Brownfields: A “Great Deal” or a “Great Deal of Concern”? Part 1

Imagine for a moment …

Your plans for adding another facility are coming together. Sales and revenue continue to increase. Your Board of Directors has given the “green light” to move forward. You’ve found the most favorable region for your supply-chain, which also has an ample pool of qualified labor. But you can’t find the specific property within that community on which to build. You are convinced that your operation would thrive in a more urban setting, but each site you’ve seen to-date resemble a cul-de-sac in a cow pasture at the outskirts of town.

You are then offered a “great deal” on a brownfield site from the local economic development authority. The price is right. The location is right. But is this “great deal” really worth it?

A brownfield site is land formerly used for industrial purposes. If an existing building structure still remains, does its layout, dimensions and age make it functionally obsolete? In some instances, the building has been razed, but the building’s concrete foundations remain. Other brownfield sites have the appearance of a large gravel parking lot. Brownfields are almost always coupled with a perception of contamination from the previous uses, as once acceptable industrial practices followed during the facilities younger years have long been outlawed.

But not all brownfields are the same. Some have no contamination. The contamination of others is limited to the building structure, such as asbestos. Others have contamination affecting the soils and ground water, an impact that may or may not reach to neighboring property owners.

Some sites have been remediated to the point of being granted a “Covenant Not to Sue” by the state’s environmental authority. This designation indicates that the site has not only been deemed to be “clean”, but also goes further, protecting the property owner or operator and future owners from being legally responsible to state government for further investigation and cleanup. Such opportunities offer all the benefits with minimum monetary or timeline risks for the project.

In some communities, industrial development boards (or a similar organization) will take on the demolition and remediation process in effort to lure in a new employer. But in the case of many brownfield sites, the local community is looking for the purchaser to take on the costs and risks of demolishing the structures and remediating any soil contamination or ground water. Often, the sites are highly discounted and an entrée of federal, state and local programs are available to offset many of the costs.

Regardless, taking on the cleanup of a former industrial site – contaminated or not – is a significant risk that cannot be monetized. Many of Austin Consulting’s clients have ruled out brownfield sites for fear of potential delays disrupting the expansion plans. This is understandable, as building a new facility and creating new production capacity is the objective – not remediating the site.

In any case, any brownfield option requires a significant level of due diligence. We prefer to not rule out a site simply because it’s a brownfield, but we advise our clients to proceed cautiously, verifying every promise, statement and inference in writing.

Risk aside, brownfield sites are often the most attractive real estate option. In our next post, we will consider the many benefits of choosing on a brownfield site for your next operation, while considering the few areas of concern, not already addressed above.