New Jersey Expands Redevelopment Law to Include Stranded Shopping Centers and Office Parks

Last week, New Jersey’s redevelopment law was amended to recognize that shopping centers and office parks which have experienced significant vacancies for a period of at least two consecutive years may be deemed an “area in need of redevelopment.” The amendment, designated A-1700 and enacted as P.L.2019, c.229, expands criteria b. of the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-5, and takes effect immediately.

Prior to the amendment, criteria b. authorized an “area in need of redevelopment” designation where the delineated area was characterized by the “discontinuance of the use of buildings previously used for commercial, manufacturing, or industrial purposes; the abandonment of such buildings; or the same being allowed to fall into so great a state of disrepair as to be untenantable.” The amendment contains three significant components:

  1. Buildings previously used for retail purposes, shopping malls or plazas, and office parks were added, so that discontinuance of use or abandonment of those stranded assets is now expressly within the statute;
  2. Experiencing significant vacancies “for at least two consecutive years” was added as a new threshold criteria, which applies not only to buildings used for retail purposes, shopping malls or plazas, and office parks, but also to buildings used for commercial, manufacturing or industrial purposes which were already encompassed by criteria b. of the redevelopment law; and
  3. Criteria b. was made available to an individual building, whereas previously it referenced “buildings,” suggesting that two or more buildings were necessary for criteria b. to apply.

The Local Redevelopment and Housing Law serves as an important tool in facilitating redevelopment. Among the benefits designation as an “area in need of redevelopment” offers are the ability for the municipality to enact site-specific zoning and development regulations in the form of a redevelopment plan, the ability to be designated as an exclusive redeveloper and to enter into a redevelopment agreement with the municipality, and the authorization for a payment in lieu of taxes (PILOT) agreement to be negotiated between the designated redeveloper and the municipality. Although criteria b. already encompassed buildings previously engaged in commercial use, which one might argue includes shopping centers and office parks, the amendment to expressly reference properties previously engaged in use for retail purposes, shopping malls or plazas, and office parks is important given the increased scrutiny redevelopment designations have faced since the U.S. Supreme Court decided Kelo v. City of New London, 545 U.S. 469 (2005), which upheld the use of eminent domain to implement a redevelopment project intended to stimulate economic development. The amendment ensures that “area in need of redevelopment” designations can properly be applied to these asset classes.

The amendment is also important because, for the first time, a threshold period of significant vacancies will now be a basis for designation. This significantly broadens criteria b., which prior to the amendment required discontinuance of use or abandonment. An earlier version of the bill would have established less than 50% occupancy as the trigger for the redevelopment law to apply, but that was deleted in favor of leaving individual municipalities to determine what constitutes “significant” vacancies on a case-by-case basis. Additionally, the “significant vacancies” criteria applies to all asset classes specified in criteria b., not merely the newly added retail and office park classes.

Howard D. Geneslaw, a Director in the Gibbons Real Property department, authored this post.
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