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Cascade: No. 63, Fall 2006

New Markets Tax Credits Help Revitalize Trenton

Trenton has been struggling with its urban revitalization efforts for the past few decades. The federal new markets tax credit (NMTC) program has proved to be a useful tool in recent efforts to bring back New Jersey’s capital.

There are several factors that hinder Trenton’s redevelopment, according to Mayor Douglas H. Palmer: “The city is only 7.5 square miles and the state owns one-third of the land. Trenton is not able to obtain the tax revenue that other major cities are able to obtain due to the large volume of tax-exempt property. Highways separate the city from the waterfront area. In addition, surface parking lots account for much of the available space for development downtown.”

Despite these obstacles, the city of Trenton has been actively promoting urban revitalization efforts, which include developing several mixed-use projects, renovating the Trenton train station area, increasing the number of affordable and market-rate housing units, and redeveloping former industrial sites and historical buildings. Mayor Palmer hopes these efforts will bring more private-sector businesses downtown.

In the last two years, NMTCs have been used for the new construction of a building at 32 East Front Street and the rehabilitation of the historic Roebling mansion at 222 West State Street.

32 East Front Street

The 32 East Front Street site was originally a large surface parking lot that was acquired by the Economic Development Corporation of Trenton (EDCT). EDCT partially constructed an office building at the site, formerly known as Liberty Commons, but failed to complete the project. When construction stopped, EDCT requested proposals from developers to complete construction and provide permanent financing.

Matrix Development Group, a private for-profit real-estate development company, successfully bid on this project and acquired the site in the summer of 2005, assuming all debt and outstanding loans from EDCT’s partially constructed building. Matrix completed all major construction of the building by the end of 2005.

The $14.1 million project includes three major funding sources:

  • A $5.3 million, 10-year loan at 3 percent from the New Jersey Economic Development Authority (NJEDA). The first seven years are interest-only and the final three years are amortized based on a 25-year schedule. NJEDA is providing the loan from an NJEDA loan fund capitalized with NMTCs.1
  • A $6.7 million, 10-year permanent loan at a market interest rate based on a 25-year amortization schedule from Wachovia Bank. The first year of the loan is interest- only to allow for construction, lease-up, and stable operations, followed by nine years with principal and interest payments.
  • $2.1 million in equity provided by Matrix Development Group.

Donald Epstein, the chief financial officer at Matrix, described the significance of NMTCs to this project: “[They] allowed us to consolidate previous debt on the project in a very tight time frame and make the deal work. We may have been able to use sources of funding other than NMTCs for this project, but we would not have been able to pull together the necessary amount of funding from all the different sources we would have needed to use in the time we had available.”

In January 2006, Wachovia relocated its regional headquarters from Ewing Township to Trenton and moved into the top three floors of this five-story building. Matrix is planning to lease the office and retail space on the first two floors to other private-sector companies.

Roebling Mansion

This drawing illustrates how the historic Roebling Mansion, located on 222 West State Street in Trenton, N.J., will look when construction is completed by the end of 2006. The original building is represented on the left side of the drawing and the new wing is on the right.This drawing illustrates how the historic Roebling Mansion, located on 222 West State Street in Trenton, NJ, will look when construction is completed by the end of 2006. The original building is represented on the left side of the drawing and the new wing is on the right.

New markets tax credits were also a significant source of funding in the restoration of the Ferdinand W. Roebling mansion. The Roebling family, known for developing wire-rope cable and designing the Brooklyn Bridge, built several mansions along West State Street during the late 19th and early 20th centuries. Located in Trenton’s State House historic district, this is the only remaining Roebling mansion.

The building was vacant for over 30 years, during which time a local developer attempted to demolish it. The city acquired the building from the developer in 1998 through eminent domain. It remained vacant for seven more years. In 2003, the Trenton Historical Society’s Preservation Committee named the building one of the “10 most endangered buildings” in Trenton.

Mayor Palmer knew this building was an important landmark and wanted to see it rehabilitated. For several years, Bill Dressel, executive director of the New Jersey State League of Municipalities, had been looking for a larger building in the area and had hoped to move closer to the State House. The league acquired the building from the city of Trenton in June 2005 for $165,000.

The $6.2 million project includes four major funding sources:

  • A $3.6 million loan from Wachovia using its NMTC allocation. 2 The construction period interest floats at market rate. Upon construction completion, lease-up, and stable operations, the permanent loan will have a 73-month term with a 25-year amortization, and the interest rate will be reduced to 2.5 percent below the market’s forward rate. In addition, Wachovia is providing an 18-month marketrate bridge loan of $1,350,000.
  • A $1.39 million market-rate loan from NJEDA, which takes out the $1,350,000 bridge loan from Wachovia and a $40,000 predevelopment loan from NJEDA. The loan has a 73-month term and is based on a 25-year amortization schedule.
  • A $750,000 capital preservation grant from the New Jersey Historic Trust.
  • $420,000 in equity provided by the New Jersey State League of Municipalities.

Many historic aspects of the Roebling Mansion in Trenton, N.J., such as the steel artwork over the front door, will be preserved.Many historic aspects of the Roebling Mansion in Trenton, NJ, such as the steel artwork over the front door, will be preserved.

Dressel emphasized that in order to make this project work, the league had to simultaneously coordinate all funding sources, including NMTCs. He also described the importance of the partnerships: “In projects like this one, it is extremely important to establish meaningful relationships with lending institutions that are not only knowledgeable of the various financial tools available but also have appreciation for the redevelopment of historical buildings. In this project, the lenders looked beyond the terms of the banking transaction and focused on the significance of this redevelopment effort for the city of Trenton, the state of New Jersey, and the historical community.”

Dressel said that the league will maintain the historical integrity of the building by restoring much of the exterior and first floor, including the library, staircase, foyer, front hallway, entrance, and a large stained-glass window. A new wing is being added to the side and back of the building to provide additional office space.

The league plans to move its headquarters to the former Roebling mansion when construction is completed and will occupy approximately 7,500 square feet of the 15,000-square-foot building. The remaining space will be leased as offices.

For information, contact Russell Tepper of Matrix Development Group at (732) 521-2900 or rtepper@matrixcompanies.com; Bill Dressell of New Jersey State League of Municipalities at (609) 695-3481, ext. 22 or bdressel@njslom.com; Ed Covington of Wachovia Bank at (215) 670-4344 or ed.covington@wachovia.com; or Preston Pinkett III, of the New Jersey Economic Development Authority at (609) 777-4898 or customercare@njeda.com.

  • 1 NJEDA was awarded a $125 million tax credit allocation in the second round and used $42 million of this allocation to create a loan fund that provides interest- only loans at 3 percent with at least seven-year terms to projects in economically distressed areas. To establish this loan fund, NJEDA sold approximately $42 million in tax credits to an investor who, in exchange, provided NJEDA with an equity investment of $11 million. NJEDA contributed an additional $31 million in equity so that the total loan fund was equal to $42 million. The investor is claiming $16.38 million in tax credits over seven years. This project uses $5.3 million of the $42 million loan fund.
  • 2 Wachovia has been awarded a total of $383 million in tax credit authority in three of the four rounds of NMTC awards. In this project, Wachovia is using $3.6 million in tax credit authority, which will generate $1.4 million in tax credits to Wachovia over seven years. The tax credits are used to offset the interest income lost from the below-market interest rate provided to the project, as well as the operational costs of administering the program.