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Are You Looking at Brownfields?

By Brian Kline | September 20, 2016

When it comes to commercial real estate, it's probably not a good to be into raw land speculation this early in the recovery/early growth cycle. The exception might be if you know where McDonalds has committed to building a new restaurant and there is raw land available in the vicinity. McDonalds is known for doing very thorough due diligence on both current customer potential and future grow for each specific location.

However, the Brownfield niche sector shows more promise. Especially in the urban environment. Brownfields are previously developed commercial real estate that is currently not in use or severely underused.

Large grungy empty undercover parking area viewed down the length with receding perspective lit by overhead strip lights

Large grungy empty undercover parking area viewed down the length with receding perspective lit by overhead strip lights

Brownfields to Consider

You may be under the misperception that all brownfields are too environmentally contaminated to be profitably redeveloped. Reality is you need to rethink this. There are many incentives to redeveloping brownfields.

Here are commercial property types you should consider:

  • 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

Where You Want to Look for Brownfields

The commercial real estate recovery is strongest in the apartment sector. Very specifically, urban apartment buildings within a short distance of entertainment and conveniences. The best places for you to look for brownfield opportunities are in areas already having these amenities and already prospering.

Alternatively, you should 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.

Benefits You Gain with Brownfields

You need to become familiar with the benefits and advantages of redeveloping a brownfield into an urban destination. This is information you need to communicate 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.
  • You need to 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.

Brownfields may or may not be your best investment choice. Often having much of the infrastructure in place is beneficial. Other times, the cost of environmental cleanup is prohibitive. As with all real estate investing, due diligence is paramount.

Please leave a comment if this article was helpful or if you have a question.

photoAuthor bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 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. With the Pacific Ocean a couple of miles in the opposite direction.

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News
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