Benefits of Brownfield Redevelopment

While some developers are dragged reluctantly into redeveloping brownfields, others actively pursue these environmentally impacted properties in recognition of the advantages they can provide under the right circumstances. 

Brownfields often require significant up-front investment in diligence and site preparation costs, which can dissuade many developers from pursuing a site.  Financing development at a brownfield can also be complicated by open regulatory issues, which inherently add a layer of risk to the developer and associated parties.  However, when site conditions are conducive to a project from both environmental and business perspectives, these up-front investments can pay off large dividends relative to siting the project at a more traditional “greenfield” property.

Benefits often available to brownfield developers include the following:

Proximity to Infrastructure, Customers, and Other Amenities

Many brownfields, particularly former industrial sites, contain existing infrastructure that can be repurposed.  Access to high-voltage electrical lines can benefit energy-intensive developments such as data centers, and rail spurs or port access can provide a prime location for manufacturing or storage facilities.  Additionally, customer density associated with urban brownfields represents a potential boon to players in the logistics and supply chain industries, as transportation cost savings may lead to enhanced profitability relative to more remote greenfields.  Companies that can capitalize on all of these benefits, such as those involved in cold chain logistics, may have the most to gain by strategically locating operations on brownfield sites.

Flexible Cleanup Standards and Approaches

Obtaining regulatory closure for open environmental issues is often easier for prospective purchasers of brownfields relative to longstanding owners or operators.  This is because state voluntary programs, such as the Georgia Brownfield Program, often allow for flexible cleanup standards and approaches to address environmental impacts.  Rather than having to remove or treat contamination to meet the most stringent regulatory standards, purchasers of brownfields can often apply risk-based standards and use controls, like hardscape caps and deed restrictions, to prevent exposure to impacts within certain thresholds.  Attaining closure for known or perceived environmental issues improves a brownfield property’s marketability and accordingly may enhance profit realization upon refinancing or exit.

Financial Incentives/Tax Benefits

Many states offer tax incentives to encourage the purchase and redevelopment of brownfields.  For example, the Georgia Brownfield Program allows developers to recoup up to 100% of eligible environmental investigation and cleanup costs through property tax relief, including costs related to pre-demolition abatement of hazardous building materials (such as asbestos).  Further, many brownfields are located in Opportunity Zones or comparable state-designated areas that may allow for additional financial benefits in connection with redevelopment.

Leverage in Negotiations

Purchase price reductions are a common, but far from the only, way to address environmental issues at a property.  Although market sophistication around environmental issues has grown, opportunities still exist for savvy buyers to negotiate risk allocation devices (such as escrow-holdback arrangements) that, when strategically structured, may provide potential windfalls.