Brownfield Development Explained Brownfield Development Explained | Winterspring Capital

Brownfield Development Explained

Brownfield Development Explained

Brownfield Development Explained

One of the skills that separate the average real estate investors from the consistent high performers is the ability to find good deals. 

Most of these deals can come from your network of brokers and wholesalers or locating them directly yourself through off-market prospecting.  An overlooked third way of finding deals is to create a deal where everyone else saw no opportunity

Looking at an opportunity creatively and exhausting all potential channels for how you can make it work will sometimes net you a big payday. 

So what types of diamond-in-the-rough deals am I referring to?  One obvious one in the world of real estate development would be the brownfield development.

Places where people live today are typically places that people have been inhabiting for quite some time.  Cities that housed a large population of residents 150 years ago will almost invariably have people still living there today.  This leads to the continued recycling of land for new structures as the previous ones become obsolete and unwanted.  Developers will come in, demolish the previous structures, and then build a new one that is better suited to the current demand. 

Brownfield Development Explained
The city of Boston has changed dramatically over the past 300 years through constant development

Over the years, however, many plots of land became environmentally contaminated. 

It may be the former house of a commercial or industrial facility that dealt with hazardous chemicals. 

These are called brownfield sites.  When contaminated lots in an area with a strong demand for new real estate development hit the market, you’ll likely see a recurring pattern. 

Lots of initial interest, especially considering a discount should be priced in for the contamination, followed by no one actually taking the deal across the finish line into an LOI and sale. 

The idea of environmental contamination seems daunting to many people and they can’t envision the value a deal like this might have.  The truth is, there are several factors that can make a brownfield deal worthwhile.  When you combine a more desperate seller that has far less people interested in his deal and properly leverage some of the tax credits we will discuss shortly, you can make a good deal appear where others thought none was possible.

Brownfields may be polluted with any number of different hazardous substances. 

Some of the most common contaminants include TBT, hydrocarbon spills, lead paint, solvents, pesticides, and asbestos.  A brownfield site may have confirmed contaminants, but does not necessarily need any proof of contamination, only reasonable suspicion of it.  It’s in our best interest as a society to clean up these properties, but there’s obviously a lot of money involved in doing so. 

Brownfield Development Explained
Most Common Pollutants Found at Brownfields (epa.gov)

The government recognizes this fact and offers a number of programs that provide grants and funding that can make the numbers “work” for a brownfield development. 

These are varied, but some programs offered by the federal government include
the Revolving Loan Fund (RLF), the Community Reinvestment Act (CRA), the Resource Conservation and Recovery Act (RCRA), Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), and the Small Business Liability Relief and Brownfields Revitalization Act. 

These are only the programs offered by the federal government.  When cleaning a brownfield site, you will also tap into state and local funds.  In Massachusetts, for example, the Massachusetts Brownfields Tax Credits program can be layered on top of federal funds and grants. 

You will even find funds available at the local level, especially in cities and towns that were former manufacturing hubs and may have several contaminated sites.   Framingham, Massachusetts, for example, runs a program called the Framingham Brownfields Community Wide Assessment program, which can provide additional subsidy for brownfield development.  Look into whether your local area offers programs like this.

 

Brownfield Development Explained
Depending on the Circumstances, a Brownfield can be a Gold Mine

One deal we personally ran in to was previously a gas station that had their underground storage tank rupture and spill into the surrounding soils. 

This property was mandated by the government to be cleaned up so as to reduce the level of contaminants to an acceptable level.  Mobil, the corporation operating the station, then sent in their contractors to clean it to the minimum acceptable level. 

In these situations, the company will often only clean up to this minimum required level as they do not want to claim the property as “fully clean” and be liable to future damages if they are later proven to have been incorrect.  Unfortunately, this leaves lots of properties with reduced, but not eliminated pollution.

The government then set up a restriction on the property’s deed called a land use agreement. 

This states that the property can only be used for commercial purposes, with no human habitation.  Were someone to have a licensed environmental specialist continue the clean-up to completion, the land use agreement could be removed, but for some time, there was no incentive to do so. 

Following the spill in the 80’s, the current owner operated the site as an auto body repair shop for over 20 years, but when that area became increasingly desirable as a residential neighborhood in the mid-2010s and the property values began to climb, his auto body shop was no longer the most sensible use of the lot.  

In order to sell, however, he needed someone who was willing to remove the still-existing low levels of contamination in order to realize the full potential for the property.

Brownfield Development Explained

As developers and investors, we weren’t capable of doing the cleanup ourselves, but we knew the people for the job.  Wherever your potential brownfield project may be, there will dedicated environmental and brownfield consultants that can help you navigate the process. 

A good environmental consultant will help you assess the site for the current contamination profile, advise and implement strategies for cleanup and proper removal of the contaminants, and help apply on your behalf for state, local, and federal grants and subsidies that the project may qualify for. 

The costs of their services themselves are usually offset by the subsidies and grants you will receive.  You just need to be prepared to cover the expenses needed in the meantime prior to receiving the subsidies.  If you’re okay with waiting for the site to be properly assessed and cleaned and fronting the money necessary to do so, you might be able to find a very profitable deal that everyone else had overlooked or been too afraid to get involved in.

One of the skills that separate the average real estate investors from the consistent high performers is the ability to find good deals. 

Most of these deals can come from your network of brokers and wholesalers or locating them directly yourself through off-market prospecting.  An overlooked third way of finding deals is to create a deal where everyone else saw no opportunity

Looking at an opportunity creatively and exhausting all potential channels for how you can make it work will sometimes net you a big payday. 

So what types of diamond-in-the-rough deals am I referring to?  One obvious one in the world of real estate development would be the brownfield development.

Places where people live today are typically places that people have been inhabiting for quite some time.  Cities that housed a large population of residents 150 years ago will almost invariably have people still living there today.  This leads to the continued recycling of land for new structures as the previous ones become obsolete and unwanted.  Developers will come in, demolish the previous structures, and then build a new one that is better suited to the current demand. 

Brownfield Development Explained
The city of Boston has changed dramatically over the past 300 years through constant development

Over the years, however, many plots of land became environmentally contaminated. 

It may be the former house of a commercial or industrial facility that dealt with hazardous chemicals. 

These are called brownfield sites.  When contaminated lots in an area with a strong demand for new real estate development hit the market, you’ll likely see a recurring pattern. 

Lots of initial interest, especially considering a discount should be priced in for the contamination, followed by no one actually taking the deal across the finish line into an LOI and sale. 

The idea of environmental contamination seems daunting to many people and they can’t envision the value a deal like this might have.  The truth is, there are several factors that can make a brownfield deal worthwhile.  When you combine a more desperate seller that has far less people interested in his deal and properly leverage some of the tax credits we will discuss shortly, you can make a good deal appear where others thought none was possible.

Brownfields may be polluted with any number of different hazardous substances. 

Some of the most common contaminants include TBT, hydrocarbon spills, lead paint, solvents, pesticides, and asbestos.  A brownfield site may have confirmed contaminants, but does not necessarily need any proof of contamination, only reasonable suspicion of it.  It’s in our best interest as a society to clean up these properties, but there’s obviously a lot of money involved in doing so. 

Brownfield Development Explained
Most Common Pollutants Found at Brownfields (epa.gov)

The government recognizes this fact and offers a number of programs that provide grants and funding that can make the numbers “work” for a brownfield development. 

These are varied, but some programs offered by the federal government include
the Revolving Loan Fund (RLF), the Community Reinvestment Act (CRA), the Resource Conservation and Recovery Act (RCRA), Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), and the Small Business Liability Relief and Brownfields Revitalization Act. 

These are only the programs offered by the federal government.  When cleaning a brownfield site, you will also tap into state and local funds.  In Massachusetts, for example, the Massachusetts Brownfields Tax Credits program can be layered on top of federal funds and grants. 

You will even find funds available at the local level, especially in cities and towns that were former manufacturing hubs and may have several contaminated sites.   Framingham, Massachusetts, for example, runs a program called the Framingham Brownfields Community Wide Assessment program, which can provide additional subsidy for brownfield development.  Look into whether your local area offers programs like this.

 

Brownfield Development Explained
Depending on the Circumstances, a Brownfield can be a Gold Mine

One deal we personally ran in to was previously a gas station that had their underground storage tank rupture and spill into the surrounding soils. 

This property was mandated by the government to be cleaned up so as to reduce the level of contaminants to an acceptable level.  Mobil, the corporation operating the station, then sent in their contractors to clean it to the minimum acceptable level. 

In these situations, the company will often only clean up to this minimum required level as they do not want to claim the property as “fully clean” and be liable to future damages if they are later proven to have been incorrect.  Unfortunately, this leaves lots of properties with reduced, but not eliminated pollution.

The government then set up a restriction on the property’s deed called a land use agreement. 

This states that the property can only be used for commercial purposes, with no human habitation.  Were someone to have a licensed environmental specialist continue the clean-up to completion, the land use agreement could be removed, but for some time, there was no incentive to do so. 

Following the spill in the 80’s, the current owner operated the site as an auto body repair shop for over 20 years, but when that area became increasingly desirable as a residential neighborhood in the mid-2010s and the property values began to climb, his auto body shop was no longer the most sensible use of the lot.  

In order to sell, however, he needed someone who was willing to remove the still-existing low levels of contamination in order to realize the full potential for the property.

Brownfield Development Explained

As developers and investors, we weren’t capable of doing the cleanup ourselves, but we knew the people for the job.  Wherever your potential brownfield project may be, there will dedicated environmental and brownfield consultants that can help you navigate the process. 

A good environmental consultant will help you assess the site for the current contamination profile, advise and implement strategies for cleanup and proper removal of the contaminants, and help apply on your behalf for state, local, and federal grants and subsidies that the project may qualify for. 

The costs of their services themselves are usually offset by the subsidies and grants you will receive.  You just need to be prepared to cover the expenses needed in the meantime prior to receiving the subsidies.  If you’re okay with waiting for the site to be properly assessed and cleaned and fronting the money necessary to do so, you might be able to find a very profitable deal that everyone else had overlooked or been too afraid to get involved in.

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Brownfield Development Explained
Brownfield Development Explained
Brownfield Development Explained
Brownfield Development Explained