Are Brownfields Worth it?

There’s a lot of discussion in the property development community regarding what a brownfield is and whether buying a brownfield to redevelop is a good idea.

Technically, the “Small Business Liability Relief and Brownfields Revitalization Act” defines a brownfield as:

“… real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.”

Less formally, a brownfield is a vacant or underutilized piece of property where known or suspected contamination is complicating the development. Sound familiar? I’m sure this scenario is very familiar to developers. We have all driven by a vacant gas station or former industrial property sitting idle that is in an excellent location, but that no one seems to want to buy and put back into productive use. These are your classic brownfields.

Should you stay away from buying brownfields because addressing environmental issues can be time consuming, costly, and filled with uncertainty, or should you dive in head first? Well (of course), the answer is: it depends. If you do your due diligence properly, you should be able to identify and quantify the environmental issues prior to purchase. You can then move forward with relative confidence and the ability to put a cost on the environmental issues to determine if the deal still makes sense for you financially. But this is where the rub is. Conducting a thorough investigation can be costly, and if the deal doesn’t go through, you’ve just spent a lot of money with nothing to show for it. This is a critical decision point. It is important to balance assessment costs with the level of uncertainty you can live with.

So is buying a brownfield worth the risk? Absolutely, as long as you do your homework. They are frequently in very desirable locations and sometimes come with a discounted purchase price. Brownfields are often real estate gems, but sometimes it takes a little effort and money to get to the diamond inside.

Lon’s next installment on brownfields will discuss purchasing: striking the balance between cost and uncertainty (and how to identify deal-killers).

Article by: Lon Yandell, RG, LG, LHG