Industrial Developers Stalk Toxic Land As Available Sites Dwindle

Developers are wading through toxic waste and green sludge to find sites for warehouses and other industrial projects in an increasingly constrained market.

As more land is rezoned for residential use and residents push back against warehouses in their backyard, developers are on a hunt for more sites in preparation for a bounceback in demand for industrial space. As a result, some are targeting highly contaminated locations, panelists at Bisnow’s Northeast Industrial and Logistics event last week said.

“About 90% of our sites currently have some type of environmental issue on them,” The Stro Cos. Managing Director Albert Fitch said onstage at the Red Hook Logistics Center. “Those sites are very port-centric, transportation-centric, [have] access to major thoroughfares.” 

Though industrial vacancy has ticked up this year, it stands at 5.6% nationwide as of the second quarter, according to a report by CBRE. In the coming years, the brokerage expects demand to surge again, driven by e-commerce, which nearly doubled its leasing year-over-year. 

Other more niche sectors, like cold storage and data centers, are also booming, exciting investors and causing them to scramble to get ahead of oncoming demand. But that can be difficult as the supply of land available for industrial use dwindles, panelists said.

“There's not much farmland left that's really being developed anymore,” ARCO Design/Build Vice President Jim Wyatt said. “So we're dealing with brownfield sites. We're dealing with other roadblocks.”

In New York City, residents faced with a lack of affordable housing are spreading further into historic industrial hubs. Developers are following, looking to rezone neighborhoods to allow for dense residential projects — and eliminate the potential for new industrial uses.

Williamsburg, once home to shipyards and factories for Domino Sugar and Pfizer, now commands some of the highest home prices in the five boroughs. Gowanus’ 2021 rezoning has brought a wave of redevelopment where manufactured gas plants, cement factories, oil refineries and chemical plants once stood. Some developers are now eyeing Red Hook’s current industrial hub as an up-and-coming hot spot for breweries and barbecue.

On top of that, legislation requiring a special permit for new last-mile delivery centers is expected to further limit where industrial developers can build. 

“There simply aren't that many sites, particularly when you're talking about industrial sites in New York City and industrial sites of a size and scale,” said RXR Project Executive Emma Manson, who was involved in the building of the Red Hook Logistics Center. “Everyone here needs to create their opportunities.”

For developers, the sites that many others won’t touch — brownfields, of which there are more than 450,000 across the country — can present that opportunity. 

In Piscataway, New Jersey, Rockefeller Group has transformed and sold off several former brownfield sites. At a parcel that was operated by Union Carbide for nearly 80 years, the developer transformed the property into a new ​​400K SF industrial facility. It sold the project fully leased two years after acquisition to a CBRE Investment Management fund.

In Spotswood, New Jersey, a 30-minute drive away, Rockefeller recently completed a 654K SF, 59-acre logistics center on the site of the former Schweitzer-Mauduit International paper plant.

“We like environmentally contaminated, the stuff that's a bit of a heavier lift that requires the depth of knowledge and the experience that we have as an organization,” Rockefeller Senior Managing Director Mark Shearer said at the event. “We're not usually your high bidder. We're not going to come buy the shovel-ready site. That's just not what we do. We like the fundamentals.”

Fitch said his family office doesn't buy contaminated or abandoned properties to flip them, but it is committed to their long-term development. 

“We're looking at sites because of the irreplaceable nature of those locations,” Fitch said. “For us, it's the 20- to 40-year outlook of those sites.” 

But beyond the site itself, cleanup and redevelopment can add immense value to the surrounding community, according to consulting firm RPS, whose projects include Atlanta’s 17th Street Bridge redevelopment, a former Atlantic Steel site. 

“Once you clean up these properties, you remove the perception of blight and start redevelopment there, jobs come back, communities revitalize, there's more investment in infrastructure,” RPS leader of legacy site services Mike Wilson said in an interview. “It's beneficial across the board.”

To reinvigorate such sites, cities can be willing to provide economic incentives for developers, added David McCarley, RPS vice president of legacy site services. Continued industrial use can, at times, be a community’s best bet to finding a developer willing to clean up the land.

“If you go to mixed-use zoning, you're tied to residential standards for your cleanup criteria, which are usually higher,” McCarley said. “It's easier if you have an industrial, manufacturing and commercial application than it is a residential component, just because you have a different set of criteria that you're dealing with.”