Redevelopment Area Bonds Remain the Most Effective Redevelopment Tool Available to New Jersey’s Municipalities

by Joseph P. Baumann, Jr. on January 7, 2011

In an economic environment where equity is scarce, loans are hard to obtain and grants are virtually nonexistent, the Redevelopment Area Bond Financing Law, N.J.S.A. 40A:12A-65 et seq. (RAB Law) stands alone as the most effective tool available in the much depleted redevelopment “tool box”. Born from the Large Site Landfill Reclamation and Improvement Law, N.J.S.A. 40A:12A-51 et seq., the RAB Law remains the preferred statute when municipalities and redevelopers are faced with significant gaps in their financial models. As a result, redevelopment area bonds (RABs) have become a proven source of “gap financing” in many successful projects.

This form of financing was first utilized in connection with the construction of the Jersey Gardens Mall in Elizabeth, New Jersey, 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 payments in lieu of real estate taxes (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”. In the redevelopers’ pro forma, RAB proceeds are like a grant. From the municipality’s point of view, the dedication of the PILOTs to repay the RABs is a dedication of money the town would not otherwise have without the project. In effect, the municipality foregoes money it doesn’t have.

So, unless or until a better tool comes along, every redevelopment project facing a significant gap in its pro forma should take a hard look at RABs. It is very often the right tool for the job.

2 comments... read it below or add one

larry gardner August 30, 2013 at 2:42 pm

li intend to do a rab in hillsborough new jersey.I NEED THE BEST ATTORNEY TO DISCUSS .

larry gardner August 30, 2013 at 2:43 pm


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