Funding/Financing Redevelopment Projects Panelists: Joseph P. Baumann, Jr., Esq. – McManimon & Scotland, L.L.C. Lawrence F...
<ul><li>Challenges for Funding/Financing Redevelopment Projects </li></ul><ul><ul><li>Capital Intensive </li></ul></ul><ul...
<ul><ul><li>Lead Time for Project </li></ul></ul><ul><ul><ul><li>Area in need of process/redeveloper designation/redevelop...
<ul><li>Long Term Tax Exemption Law (LTTE) </li></ul><ul><ul><li>N.J.S.A. 40A:20-12, staged increases and minimum and maxi...
<ul><li>Legislative Solutions </li></ul><ul><ul><li>Redevelopment Area Bond  </li></ul></ul><ul><ul><li>Financing Law (RAB...
<ul><li>Jersey Gardens </li></ul><ul><ul><li>Financed by NJEDA using the Large Site Landfill Reclamation and Improvement L...
 
<ul><li>1180 Raymond Boulevard, Newark, New Jersey </li></ul>
Case Study I Project Site
<ul><li>Historical Background </li></ul><ul><ul><li>Total site area = 100+ acres </li></ul></ul><ul><ul><li>3 landfills = ...
<ul><li>Project </li></ul><ul><ul><li>Remediation/capping of landfills  </li></ul></ul><ul><ul><li>Construction of buildin...
<ul><li>30-Year Financing Structure Contemplated in Redevelopment Agreement </li></ul><ul><ul><li>Use of RAB or RAD to fin...
<ul><li>Financing Structure for Remediation Costs </li></ul><ul><ul><li>RAB </li></ul></ul><ul><ul><li>NJEIT </li></ul></u...
<ul><li>Features of RAB </li></ul><ul><li>Redevelopment Project in Redevelopment Area </li></ul><ul><li>Tax Abatement gran...
<ul><li>PILOT payments constitute a continuous municipal lien on the subject property with super priority over non-municip...
<ul><li>Local Finance Board review and approval required:  </li></ul><ul><ul><li>Comments solicited from the office of Sta...
<ul><li>Zero percent interest rate on fund loan - 50% of remediation costs </li></ul><ul><li>Market interest rate on trust...
<ul><li>Financial Commitment </li></ul><ul><ul><li>Annual Service Charges = Pledged Annual Service Charges + Unpledged Ann...
<ul><ul><ul><li>Unpledged Annual Service Charges to Public Entity </li></ul></ul></ul><ul><ul><ul><ul><li>Year 1 - 5 $107,...
<ul><li>Advantages of RAB/NJEIT Financing  </li></ul><ul><li>Ability to pledge PILOT payments to repay debt </li></ul><ul>...
Upcoming SlideShare
Loading in …5
×

Creative Financing Methods to Fund Project Finance-PPP Projects

1,415 views

Published on

  • Be the first to comment

Creative Financing Methods to Fund Project Finance-PPP Projects

  1. 1. 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.
  2. 2. <ul><li>Challenges for Funding/Financing Redevelopment Projects </li></ul><ul><ul><li>Capital Intensive </li></ul></ul><ul><ul><ul><li>Property acquisition </li></ul></ul></ul><ul><ul><ul><li>Environmental assessment and remediation </li></ul></ul></ul><ul><ul><ul><li>Design </li></ul></ul></ul><ul><ul><ul><li>Permits and approvals; escrows </li></ul></ul></ul><ul><ul><ul><li>Infrastructure improvements </li></ul></ul></ul><ul><ul><ul><li>Utilities/utility relocation </li></ul></ul></ul><ul><ul><ul><li>Construction of project </li></ul></ul></ul><ul><ul><ul><li>Post-construction responsibilities </li></ul></ul></ul>
  3. 3. <ul><ul><li>Lead Time for Project </li></ul></ul><ul><ul><ul><li>Area in need of process/redeveloper designation/redevelopment agreement </li></ul></ul></ul><ul><ul><ul><li>Environmental due diligence </li></ul></ul></ul><ul><ul><ul><li>Land acquisition/condemnation </li></ul></ul></ul><ul><ul><ul><li>Permits/approvals </li></ul></ul></ul><ul><ul><li>Risks </li></ul></ul><ul><ul><ul><li>Rising construction costs </li></ul></ul></ul><ul><ul><ul><li>Risk of loss/force majeure </li></ul></ul></ul><ul><ul><ul><li>Market risk/viability of project </li></ul></ul></ul><ul><ul><ul><li>Interest rates </li></ul></ul></ul>
  4. 4. <ul><li>Long Term Tax Exemption Law (LTTE) </li></ul><ul><ul><li>N.J.S.A. 40A:20-12, staged increases and minimum and maximum requirements </li></ul></ul><ul><ul><li>PILOTs based upon formula in LTTE may not amortize a large amount of debt </li></ul></ul><ul><ul><li>No statutory authority for municipality to pledge PILOT payments to debt service </li></ul></ul><ul><ul><li>No priority lien status for PILOT payments to provide security for payment of bonds </li></ul></ul>
  5. 5. <ul><li>Legislative Solutions </li></ul><ul><ul><li>Redevelopment Area Bond </li></ul></ul><ul><ul><li>Financing Law (RAB) </li></ul></ul><ul><ul><li>Revenue Allocation District </li></ul></ul><ul><ul><li>Financing Act (RAD) </li></ul></ul><ul><ul><li>Brownfield and Contaminated Site </li></ul></ul><ul><ul><li>Remediation Act </li></ul></ul>
  6. 6. <ul><li>Jersey Gardens </li></ul><ul><ul><li>Financed by NJEDA using the Large Site Landfill Reclamation and Improvement Law, N.J.S.A. 40A:12A-50 et seq. Precursor to RAB </li></ul></ul>Projects Financed
  7. 8. <ul><li>1180 Raymond Boulevard, Newark, New Jersey </li></ul>
  8. 9. Case Study I Project Site
  9. 10. <ul><li>Historical Background </li></ul><ul><ul><li>Total site area = 100+ acres </li></ul></ul><ul><ul><li>3 landfills = 70 acres </li></ul></ul><ul><ul><li>Onsite disposal operations terminated in mid-1980’s </li></ul></ul><ul><ul><li>Landfills not closed in accordance with NJDEP </li></ul></ul><ul><ul><li>regulations and present environmental hazard </li></ul></ul><ul><li>Site </li></ul><ul><ul><li>Close to port facilities, airport and major roadways </li></ul></ul><ul><ul><li>Underutilized land </li></ul></ul><ul><ul><li>Perfect location for commercial uses </li></ul></ul><ul><ul><li>Urban Enterprise Zone </li></ul></ul>
  10. 11. <ul><li>Project </li></ul><ul><ul><li>Remediation/capping of landfills </li></ul></ul><ul><ul><li>Construction of buildings to be used as a distribution </li></ul></ul><ul><ul><li>and warehouse center – 1.25m square feet </li></ul></ul><ul><ul><li>500 construction jobs </li></ul></ul><ul><ul><li>500 permanent jobs created </li></ul></ul><ul><li>Remediation Costs Exceed $40 million </li></ul><ul><li>Total Project Costs Exceed $120 million </li></ul>
  11. 12. <ul><li>30-Year Financing Structure Contemplated in Redevelopment Agreement </li></ul><ul><ul><li>Use of RAB or RAD to finance all or a part of remediation costs </li></ul></ul><ul><ul><li>Conventional financing to pay for vertical development and other remediation costs </li></ul></ul><ul><ul><li>Developer’s equity and grants fund remainder </li></ul></ul><ul><ul><li>Annual Service Charges = </li></ul></ul><ul><ul><ul><li>Pledged Annual Service Charges (debt service plus land taxes) from $1.8 million to $2.9 million over 30 years </li></ul></ul></ul><ul><ul><ul><li>Unpledged Annual Service Charges – from $75,000 to $200,000 over 30 years </li></ul></ul></ul>
  12. 13. <ul><li>Financing Structure for Remediation Costs </li></ul><ul><ul><li>RAB </li></ul></ul><ul><ul><li>NJEIT </li></ul></ul><ul><ul><li>Public Entity Guaranty of Debt Service on NJEIT Bonds </li></ul></ul><ul><ul><li>Parent Guaranty of Financial Obligations under Redevelopment Agreement and Reimbursement Obligations to Public Entity </li></ul></ul>
  13. 14. <ul><li>Features of RAB </li></ul><ul><li>Redevelopment Project in Redevelopment Area </li></ul><ul><li>Tax Abatement granted on project site improvements </li></ul><ul><li>Tax Abatement and Financial Agreement authorized through adoption of ordinance after tax abatement application is submitted, accepted and approved pursuant to LTTE </li></ul><ul><li>Special assessments in lieu of or in addition to tax abatement also authorized by ordinance </li></ul><ul><li>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) </li></ul><ul><li>Bonds authorized to be issued and bonds may be secured by both PILOT payments/special assessments </li></ul>
  14. 15. <ul><li>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 </li></ul><ul><li>Payments are assigned to bond trustee as payment/ security for the bonds </li></ul><ul><li>Payments are not included in public entity’s general funds and are not subject to laws regarding receipt, deposit, investment or appropriation </li></ul><ul><li>Bonds are considered non-recourse obligations unless public entity agrees to guarantee such bonds; full faith and credit leases also authorized </li></ul><ul><li>Conduit 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) </li></ul>
  15. 16. <ul><li>Local Finance Board review and approval required: </li></ul><ul><ul><li>Comments solicited from the office of State Planning, NJEDA and the public </li></ul></ul><ul><ul><li>Does project or plan promote concepts to reduce congestion, enhance mobility, assist in redevelopment of municipalities and improve quality of life for citizens? </li></ul></ul><ul><li>PILOTS may be secured by a mortgage on the property and may be pledged to repayment of bonds </li></ul><ul><li>Compliance with public bidding laws not required </li></ul>
  16. 17. <ul><li>Zero percent interest rate on fund loan - 50% of remediation costs </li></ul><ul><li>Market interest rate on trust loan – 50% of remediation costs </li></ul><ul><li>Level debt service payments </li></ul><ul><li>Twenty year amortization </li></ul><ul><li>NJEIT </li></ul>
  17. 18. <ul><li>Financial Commitment </li></ul><ul><ul><li>Annual Service Charges = Pledged Annual Service Charges + Unpledged Annual Service Charges </li></ul></ul><ul><ul><ul><li>Pledged Annual Service Charges </li></ul></ul></ul><ul><ul><ul><li>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 </li></ul></ul></ul>
  18. 19. <ul><ul><ul><li>Unpledged Annual Service Charges to Public Entity </li></ul></ul></ul><ul><ul><ul><ul><li>Year 1 - 5 $107,000 annually </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Year 6 - 10 $143,000 annually </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Year 11 - 15 $179,000 annually </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Year 16 – 20 $215,000 annually </li></ul></ul></ul></ul><ul><ul><ul><li>County Portion = 5% of the total Annual Service Charges </li></ul></ul></ul><ul><ul><ul><li>Credit for Land Taxes paid in the preceding year </li></ul></ul></ul>
  19. 20. <ul><li>Advantages of RAB/NJEIT Financing </li></ul><ul><li>Ability to pledge PILOT payments to repay debt </li></ul><ul><li>Ability to structure debt repayment based upon cash flow of project </li></ul><ul><li>Blended interest rate – 2005 effective interest rate = 2.13% (tax-exempt) (NJEIT) </li></ul><ul><li>Facilitates public private partnerships </li></ul><ul><li>Public bidding of construction contracts not required </li></ul>

×