New Jersey is one of the nation’s leading hubs for life sciences companies, including pharmaceutical, biotech, and beyond. The COVID pandemic has only enhanced that status, favoring domestic pharmaceutical production over international production.
That is only one of the effects of a recent boom of development in the life sciences, not only in the Princeton to New Brunswick corridor, but across New Jersey to the aspiring life science presence along Jersey City’s Gold Coast.
The Garden State has always been a convenient home to the life sciences industry, with its proximity to New York City and major transportation hubs and featuring a highly educated talent pool. Historically, most major pharmaceutical companies are or have been headquartered in New Jersey. Considering life sciences tenants pay among the highest rents in New Jersey, however, their property taxes can be quite burdensome.
New incentives can help ease the tax hit
Many states compete for high-profile companies to relocate to their states by offering them substantial incentives to do so. To maintain its edge in keeping and attracting the life sciences, New Jersey has finally passed new tax incentive programs to replace previous programs that had lapsed some years ago.
New Jersey now offers both the Aspire Program, and the EMERGE Program, which incentivize companies to move to New Jersey and create New Jersey jobs. These incentives are helpful in attracting talent and can significantly offset the cost of relocation and fitting out space. Skoloff & Wolfe regularly advises life science companies and landlords when they are applying for these credits.
- The New Jersey Aspire Program provides tax credits to encourage redevelopment projects by covering certain project financing gap costs.
- The New Jersey Emerge Program provides tax credits to encourage economic development, job creation, and the retention of significant numbers of jobs in imminent danger of leaving the state.
In addition, there’s the New Jersey Emerging Technology and Biotechnology Financial Assistance Program, which has been amended to increase the annual amount of tax benefits for the Net Operating Loss (NOL) Program that the Economic Development Association may approve.
From a property tax perspective, these kinds of subsidies can contribute to tenants and landlords arriving at above-market rents. The subsidies can result in tenants essentially receiving their space for free or at a significant discount for the first two years, based on sales tax and other credits. It is vital that the local assessor’s understand the impact that these programs can have on contract rent and that contract rent may not equate to market rent given the incentives.
Appeals can take the sting out of property taxes
Incentives are a key driver helping these deals come together, for sure. But that doesn’t mask the fact that New Jersey still has the highest property taxes in the country.
In New Jersey localities, life science rents are frequently at a premium to office space. That is understandable when you consider how much a landlord must spend to achieve the final build-out. However, this must be part of the equation when municipalities value the property for property tax purposes.
The increasing demand for life science properties has turned into a new gold rush for landlords. But not everything is glittery. Considering the potentially high rents, it is vital to educate municipalities so they better understand the real costs associated with obtaining the corresponding income.
Due diligence on a deeper level
Skoloff & Wolfe are not only successful in defending our clients against unfair property tax post-assessment, but we also specialize in quantifying the costs and potential risks of all manner of commercial property tax. We routinely work with astute buyers in life sciences, performing a thorough property tax due diligence to ensure further protection of their investment.
Regardless of who pays the taxes, an experienced property tax attorney is needed to provide all parties a realistic understanding of what the taxes will be, i.e., what the impact of high net rent might be on the property tax.
In terms of property tax appeals, we frequently work with companies through the process of acquisition, development and then stabilization. When possible, we assist the clients in mitigating their carrying costs during development, and then minimizing the taxes upon stabilization.
Recently, S&W reduced a major pharmaceutical assessment by $190 million following its acquisition. This achieved significant savings for the developer during its renovations and repositioning period, and also put them in a position to benefit from a PILOT agreement, Payment In Lieu Of Taxes.
If you are developing a life science campus, a PILOT is something you would want to consider for new construction, rather than paying ad valorem taxes. A key question for any life sciences company is whether they are eligible to pay taxes under a PILOT agreement.
All in all, there are a wide range of options for life sciences companies when they undertake these moves. Managing the potential upside against the downside is the benchmark of an experienced property tax law firm.
Let’s discuss your Life Science Property Tax
Skoloff & Wolfe will review your life science property tax assessment free of charge. You will not be responsible for any legal fees unless we achieve tax savings. To discuss your assessment with a Skoloff & Wolfe property tax appeal attorney, please call 973.992.0900.