The challenges that have compelled municipalities to act to arrest and reverse negative conditions and encourage investment in redevelopment areas will increase as redevelopment projects face inflationary pressures and rising interest rates. Redevelopers may find their lenders enforcing protections embedded in loan documents, such as enhanced capital reserve requirements and loan covenants, performance guaranties and the like. If economic pressures become intense and defaults are a possibility, redevelopers and their lenders—redevelopment entities, taxing authorities and trade creditors—will be driven to consider the unique issues presented when there is a default on a redevelopment project, including consideration of a bankruptcy filing to stave-off creditor lawsuits or real estate foreclosure, or to permit a recapitalization of a distressed redevelopment project in order to deliver the project to completion.

Unique Features of the Redevelopment Statute and Redevelopment Agreements

One of the most significant considerations for a redevelopment project facing financial distress will be the impact of the prohibition against transfers found in the Local Redevelopment and Housing Law (LRHL), N.J.S.A. 40A:12A-9, which requires all redevelopment agreements to include a "provision that the redeveloper shall be without power to sell, lease or otherwise transfer the redevelopment area or project, or any part thereof, without the written consent of the municipality or redevelopment entity." A municipality may exercise the powers granted to it under the LRHL to implement a redevelopment plan itself, or it is also authorized to transfer the implementation powers to a redevelopment entity such as a redevelopment agency, a housing authority acting as a redevelopment entity, or a county improvement authority, N.J.S.A. 40A:12A-4. In this article any reference to "redevelopment entity" should be read to include the municipality itself exercising these powers or one of the referenced entities that the municipality can select.