Redevelopment officials and developers have agreed in principle on the use of Redevelopment Area Bonds (RABs) but are still working out details on the financing tool that would be part of 208-unit downtown project that includes extending Monroe Street.
Executive Director Leonard Bier updated Redevelopment Agency commissioners during their regularly monthly meeting on March 1. In a follow-up by email, Bier said that while RABs have been agreed to in principle with Slokker Real Estate Group, details still need to be worked out.
The Main & Monroe project was granted approval by the Planning Board two years ago. The twin five-story buildings will house a total of 208 units — 116 units in the South building and 92 units in the North building — in the area where Lot B is located, fronting Main Street.
Infrastructure improvements, such as the Monroe Street extension, could be a key driver behind the use of RABs on the Main & Monroe project. The developer will be responsible for environmental remediation and construction of the Monroe Street extension, according to the redevelopment agreement approved in April 2014.
City Council approved a 30-year Payment In Lieu Of Taxes (PILOT) for Main & Monroe in 2014. Similar to a PILOT, RABs can be issued and repaid through an annual service charge or PILOT payments.
RABs first were used “in connection with the construction of the Jersey Gardens Mall in Elizabeth, where extraordinary infrastructure costs made an important project financially infeasible without RABs. Since then, RABs have been used to address extraordinary costs associated with commercial, retail and housing projects throughout the state.
“While there are many benefits to RABs, two stand out. First, because RABs are secured by PILOTs, they remain a very secure investment enjoying a lien on the land and improvements that primes all mortgages and equity. Second, and perhaps more importantly, because they are repaid from the PILOTs, RABs generate a source of funds for a redevelopment project without the need for either the redeveloper or the municipality to ‘come out of pocket.'”
Here’s a 2015 presentation by Joseph Baumann (.pdf) that features case studies of RAB use in Bayonne, Carteret and other places. In the case of Carteret, the Redevelopment Agency and municipality issued $6.25 million in RABs to finance infrastructure improvements and pre-construction costs, such as acquisition, demolition and remediation.
“As a practical matter, what this means is that RABs can help finance redevelopment projects where traditional funding sources such as equity and conventional debt may not suffice. Typically, RAB proceeds are paid to the redeveloper and applied toward the cost of construction of the project, thereby reducing the amount of construction loan required. Proceeds of the RABs can be used to fund infrastructure improvements, but can also be used to cover project costs as well.
Here’s another overview on RABs from Sills, Cummis & Gross (.pdf) in Newark.