With more than 450,000 brownfields in the United States, developers seeking new and affordable opportunities are turning to the revitalization of these contaminated sites, particularly in urban areas, as a viable business option.
Strong financial incentives, market demand and new federal legislation have played a major role in this trend. Historically, brownfield developers confronted liability issues and excessive redevelopment costs. But these obstacles have significantly diminished, thanks in part to passage of the 2002 Small Business Liability Relief and Brownfields Revitalization Act.
Under the Act, developers are protected from liability expenses of “cleaning up someone else's mess” and can take advantage of tax incentives and grants from federal, state and local agencies that make it financially feasible for contaminated sites to be revitalized. Among the most active proponents is the Environmental Protection Agency (EPA), which has granted millions of dollars to promote sustainable brownfield cleanup and reuse.
Rejuvenating Cities
As municipalities shift gears to favor urban redevelopment over suburban growth, developers are taking a fresh look at abandoned and contaminated urban properties. Revitalization of industrial and warehouse space will bring new business back to city centers and complement the exploding trend of downtown mixed-use developments.
Valuable urban brownfield properties are often located in desirable areas near shipping channels, mass transit and other convenient metropolitan amenities. In Salt Lake City, for example, a 650-acre tract is under redevelopment as a new Gateway District, complete with commercial development, transportation hubs and 10,000 new residential units. Half of the 325 parcels that comprise the former industrial and railroad site were contaminated and neglected. This resulted in undervalued property and an estimated property tax loss of $1.6 million annually.
Thanks to a grant from the EPA's Brownfields Pilot Program, the parcels received a major overhaul, and the degree of contamination proved to be less severe than anticipated. Thirty acres have been developed as an open-air, mixed-use project with retail and office space, and adjacent areas are under development. Retail sales and taxes are expected to generate $20 million annually, and property taxes will contribute another $5 million to Salt Lake City's revenue.
Meanwhile, since 1990 Milwaukee has been actively involved in the redevelopment of at least 64 brownfield projects, investing more than $5.7 million in testing and clean-up. Successful ventures have included manufacturing, residential, retail and commercial projects.
Among Milwaukee's success stories is the redevelopment of a 1.3-acre former tannery warehouse and metals reclamation site. Formerly covered with drums of unknown content, friable asbestos and hazardous waste, the site underwent a $400,000 removal and clean-up process.
Its ideal location and neighboring industries made the site attractive, and the city waived $20,000 in delinquent taxes to make the property more appealing to a prospective buyer. Butters-Fetting mechanical contracting company soon bought the property, creating jobs for an already available workforce and fulfilling the expectations of the city's redevelopment plan.
NAIOP Leads the Charge
Through its grassroots network of 46 chapters in the United States, NAIOP strongly encourages legislation that clarifies the law and protects the rights of its members and the commercial real estate industry.
In 2003, NAIOP led the efforts for enactment of a tax provision that allows for the immediate expensing of brownfield environmental remediation costs, rather than capitalizing the costs. Now these tax provisions are part of a larger “extenders” package — an array of tax breaks that are extended when they are scheduled to expire.
Under the tax incentive, the remediation costs may be expensed, or fully deducted in the year in which they are incurred, rather than having to be capitalized over time. NAIOP maintains that Congress should make these tax provisions permanent in an effort to fuel brownfield redevelopment.
This year, NAIOP will continue its efforts to encourage Congress, state governments and public and private partnerships to award grants and funding to revitalize urban brownfield sites.
Specifically, NAIOP will work closely with Congress to promote passage of the Brownfields Redevelopment Assistance Act that would authorize $60 million per year in brownfield-related economic development grants for the next five years.
NAIOP members have been vigilant in voicing support for legislation that is necessary for affordable brownfield redevelopment. There is no doubt that urban brownfield redevelopment is a chance to revitalize communities and take advantage of market opportunity. And while challenges still exist, better legislation, funding and regulations are clearing the way for a surge in this type of redevelopment.
Thomas J. Bisacquino is president of the National Association of Industrial and Office Properties (NAIOP). For more information, visit www.naiop.org.