From Eyesores To Community Assets: Realizing The Many Benefits Of Revitalized Brownfields

Improving communities has always been a core pillar of real estate development. But when it came to brownfield sites, many developers viewed these properties as unworthy of their time, effort and money. 

Out of the country’s estimated 450,000 brownfield sites — abandoned commercial properties contaminated by pollutants such as lead and asbestos — only 7% have undergone public health assessments to quantify their risks to the community, and only a small fraction of this number have been cleaned up entirely. Complicated legal responsibilities, lofty cleanup costs and the inherent danger of being exposed to dangerous substances have historically hindered the redevelopment of these sites.

However, the tides are changing. Aware of nationwide efforts to create a more sustainable environment and revive communities adjacent to these sites, investors and developers are recognizing the significant benefits of revitalizing brownfields.  

“Brownfields can go from being a liability to becoming the heart of neighborhoods and communities again,” said David McCarley, vice president of legacy site services at RPS, A Tetra Tech Co., a global engineering and consulting firm. “You’re removing a negative force holding down the local market and opening the community to revitalization, creating a driving force that positively impacts the community and your return on investment.”

McCarley said any type of dilapidated or blighted property is going to decrease nearby property values, whether it’s a former gas station, factory or warehouse. Property value loss becomes greater the closer one is to the contaminated site, with some properties losing as much as 20% of their value. Communities, in turn, become less active socially and economically — making them less desirable places to live, work and play.

But once investors and developers take the leap and start overhauling these sites, it’s a completely different story, said Michael Wilson, leader of legacy site services at RPS. 

“Bringing these facilities back online increases the tax base in the community and creates jobs that tend to support local service economies through increased employment,” Wilson said. “It’s a win-win for everyone.”

According to a University of Wisconsin study, one new job is created for every $10K to $13K spent on brownfield remediation. This is a substantial number, particularly considering that the Biden administration allocated $253M in grant money last year to clean up brownfields across the U.S. 

This money is part of the administration’s Investing in America agenda that has earmarked a total of $1.5B toward brownfield remediation.

But besides the benefits that brownfield remediation brings to the community, what’s in it for developers and investors?

“Since many brownfields are undervalued because of their environmental hazards, they are often bought at a substantial discount or escrow dollars are set aside to address cleanup costs,” McCarley said. “This can lead to huge upside potential in property value.”

The University of Wisconsin study concluded that property values surrounding brownfields can rise anywhere from 5% to 15% after the cleanup of these sites. 

There are also state and federal financial incentives available to investors looking to capitalize on these properties, including building material refunds, low-interest loans, job bonus tax refunds, cleanup liability protection and remedial costs that can be immediately deducted from taxes the year they are incurred, McCarley said.

Each state has its own rules and regulations when it comes to these incentives. But under typical circumstances, when the investor or developer gets approval of eligible reimbursable expenses, the site’s property taxes will be frozen until these expenses are recovered, Wilson said. Essentially, they are reimbursed for taking on such a challenge. This can offer big economic advantages, especially if the property is in or near an ideally located neighborhood. 

During one RPS brownfield project, a former trucking terminal and automobile scrapyard in southwest Atlanta, the team found a historic underground storage tank that did not show up in any of its databases. They determined that the unregistered UST needed to be removed, but it needed to be done safely and cost-effectively, Wilson said. 

“We have a cost-to-cure process that analyzes how bad the situation is and how much it will cost our clients, best-case and worst-case scenario,” Wilson said. “We used the worst-case scenario number here to negotiate a reduction in the purchase price.”

Wilson said that after RPS had contained and removed the tank following regulatory requirements, the cost to remediate the property was less than the reduction of the purchase price amount. This was a massive win for the client, he said. 

The property owners have not listed the property for sale since the purchase for $1.4M, but have received multiple off-market offers, including the latest for $2.8M: double the purchase price amount.

“This one property blighted the entire neighborhood, but since we came in and helped the client restore the rest of the site through the state’s brownfield program, it’s become a much more desirable place to be,” Wilson said. 

However, despite the many upsides to brownfield redevelopment, investors and developers must remain wary of the hazards that still exist, McCarley said. 

“Cleanup costs are usually not known until the final remediation effort is completed due to unknown or unforeseen conditions,” he said. “It is important to team with experts in the field of brownfields assessment and remediation to help navigate this process.” 

Potential exposure to petroleum, asbestos and perfluoroalkyl and polyfluoroalkyl substances is often a risk on these sites. PFAS is a newly regulated substance under the Comprehensive Environmental Response, Compensation and Liability Act, also known as Superfund, and may present significant challenges, McCarley said.  

“There is not much history relative to past use or contamination on properties when it comes to PFAS, so judging the potential impacts takes more investigation, assessment and time,” he said. 

He added that PFAS travels faster in the ground’s subsurface than other contaminants and tends to create larger areas of impact. It is regulated at very low concentrations and can be difficult to assess, delineate and evaluate. But now that PFAS is a regulated substance, it will open up a number of new properties to the brownfields program, McCarley said. 

“We have an active program to evaluate PFAS and other chemical risks from properties and a program to provide cost-to-cure evaluations to quantify potential liabilities associated with these properties,” he said. “We have a very robust effort and we're creating new products and services all the time.”

Brownfield designation also provides a groundwater limitation of liability for investors and developers who clean up the soil on these properties, allowing them to purchase confidently. 

“The nice thing with brownfields is it offers a liability shield against what was done prior to somebody coming in and buying a property,” Wilson said. “It's a nice product for putting a line in the sand between legacy risk and purchasing a property. It’s a great way to navigate risk and turn a blighted property into beneficial reuse.”

This article was produced in collaboration between RPS and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.