New Voices – Brownfields: Not Your Grandfather’s Commercial Real Estate Deal

Spring 2011

Despite some residual turbulence, there are signs of a shift in thinking about commercial development, especially urban infill projects, and it’s one that Developing Leaders can help shape and advance.

In many markets, redevelopment of brownfields is getting more attention than ever. It’s a change borne partly by necessity and, like most shifts, presents opportunity for competi­tive advantage to property owners, brokers, developers, veterans and newcomers who team up to lead the trend. The need for greater use of brownfields is one of supply and demand. Developers have been drawn to urban centers for decades, in good times and bad. More recently the at­tractiveness of urban living, including to new generations of young adults and empty-nesters, has risen further. Naturally, the cost of parcels for infill development increases as inventory tightens.

Urban Appeal on the Rise

Last year, the U.S. Environmental Protection Agency reported that the regional share of residential construc­tion permits issued in urban cores and established suburbs tripled in locations such as New York City and Portland, Ore. In Chicago and Atlanta, those percentages were ap­proximately four times higher. Shares doubled in Seattle and 14 other cities among the 50 largest metropolitan regions and have expanded dramati­cally elsewhere. Cities like Denver and Sacramento are benefiting from innovative growth management and development. Boston, Miami and other municipalities continue to draw people because of their quality of life, employment options, diversity and roles in the global economy. In most cities, urban infill development is be­ing spurred by anti-sprawl and other land-use trends.

Less obvious, but increasingly compelling, is the opportunity for infill development atop the tens of thousands of brownfields in U.S. ur­ban areas. Property owners are often unaware of (some might prefer not to know) the extent and implications of contamination on their land. Banks withhold financing for these literally toxic assets and, when they do lend on them, struggle to get the proper­ties off their books when borrowers default on loans. Brokers and devel­opers, skeptical of brownfields, pass on what would otherwise be attractive locations.

Unlocking the Key to Brownfield Development

The opportunity for DLs and their colleagues comes from understand­ing how the intrinsic value of blighted parcels -- often including highly desirable waterfront locations that have effectively been inaccessible -- is now being enhanced. Special­ized brownfield developers bring new expertise, capital, shared purpose and thinking to property owners, tradition­al developers and other stakeholders. For example:

Innovative environmental engineering is more precisely characterizing what’s in a property’s soil and groundwater, and how to best clean the site and mitigate risk.

Comprehensive remediation plans, often integrated with redevelopment strategies, are providing the bases to quantify and reach settlements with prior owners and insurance companies who are responsible for cleanup costs.

Higher-density land use, encouraged by new zoning and entitlements, is increasing the value of many blighted urban properties for sellers and developers.

Public agencies are encouraging brownfield redevelopment to create new jobs and tax revenue -- often complementing existing and planned mass-transit systems -- with grants, interest-free loans, tax-increment financing and other incentives.

Repurposing brownfields is increas­ing the momentum behind sustain­able development where a growing number of private-equity and pension funds, as well as REITs, are dedicat­ing resources.

Urban brownfield redevelopment isn’t a new trend, but has been steadily gaining momentum in recent years. Shrewd real-estate and development professionals, including Develop­ing Leaders, can capitalize on this opportunity by partnering with other stakeholders to achieve common and individual goals. Gaining access to properties that had been unattain­able not only enables development to meet demand, but generates long-term economic and social benefits for entire communities and regions.