Brownfields: A “Great Deal” or a “Great Deal of Concern”? Part 2

Jonathan Gemmen, Austin Consulting

In Part 1, we discussed high-level considerations to keep in mind when evaluating a brownfield industrial property for your next facility. Now, we weigh some specific upsides and shortcomings of these unique sites.

Upsides

  • Labor – Most brownfield redevelopment opportunities are located in urban areas. Proximity to higher concentration of workforce can make brownfield sites more attractive, especially when considering commute times and availability of public transit for employees. Walking or biking to work are more viable options when the workplace is within a mile or two of the employee’s residence. Likewise, when a household shares a single vehicle, dropping off or picking up a family member is much easier when the process of “chauffeuring” is less than a twenty-minute disruption. Too often, firms severely limit their potential workforce by selecting a greenfield property that is only accessible by car.
  • Zoning – The existing zoning designation is almost always appropriate for industrial reuse, thus eliminating public hearings. Moreover, any residents in proximity have long been used to industrial operations in the neighborhood, so the “not in my backyard” contingent usually ranges from non-existent to limited. 
  • Transportation Access – Public roadways serving the property almost always meet the minimum specifications per the Department of Transportation for truck traffic. Many have an existing rail spur, where in some instances, when coupled with a cost of installing switch on the mainline, can’t be replicated for less than $500,000.
  • Utilities – Existing utility infrastructure is in place from previous industrial uses, so there is often no need or cost to extend utility infrastructure to the site. In most cases, the existing capacity of the distribution lines is far greater than is required for most current operations.
  • One-Time Utility Fees – Today, water and wastewater providers often charge one-time utility connection fees, impact fees or capacity fees, designed to recoup capital funds for the new facility’s marginal impact on the entire system. For industries that use potable water in their process, these fees can be extensive. Many brownfield properties avoid such fees, as the water meter remains in place and maintains capacity credits equivalent to their historical use.
  • Development Approvals – The probability of encountering sites of archaeological and historical significance, suitable endangered species habitat, or wetlands and streams, is very low.
  • Being Green – Likewise, redeveloping an existing industrial site reduces deforestation and disruption of natural habitats, versus developing a greenfield site. As a result, if LEED® Certification is desired for the new facility, the point system provides a modest head start for facilities developing on brownfield sites.
  • Unique – The location and setting of each brownfield is unique and, in most cases, simply cannot be replicated.

Shortcomings

  • Finite Footprint – Most brownfield sites are located within urban areas, and these properties are generally not vast expanses of land. Typically, they are surrounded by older industrial, residential or commercial properties, offering little flexibility for future expansion beyond the site boundaries. In most cases, brownfield sites are sold for redevelopment as a single unit. Because of the site’s true cost (land purchase + remediation cost), holding a few extra acres for possible future expansion is often not practical.
  • Cost – Remediation can be expensive. Demolition, soil remediation, concrete crushing, groundwater testing, etc. must be monitored by environmental engineers and technicians to ensure protocol is followed. Likewise, contaminated material often takes special handling and is sent to a limited number of certified landfills, often 50 miles or more from the site. So, even if the land is deeply discounted, the remediation cost can easily exceed the fair market value of the land.
  • Delays and Overruns – Talking to anyone who has redeveloped brownfield properties, the process invariably takes more money than was originally budgeted and takes longer than shown on the Gantt chart created during the project’s planning phase.
  • Strings Attached – As mentioned in Part 1, grant monies may be available to assist in the site’s cleanup.  Such grants are usually reimbursements, paid only after set milestones are met.  It is not unusual for the developer of the property, their contractor or financier to float those funds for up to 180 days before reimbursement. Additionally, these grants often come with caveats, like dictating a ‘sustainable wage’ being paid for even the lowest-skilled construction trades.
  • Premium – Every property is unique, but if a property has a specific location advantage, it is not uncommon for private developers to have already undertaken the redevelopment process. If this is the case, the site’s asking price usually reflects its prime location and includes a premium for the risk of “cleaning up” the site. It is common for such sites to be priced substantially higher per acre than comparable greenfield sites.

Considering any brownfield site brings several additional variables to an already complicated site selection process. Depending on the requirements for your next operation, that unique site may a good deal.