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Inward Investment Guides

Buying Brownfields: Opportunity or Risk?

Brownfield sites can present opportunities to purchase properties at lower prices and in areas where fewer traditional sites are available - if you can work around liability concerns and cleanup costs.

Curtis Slocum, Brownfield Development Specialist, Voit Development Company (Nov 08)
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Brownfield Risks
Brownfield properties do present a significant amount of risk for the purchaser. It is important to be aware of these risks and what actions purchasers can take to manage them. There are three primary risk factors of which to be aware: regulatory risks, financial risks, and human exposure. When looking at the risks associated with brownfields, everything is driven by the risk of human exposure.

These risks can be measured in comparison with the type of brownfield property that is being considered. Superfund sites pose the greatest threat for all three of these risks, as these properties exhibit the largest amount of contamination and are often the most costly to remediate. Petroleum sites present the lowest exposure to these risks, as they are typically the easiest to remediate, have a common contaminate with a proven process for cleanup, and are the most cost-effective. Industrial brownfield sites and FUDS tend to fall on middle ground when looking at these risk factors.

The financial risk associated with brownfields is driven primarily by the process needed to remediate the site. Different remediation technologies are available for various types of contamination. If a brownfield has contaminated soil and the purchaser chooses to implement an excavation and removal or soil vapor extraction of the soil, this process is available with less financial risk than a more complicated Superfund site with greater contamination that requires more involved technologies, engineered or institutional controls, and long-term operation and maintenance (O&M).

Though the risks associated with brownfields are significant, purchasers do have key tools available to help manage these risk factors. There are a variety of insurance products available for brownfield buyers that can help protect them from the risks involved in remediation and redevelopment of a contaminated property. Any brownfield buyer should purchase pollution legal liability (PLL) insurance. This relatively inexpensive coverage protects Brownfield purchasers from third-party lawsuits and regulatory reopeners. This is an important shield of protection from third-party lawsuits claiming bodily injury or property damages from neighbors claiming harm from the pollution already existing at the property.

Regulatory reopeners can also halt or greatly delay brownfield redevelopment when changes in regulations, technological advances, or the discovery of previously unknown pollution at the site results in unexpected regulatory involvement. Insurance protecting buyers from this is extremely important, as unanticipated delays of this nature can mean great financial burdens and other complications for the redevelopment of a brownfield property.

Cost cap insurance is another policy that can protect brownfield purchasers from the financial risks associated with remediation of a contaminated site. Cost cap insurance manages the economic risk when the actual cost of remediating a brownfield site exceeds the estimated cost presented at the beginning of the project. Cost cap insurance helps brownfield buyers handle the innate uncertainty of liability and remediation costs associated with a brownfield project by covering the difference.

As the process of remediation and redevelopment of brownfield sites continues to evolve and the shortage of available land for development forces executives to consider Brownfield sites for their projects, the industry will continue to discover new risks and trends that will need to be considered. Soil vapor intrusion is one relatively recent discovery of which potential brownfield purchasers must be aware.

Contaminated soil vapor is the air within the soil that has the capability of coming through the floors of a building and exposing people to the contamination. This represents a new medium that must be treated when remediating a brownfield property. In many cases, development can begin on a brownfield site while the remediation of contaminated groundwater and soil is still happening. However, with vapor intrusion, the remediation typically must be completed before development can begin, causing a significant delay. California is one state leading the charge to deal with the regulation of soil vapor, which has gone largely unregulated until now. It is likely many other states will follow California's lead to regulate this new medium of concern.

Another risk involves lack of available sites. In many of the industrialized regions with the greatest land shortage, a majority of the petroleum-contaminated brownfield sites have already been redeveloped. This leaves buyers with fewer options that tend to fall into the larger, more complicated categories for purchase. These sites require greater cooperation between the developer, regulators, and legal instruments to help acquire and successfully remediate and redevelop these sites back to productive use.

Brownfield Advantages
Brownfield projects do have advantages as well as risks. Due to the risks involved and the challenges faced by firms looking to remediate a site, the land is often available for purchase at a significant discount. Brownfield properties are well-suited for industrial developments or straight retail, as opposed to residential or institutional. When the intended use for the property does not involve tenants living at the property 24 hours a day, the extent of the cleanup is limited and can mean a faster turnaround time to remediate and redevelop the property.

Today, the potential buyer of a brownfield property has many tools available to help navigate the complicated landscape of remediation and redevelopment. Arming themselves with a thorough understanding of the legal advancements, nature of the properties on the market, and potential risks and management of those risks can ensure that the investment in a brownfield project will yield a good land basis that improves the bottom line.


Curtis Slocum is a development specialist and brownfield expert with Voit Development Company, a commercial real estate development firm headquartered in Newport Beach, California. Voit Development Company has developed and acquired projects comprising of more than 24 million square feet of space with aggregate values in excess of $2 billion. Visit the company's website at (949) 644-8648 or online at www.voitco.com.
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