Investing in Brownfield Properties



Commercial real estate investors should consider investing in brownfield properties. The Environmental Protection Agency (EPA) defines brownfields as real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. So far in 2014, the EPA has awarded 188 grants to assist in the financing of brownfield projects. These grants are made for assessment, cleanup, revolving loans, and environmental job training.

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Brownfields are previously developed commercial real estate that is currently not in use or severely underused. You may be under the misperception that all brownfields are too environmentally contaminated to be profitably redeveloped. You should rethink this. There are many incentives to redeveloping brownfields.

Commercial brownfields to consider for redevelopment

  • Former service stations
  • Idle dry cleaners
  • Light manufacturing factories
  • Warehouses
  • Parking lots
  • Hangers
  • Heavy machinery storage lots
  • Abandoned railroad yards
  • Idle air strips
  • And other urban facilities

These can be large tracks of land with substantial new commercial uses including being redeveloped into large apartment complexes producing income from 150 or more tenants. Urban apartment complexs doing the best in today’s economy (and going forward) are those within a short distance of entertainment and conveniences. The best place to look for brownfield opportunities are in areas already having these amenities and currently prospering.

Alternatively, you may want to look for brownfield opportunities near apartment buildings that lack these conveniences and entertainment venues. That makes the brownfield a natural to be developed into a collection of the commercial properties the neighborhood wants. Everyone wins and thrives.

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Benefits and cautions involved with brownfield redevelopment

You need to become familiar with the benefits, advantages, and complications of redeveloping a brownfield into an urban destination. This information then needs to be fully communicated to contractors, lenders, appraisers, local officials, and others that will be involved with the project.

  • You need to be keenly aware of federal, state, and local regulations with the potential to stall the project or make it excessively expensive.
  • Uncover and apply for the plethora of tax incentives available for cleaning up and reusing idle commercial properties.
  • Be able to reassure decision makers that any onsite contamination can be fully contained during removal to avoid seeping into groundwater or storm drains. This is critical to mitigating liability and long-term costs associated with redeveloping brownfields.
  • Find ways of creating goodwill within the community. Lenders must see this as a way of revitalizing the community’s economy and nearby tenants must view it as an enhancement of the community rather than a threat to the local environment.
  • Why and how the project will earn you a respectable profit while at the same time making surrounding properties more valuable and marketable.

A success story

The Former Hancock Wood Products property in Dickinson County, Michigan has been home to a variety of operations. Originally used as a storage area for cars and parts for a local automotive dealer, in 1963 the site became home to a wooden handle manufacturing plant. The plant’s owners eventually went bankrupt and the site became vacant in 2004.

Because the plant used lacquer and paint as part of the finishing process, and given the site’s prior use for automotive storage, contamination issues were a concern. Attracted by the property’s location and value, Habitat for Humanity purchased the site in the summer of 2006. An approximately $15,000 grant from the Dickinson County Brownfield Redevelopment Authority was used to fund assessments on the property. It was determined that no cleanup other than minor debris removal was necessary. All that was required to begin redevelopment was:

  • Removed approximately 60 paint and lacquer containers of various sizes.
  • Leveraged approximately $55,000 for redevelopment activities.
  • Leveraged more than 1,400 volunteer hours for construction and many more are expected, as the ReStore facility opens and relies mainly on volunteer efforts.

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The Former Hancock Wood Products Building has been reused as a Habitat for Humanity “ReStore,” which provides donated, lightly-used construction products at reduced costs. Any proceeds from sales go to the Menominee River Habitat for Humanity organization. Benefits to the community include the recycling of debris that would have formerly ended up in a landfill, and access to lower-cost construction materials, which reduces landfill use and reduces demand for new materials. The ReStore opened June 18, 2007.

 

Brian KlineAbout the author: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

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