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.
Nov 08
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In many industrialized states such as California, New York, Ohio, Michigan, New Jersey, and Massachusetts, the only properties still available for new projects are brownfield sites that have been contaminated and remain unutilized. The ability to decipher the risks and the benefits and the expertise to use existing tools that help in the remediation process are key factors in unlocking opportunities within the brownfield market.
By definition, a brownfield is a property that is underutilized due to environmental contamination or an assumption of contamination, that has not been redeveloped due to environmental concerns and the perceived cost of remediation. These properties are often characterized by their size and location. Though brownfield redevelopment involves a fair amount of risk, there are also strong opportunities to acquire real estate at good land basis if the purchaser has a solid foundation of knowledge regarding what to look for and what to expect when acquiring a brownfield property for redevelopment.
Property Classifications
It is very important for companies looking to acquire brownfield properties to know what classification a particular site falls under and how much contamination is associated with that classification. There are four major types of brownfield properties.
• Superfund: The largest challenge for a potential purchaser is presented by a Superfund site. A Superfund site represents the most contaminated type of brownfield, which translates to a very high cost for remediation and redevelopment and typically a long duration of time before redevelopment is possible. An example of a Superfund site is the Avtex fiber plant in Front Royal, Virginia - for nearly 30 years, there have been more than 100 people working full-time to remediate the site.
• Petroleum: Petroleum sites are the most common type of brownfield and in most cases are the easiest to remediate. These sites are properties that contained leaking underground storage tanks (USTs) full of petroleum that have contaminated the soil and groundwater. Petroleum is a common contaminate with existing technology that has been field tested and proven to successfully remediate these types of properties. Petroleum is also a regulated substance that makes it easier for a company to negotiate cleanup with a governmental or state agency. These factors make these types of sites cheaper to remediate than their Superfund counterparts. Petroleum sites are typically able to be remediated for redevelopment in less time than other types of brownfields, having the process completed in months instead of years.
• FUDS: Another type of brownfield property is a formerly used defense site (FUDS). These sites represent land that was once used by the military or military contractors for a variety of operations. The extent of the contamination is dependent upon the type of military operations that were carried out at the site. These types of brownfields are often deeply contaminated with a wide array of exotic chemicals, toxins, and explosive residue for which there is no demonstrated technology or proven formal process for remediation and cleanup of these chemicals. Additionally, there is an established, formal process for the acquisition and remediation of FUDS that cannot be shortened or amended in any way. This means that companies attempting to remediate and redevelop FUDS are looking at anywhere from two and a half to eight years to complete the remediation process.
• Industrial: The final category of brownfield is a typical industrial site containing chlorinated solvents and other contaminants. These industrial brownfields historically establish a middle ground between the extremely expensive and highly contaminated Superfund sites and the more elementary petroleum brownfields in terms of cost and timeframe associated with remediation.
Financing and Administration
Knowledge of the type of brownfield you are dealing with is a key factor in order to be adequately prepared for the financial burden, associated risks, and a realistic estimate of how long a given property will take to remediate. There are also other key steps that a firm should take when acquiring a brownfield property for remediation.
Financing is a major consideration when redeveloping brownfield properties. Particularly in today's difficult economic climate, obtaining financing for real estate transactions is very difficult, but obtaining financing for an environmentally contaminated project is an extreme challenge. Being prepared and educated on the estimated cost of remediating various types of brownfields can help a firm seek out brownfield projects that have the greatest chance to obtain financing.
Potential brownfield buyers also need to be armed with the necessary administrative paperwork, making sure that it is negotiated in advance with the regulatory agency overseeing the contaminated property, so buyers know what to expect as they begin the process of remediation and redevelopment. An important component of this administrative paperwork is utilizing the existing and continuously improving legislative tools available to brownfield purchasers to protect the buyer from the threat of liability associated with the original contamination of the property and facilitate the process.
Obtaining a Prospective Purchaser Agreement (PPA), available in virtually every state, can expedite the process. PPAs serve as a voluntary cleanup program that the buyer enters into with an environmental regulatory agency to remediate a contaminated site for the purpose of redevelopment. This important piece of paperwork protects the purchaser from environmental liability for the cleanup of a property in exchange for the public benefit provided by returning an underutilized brownfield to productive use. Other provisions such as the California Land Reuse Revitalization Act of 2004 (CLRRA) also help expedite the remediation process and protect purchasers from certain risks. CLRRA was written on the state level to establish a process for brownfield redevelopment that greatly reduces the timeframe needed to remediate and redevelop many sites.
Though the legislation varies from state to state, most do have provisions that allow brownfield buyers to negotiate important agreements, indemnities, and cleanup agreements that can help navigate the landscape, shorten the timeframe for remediation, and, perhaps most importantly, protect purchasers from liability and lawsuits associated with existing damages caused by contaminated sites.
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