibility in Zoning: Adaptive zoning laws will likely emerge to accommodate the diverse needs of modern urban landscapes, supporting mixed-use developments that blend residential, commercial, and recreational spaces efficiently – with a focus on affordability.
2. Sustainability Mandates: With environmental resilience at the forefront after COP29, expect stringent green zoning initiatives that mandate sustainable building practices, potentially including incentives for developers adopting green technologies.
3. Transit-Oriented Development: Enhancing connectivity and reducing carbon emissions, zoning may prioritize developments around transit hubs, encouraging more compact, walkable communities.
4. Streamlined Processes: Anticipate simplified approval processes aimed at reducing development lead times, facilitated by digital platforms that offer real-time application status updates to developers.

AI’s Transformative Role in Real Estate

AI’s integration into real estate promises to expedite processes, enhance accuracy, and unlock new opportunities:

1. Predictive Analytics: Advanced algorithms will analyze vast datasets to predict market trends and property valuations with unprecedented precision, helping stakeholders make informed decisions swiftly.
2. Automated Regulatory Compliance: AI-driven systems will streamline plan reviews and compliance checks, significantly reducing approval times and increasing the pace of development.
3. Virtual Engagement Tools: Interactive platforms using AI will enhance stakeholder participation in the planning process. Virtual and augmented reality technologies will allow users to visualize and modify project proposals in real-time, fostering collaborative decision-making like technology in creation in BeyondView labs.
4. Blockchain and Smart Contracts: These technologies will automate transactions, from leases to development agreements, with conditions that are securely and transparently managed, speeding up processes and reducing disputes.

Case Study: Urban Tech Revitalization in Jersey City, New Jersey

The Steel Tech redevelopment project in Jersey City exemplifies the use of advanced technology in urban development. Managed by Dresdner Robin, this initiative transforms a 3.3-acre brownfield site into a vibrant mixed-use complex. The development showcases a 190-foot residential tower, business incubator facilities, public plazas, a recreation center, and a pedestrian mall that connects to Berry Lane Park, one of the city’s largest parks. This project not only revitalizes the area but also integrates state of-the-art design and planning techniques to foster a dynamic urban environment.

The Steel Tech redevelopment project in Jersey City exemplifies the integration of advanced technology in urban planning. Utilizing virtual reality and 3D rendering, the project facilitates precise planning and visualization, allowing stakeholders to explore design outcomes before physical construction commences. This use of cutting-edge tools not only expedites the design approval process but also enhances communication, clearly presenting the potential impacts and benefits of the redevelopment.

Moreover, the project prioritizes sustainable development and community involvement. It features affordable housing and designates commercial spaces specifically for minority-, women-, and veteran-owned businesses. This strategy not only meets local economic development goals but also fosters a more inclusive community environment.

By leveraging innovative technologies and emphasizing community focused development, the Steel Tech project stands as a leading example of modern urban redevelopment strategies in New Jersey. This approach not only addresses current urban challenges but also sets a precedent for future real estate development projects aiming to combine technological advancement with community welfare.

Expert Insight: The Future of Urban Planning

Christopher A. Watson, winner of the American Planners Association’s 2024 Daniel Burnham Award for Excellence, a noted urban planner and Director of Planning and Development Services at Murphy Schiller & Wilkes LLP (MSW), asserts, “Good urban planning reflects a community’s values through its built environment, a human-centered process AI cannot replace. However, AI enhances planning by modeling future spaces and analyzing costs with speed and precision. It brings predictability to real estate development while preserving the vital role of human insight. As a tool, AI complements planners, enabling them to shape spaces that truly serve their communities.”

Case Study: BeyondView’s Digital Twin Technology

BeyondView, a leader in digital twin technology, is revolutionizing the real estate industry by creating precise, interactive, and photorealistic digital replicas of physical structures. This cutting-edge technology enables comprehensive virtual management of real estate operations, including marketing, design, repositioning, and asset management. By leveraging advanced algorithms such as computer vision, machine learning, and deep learning, BeyondView enhances property marketing and management, helping to accelerate leasing processes and reduce operational costs.

This technology offers significant benefits for local and global corporations. It can streamline due diligence and realize cost savings. Furthermore, international firms from Africa, in collaboration with organizations like the Pan-African Council, Corporate Council on Africa, and U.S.-Africa Trade Commission, as well as entities from Israel, Asia, and the United Arab Emirates (UAE), seeking to establish their corporate presence in New Jersey, now have a tool that simplifies prospecting real estate and makes it more cost-effective to globalize. By partnering with the New Jersey Economic Development Authority’s Department of Innovation and Partnerships for assistance with relocating to New Jersey, these entities can utilize BeyondView to drastically reduce due diligence costs and simplify their decision-making processes.

Leadership Impact: Kul Wadhwa and Peter Cuneo

Kul Wadhwa, CEO of BeyondView and a seasoned entrepreneur, drives continuous innovation at the company, establishing it as a pivotal tool for real-time visualization and efficient data management in real estate. Under the strategic guidance of Peter Cuneo, Chairman of the Board and a renowned turnaround specialist, BeyondView leverages its technological prowess to set new standards in the commercial real estate market. Cuneo’s leadership prowess, honed at companies like Marvel Entertainment which he steered away from bankruptcy towards a $4.5 billion sale to Disney, provides BeyondView with unmatched strategic direction.

Transformative Vision in Leadership

During my recent executive discussion with Kul and Peter, the transformative impact of BeyondView’s technology was highlighted: “BeyondView is not merely adapting to changes in the real estate landscape; it is actively forging the future, merging cutting-edge digital twin technology with traditional practices to revolutionize property management. My commitment is to innovate today to build the cities of tomorrow,” articulated by BeyondView CEO Kul Wadhwa.

The integration of AI into New Jersey’s zoning laws represents more than technological advancement—it signifies a pivotal shift towards more dynamic, sustainable, and efficient urban development. For our legislative leaders, proactively thinking about and embracing these changes will be key to fostering environments that attract cutting-edge development and high quality life.

Engage with Me

What changes do you foresee in your local zoning laws by 2025? How do you envision AI impacting the real estate landscape? Share your thoughts and experiences in the comments below or reach out directly via LinkedIn messaging.

For more information, please contact:

Roosevelt J. Donat
Special Counsel
Land Use, Zoning and Redevelopment
Phone: (973) 705-7414
Email: rdonat@murphyllp.com

Newark, NJ, December 9, 2024 – Murphy Schiller & Wilkes (MSW) is pleased to announce that Sean Callahan and Briana Stackpole have joined the firm.

Sean C. Callahan has joined the firm as Partner in the Construction Law and Litigation practice groups. Throughout his over 25 years as a practicing lawyer, Sean has represented some of the most prominent developers, owners, general contractors, subcontractors, construction managers, and design professionals in New York and New Jersey. Prior to joining the firm, Sean was a partner at one of New Jersey’s top full-service law firms. He received his law degree from the University of Georgia School of Law, and his undergraduate degree from Davidson College.

“I have known Sean for 10 years and we are thrilled to be adding him to our rapidly expanding practice,” says Anthony Capasso, chair of the firm’s Litigation and Construction Law practice groups. “Sean is an exceptional resolution-oriented attorney who appreciates that as litigators we are justified by the results that we achieve for our clients. Sean has secured countless hard-fought victories for his clients at the very highest levels of New York and New Jersey practice.”

Briana Stackpole has joined the firm as Counsel in the firm’s Transactional practice group. In this role, Briana will represent the firm’s numerous institutional clients in connection with a variety of transactional, leasing and financing matters in New Jersey, New York and throughout the country. Prior to joining the firm, Briana was an attorney at an AM100 law firm, where she handled a variety of complex commercial real estate transactions throughout the country. She received her law degree from Brooklyn Law School, and her undergraduate degree from Muhlenberg College.

“We are incredibly excited to welcome Briana to MSW. Briana joins the firm after obtaining considerable experience at her prior firm in New York City, and I have no doubt that she will quickly become an important member of MSW’s transactional group,” says Matthew J. Schiller, a founding member of the firm. “At MSW, we are continuously striving to attract and develop the best talent in the marketplace in order to provide unparalleled legal services to our clients. We look forward to watching Briana continue to advance her career at MSW and enhance our team with her considerable skillset.”

The regulatory landscape in the U.S. is evolving rapidly, with psychedelics emerging as a transformative frontier. New Jersey is poised to join other states in legalizing psilocybin by 2025, elevating zoning and land use law as a critical consideration. Senate Bill S2283, the “Psilocybin Behavioral Health Access and Services Act,” represents a bold step toward regulating psilocybin production and therapeutic use, promoting health and wellness.

Introduced on January 9, 2024, by Senator Nicholas P. Scutari, the bill outlines a comprehensive framework for licensing, oversight, service delivery, and legal safeguards, including decriminalization and expunging past offenses. These developments present significant opportunities for attorneys, developers, investors, and lenders, but navigating this uncharted territory requires strategic legal expertise.

Key Provisions of Senate Bill S2283

1. Regulatory Oversight:
   Establishes a comprehensive licensing and compliance system for psilocybin manufacturing, testing, and service centers.
2. Advisory Board:
   Creates a Psilocybin Behavioral Health Access and Services Advisory Board within the Department of Health to guide implementation and ensure best practices.
3. Legal Protections:
   Decriminalizes authorized psilocybin activities and expunges past offenses, providing safeguards for participants in the industry.
4. Community Engagement:
   Allows municipalities to implement local restrictions, provided they align with state guidelines

These provisions position New Jersey among the pioneering states crafting a regulated framework for therapeutic psychedelics, drawing parallels to early cannabis legislation.

Why Municipalities Should Consider Psilocybin Wellness Centers

1. Innovative Mental Health Solutions:
   Psilocybin therapy offers evidence-based treatments for conditions like depression, PTSD, and anxiety, improving individual well-being and reducing healthcare costs.
2. Economic Growth and Tax Revenue:
   Wellness centers boost local property values, generate tax revenue, and stimulate job creation, driving economic growth while enhancing public services.
3. Safe and Regulated Access:
   Legalizing psilocybin ensures controlled administration in professional settings, reducing risks and fostering community trust.
4. Advancing Research and Innovation:
   Partnerships with academic institutions position municipalities as hubs for cutting-edge research, attracting grants and bolstering their reputation.
5. Reduced Criminal Justice Costs:
   Shifting from criminalization to regulation alleviates strain on the justice system, saving taxpayer dollars and reallocating resources effectively.

Navigating Zoning Challenges: A Roadmap for 2025

As psilocybin transitions from niche research to a commercial industry, businesses must overcome key zoning hurdles:

• Defining Psychedelics in Zoning Codes:
  Collaborate with municipalities to draft precise ordinances that categorize psychedelics distinctly from medical or retail industries.
• Addressing Stigma and Community Resistance:
  Build public trust through transparent communication supported by data and community engagement.
• Ensuring Compatibility with Existing Land Uses:
  Strategically select sites to avoid conflicts, such as proximity to schools or residential zones.
• Managing Special Use Permits and Overlay Zones:
  Prepare for municipalities to require specific permits or zoning overlays, adding layers to the approval process.

We Have Been Here Before: Key Lessons from the Cannabis Industry’s Evolution

The rapid growth of cannabis offers a blueprint for navigating the psychedelics industry:

1. Start Early: Engage legal experts during site selection to anticipate zoning challenges.
2. Educate Stakeholders: Provide data-driven presentations to reduce opposition.
3. Iterate and Adapt: Plan for evolving regulations and build flexibility into business models.

Strategic Legal Counsel: The Key to Success

As a seasoned land use attorney, I provide expert guidance tailored to this emerging industry, including:

• Regulatory Advocacy: Drafting zoning codes that balance growth with community concerns.
• Community Engagement: Building stakeholder support for projects.
• Transactional Support: Ensuring compliance during property acquisitions and lease negotiations.
• Litigation: Defending clients against zoning appeals or unreasonable restrictions.

Why Developers and Investors Should Act Now

New Jersey’s progressive planning positions it as a leader in the psychedelics industry. Early adopters can secure first-mover advantages, but navigating this space requires expert legal guidance. With extensive experience in land use law, I am equipped to help you capitalize on these opportunities while avoiding regulatory pitfalls.

Future-Proofing Your Approach

Prepare for the psychedelics industry with these strategies:

• Collaborate with Experts: Engage multidisciplinary teams of attorneys, consultants, and regulators.
• Monitor Policy Developments: Stay informed on updates to zoning laws and legislation like S2283.
• Prioritize Flexibility: Design adaptable site plans to accommodate evolving regulations.

Psychedelics: Beyond Business

This industry is not just about economic potential—it represents a new era in mental health care. Thoughtful zoning policies can facilitate access to transformative treatments, supporting both public health and sustainable growth. Developers, investors, and lenders are not just funding businesses—they are shaping an industry with profound societal impact.

Shaping the Future, Together

As New Jersey prepares for the rise of the psychedelics industry, now is the time to act. Whether you are a developer, investor, or attorney exploring this space, I am here to provide the strategic guidance you need. Let’s work together to create zoning frameworks that foster innovation, drive economic growth, and respect community values.

Feel free to connect with me on LinkedIn to discuss emerging trends and opportunities. Together, we can build the future of psychedelics zoning.