Despite the bleak short-term snapshot of the commercial real estate market, we’re at a new cusp in brownfield redevelopment.
As tightened lending standards and the lack of liquidity across all real estate classes have slowed mostefforts to a grinding halt, savvy investors continue to find opportunity in breathing new life into brownfields. These are environmentally impaired parcels of land that have typically suffered from years of contamination as a result of such pollution-intensive industries as gas stations and dry cleaning operations.
Continued interest in brownfield projects can likely be traced back to the following developments: Advances in remediation technologies, changes in environmental regulations and an increase in brownfield development incentives from regulatory bodies at both the state and Federal levels.
One reason brownfields have become such a viable investment option in recent years has much to do with the shift toward risk-based cleanup standards and modern advances in remediation technologies.
In the past, federal and state environmental regulations typically required sites to be remediated to near pristine levels — often a futile and costly exercise for all parties involved. Even today, it’s nearly impossible to extract or remediate the concentration of any contaminant down to a level zero.
As a result, crude technologies and legislative red tape made it extremely difficult for brownfield redevelopment projects to ever reach completion. In the 1980s, for instance, evidence of soil contamination required a complete excavation and transportation of the contaminated soil to an appropriate disposal site. While the technology was simple, the procedure of excavating and transporting the contaminated soil was extremely costly. The method is further restricted due to the limited availability of landfill space, and the long-term liabilities involved.
The Environmental Protection Agency’s (EPA) adoption of site-specific remediation standards in the late 1990s paved the way for the development and refinement of technologies that could treat or contain contaminants on-site, many of which are now coming online. The most notable of these standards was the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund, in which the level of required remediation was determined by the future use of the property.
The refinement of in-situ (in place) remediation technologies like aerobic biodegradation, for example, enabled more flexibility and helped to dramatically slash remediation costs. Aerobic biodegradation is a process that accelerates the breakdown of organic contaminants in the soil and/or groundwater. It, like many other in-situ processes, has proven to be an effective and more cost-effective way to reduce the concentration of soil and groundwater contaminants to a level deemed safe for future site use.
Technological advances have also gotten greener over the years. The EPA’s call for an increase in green remediation practices, for instance, has spurred new interest in using more fuel-efficient, eco-friendly and recycling-conscious techniques in the remediation process. Many of these new technologies help dramatically lower overall cleanup costs.
Another boon to the brownfield industry is the fact that regulators at both the state and federal level have increasingly given priority to streamlining approvals for projects that carry a green dividend. Not surprisingly, most brownfield redevelopment projects fit the bill.
Regulators have recognized that these types of projects not only create green jobs (as redeveloping a contaminated site is really the ultimate form of recycling), but they also encourage smarter land use and build healthier communities.
As brownfield sites are often located in blighted urban infill areas, they’re often the perfect opportunity to satisfy cities’ smart growth initiatives, the idea that effective land use decisions can halt the suburban sprawl that comes with endlessly expanding cities. Brownfield projects that contribute to these initiatives — transforming a dilapidated factory into an affordable housing complex, for example — carry much more weight today with governing bodies than in years past.
As an added bonus, brownfield sites are often prime locations for building renewable energy projects. Solar panel arrays, for instance, can be built atop brownfield sites in order to supplement the huge energy requirements needed for remediation. And as long as the risk of the renewable energy project is protective ofand maintenance workers, remediation can occur simultaneously. Renewable energy projects built on brownfields are also a smart way for states and municipalities to satisfy its annual Renewable Portfolio Standard (RPS) obligations.
Even in the most troubling and stagnant markets, opportunities for brownfield redevelopment remain strong. As financing, cleanup and development of these projects becomes more familiar and understandable, the more likely we are to see all parties — lenders, developers, regulators, the community and other stakeholders — work together to push the envelope on the enormous possibilities in redeveloping contaminated land. With favorable regulations, a renewed enthusiasm in the market and an increasingly collaborative relationship between the regulators and the regulated, the time is ripe for brownfields.
Ed Elanjian is Chief Financial Officer at EnviroFinance Group LLC, the first commercial lender to specialize in funding the redevelopment of brownfields. He can be reached at (916) 326-5225.