Established within New Jersey’s Economic Recovery Act of 2020 and operated by the New Jersey Economic Development Authority (NJEDA), the Aspire Program is a gap financing tax credit program that supports strategic commercial, mixed use and residential real estate development projects. To be eligible for support from the Aspire Program, projects must meet the following criteria:
- be within an eligible incentive location;
- reach certain size requirements depending on use;
- surpass minimum cost thresholds, tied to the project’s location;
- hold developer equity of at least 20% of total development cost;
- demonstrate that but for the Aspire award, the project would not be economically feasible and that a project financing gap exists; and
- finally, show that the Aspire award will result in a net positive benefit to the State of New Jersey greater than 1.85 times the present value of the Aspire award.
The size of Aspire awards will be dependent on the scale of the project – most projects are eligible for an award amount up to 45% of eligible project costs up to $42 million. Transformative projects – or projects with a minimum cost of $100 million covering the construction or renovation of more than 500,000 square feet of office or industrial space; or 250,000 square feet of film production space; or 1,000 residential units – are eligible for Aspire awards up to $350 million or 40% of eligible project costs, up to a total program cap of $2.5 billion.
Since the Aspire Program was introduced in 2021, the construction and real estate industries have experienced quick and dramatic changes in interest rates and the cost of labor and raw materials – increasing the cost of debt financing and development generally. As such, interest in the Aspire Program – and the policy justification for the program itself – has only grown. ESI recently supported the New Brunswick Development Corporation’s (DEVCO) first phase of the transformative Health + Life Sciences Exchange (HELIX ) in downtown New Brunswick, which received New Jersey’s first Aspire program award. After securing an eligible site, here are some critical things to keep in mind when pursuing an Aspire award.
Feasibility Analysis – Does the project pencil out?
Similar to other real estate development incentives, the Aspire Program requires that eligible projects demonstrate that without the award, the project would not be economically feasible – or show that a project financing gap exists, generating a below market rate of return. In lay terms, an analysis must show that but for the award of Aspire tax credits, the project would not return sufficient operating income to maintain annual expenses, debt service payments, and/or provide a market return to equity contributors.
This gap can also be shown by digging into the sources (or the capital stack) and uses for a project. For example, if a project has a total development cost of $50M, which has secured financing for an 80% LTV construction loan at $40M and an equity contribution of $2M dollars. This would leave a financing gap of $8M. In this scenario, ESI would show two things to build out a feasibility case:
- that a higher LTV construction loan would increase expenses and diminish the property’s net operating income to support debt service payments, and
- that additional equity – past $2M – would not generate a significant enough market return to equity contributors.
To conclude the analysis, ESI would confirm the feasibility of the project with the tax credits layered into the capital stack.
Net Benefits Analysis – Does the project surpass or produce a return on the State’s investment?
The second hurdle that projects seeking an Aspire Program award must pass is the Net Benefits Analysis. Following NJEDA’s Aspire Program regulations, the project must show that when looking at the net present value of the modeled fiscal benefit supported by the construction and 10 years of full employment operation is at least 1.85 times greater than the net present value of the tax credit award provided by the state.
Using IMPLAN, ESI can help projects understand how their project might perform on this test by modeling the relevant inputs – in this instance, the cost of development and the project square footage, generating an estimate for jobs per square foot – supported by construction and operations to conservatively estimate the benefit amounts over time, accounting for inflation and a discount rate. More simply – the net benefits analysis helps NJEDA forecast the future value of a tax credit award to a present value amount that can then be measured as an apples-to-apples comparison to other State expenditures and investments.
To provide a hypothetical: a new 100,000 square foot industrial facility is being constructed that will look to lease its space to tech companies in the semiconductor space. The total development cost is $500M and at full operation, the building will have approximately 1,200 square feet to each full-time employee – leading to 83 employees. ESI would use IMPLAN to model the fiscal benefit supported by construction and operations (over ten years). In this scenario, the project would be eligible for approximately $180M in tax credits – and depending on how the tax credit award is outlaid by the Aspire applicant – which would have a NPV of approximately $125M. In order to pass the net benefits analysis, the net present value of the benefit supported by this new space would need to be at least $231M, or 1.85 times $125M.
If you are interested in learning more about ESI can assist or support your Aspire development, you can contact us here.
Stephen Madsen is an Associate Director at Econsult Solutions, Inc., providing expertise in housing and economic development policy analysis. In 2020, Mr. Madsen earned his Master’s in City and Regional Planning from the Rutgers University Edward J. Bloustein School of Planning and Public Policy. In 2012, Mr. Madsen earned his Bachelor of Arts in Political Science from the College of the Holy Cross.