News
Brownfield Bonanza
June 23, 2011
| It's time to stop hanging on to non-operating sites—whether they're brownfields or not—and redevelop them into functional, productive uses (our new bumper sticker: redevelop, baby, redevelop). Panelists shared that message with our audience today at Bisnow'sMidwest Brownfield Summit. | |
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| Environmental Liability Transfer's Randall Jostes says carrying costs on unused industrial buildings can run as high as $15M to $20M for sites worth just $5M. But if the current site owners are willing to sell the property to an experienced brownfield developer, they can get the building back to a usable state and also mitigate risk during the sale by transferring liability to the new owner. (If you love something, set it free.) Randall says there's a lot of risk in brownfields, but the payoff can be well worth it. "There are no 10 caps on brownfield properties." | |
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| GE's Jim Van Nortwick says GE has developed a standard procedure for cleaning up brownfields and has just started disposing of them over the last five years. For a large company like GE, non-performing properties often aren't top priority, and typically the financial department is only thinking of cost per year (so the argument to spend $50M to tear down a building that costs $6M a year to maintain doesn't always hold water). But Jim says it's not just costs, but also the PR and security risks a building can pose by remaining a vacant eyesore. He encourages disclosing all issues a site may have to both the buyer's and seller's lawyer as early in the transaction process as possible. | |
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| National Brownfield Association's Bob Colangelo moderated the panel and estimates that more than $1T (yes, that's one trillion dollars) of real estate is underdeveloped because the owners are afraid of the environmental liabilities. Bob anticipates 80% of these properties will never be developed because they just aren't good real estate. Another 5% will be developed because they're too good to pass up. The other 15% will require a lot of due diligence and negotiations among the "brownfield brain surgeons" on today's panel to get redeveloped. (Clarification: Panel members are not licensed medical surgeons.) | |
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| Aon's Kenn Anderson urged potential buyers to understand the future use of their property and explain it to the insurance reps so they can get an appropriate type of environmental insurance to cover it. Often, the insurance is a relatively small chunk of the entire cost, so getting coverage is usually a no-brainer for both buyers and sellers. Kenn manages environmental risk and worker safety issues with his insurance. | |
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Our host, Jenner & Block's Stephen Armstrong, told the audience that for every $1 of public money spent on brownfields, $15 to $20 of private cash comes onboard. (We're hoping for those same returns at the new Des Plaines Casino.) Stephen says legislators are starting to understand the need for brownfield redevelopment. He also explained that there are several defenses to help brownfield buyers avoid liability on new properties, including the Innocent Purchaser defense, which provides defense to a buyer who didn't know about an issue, and the Bonafide Prospective Purchaser defense, which defends those potential buyers who did appropriate due diligence. |
