Brownfield Development – Cash Cow or Money Pit?

6 September 2007 | Sean Tolliver

Guest Blog Post written By Doug Brown, ASTI Environmental. Among the reasons developers are taking a second look at brownfield sites is that downtowns have acquired a new cachet in recent years 79 million baby boomers and empty nesters who grew up in the suburbs are having children later or not at all (source: Brookings Institute). Boomers and empty nesters are choosing downtowns because they prefer urban funk to suburban blandness, refuse to commit to hour-long commutes and want to be near restaurants, entertainment and cultural amenities.

Locally, according to Kurt Metzger, Director of Research at the United Way of Southeast Michigan, Downtown Detroit has added over 33,000 new residents, and with an additional 20,000 will reach critical mass.  This data is meaningful because most industry began in downtowns and first-ring cities and ultimately left brownfields in their wake as they sprawled to the suburbs. 

Listen to the market

It’s almost too logical – why build costly roads and sewers to push development out further into townships and greenfields where land values are soaring when affordable land and infrastructure is already in place downtown.  Although ASTI Environmental’s passion is brownfield redevelopment, we manage both brownfields and greenfields under one roof and let the market dictate our product mix – and in the past 18 months the market has been screaming brownfields and downtowns.  The Brownfield News has stated that Michigan is a leader in this area; “More brownfield deals are coming out of Michigan than any other state in the country.”

LUGs bend over backwards

Generally when our developer clients approach Local Units of Government (LUGs) to renew an environmentally impacted site or a functionally obsolete/blighted building, there is very little that most community leaders won’t do to push a brownfield project forward, particularly if it provides a domino-effect for other infill projects, as is so often the case.  In the words of Oakland County’s Environmental Program Coordinator, Brad Hansen; “Brownfield redevelopment in downtown areas should be seen as a win-win situation for both LUGs and developers.  Brownfield redevelopment benefits LUGs via environmental clean-up, enhancing the tax base and job creation.  The goals of the developer are also expedited by the presence of the existing infrastructure as well as utilization of desirable locations of Brownfield parcels in a downtown setting.”

Bottomless Toolbox

Although a gap financing strategy must be designed by a seasoned professional tailored to augment the development objectives agreed upon by the public and private sector.  brownfield redevelopers in Michigan are fortunate to have a “bottomless” toolbox to remedy extraordinary environmental and infrastructure expenses that brownfield sites can show as follows:

Polluter Pays

Michigan was the first and still really the only state that has successfully used Baseline Environmental Assessments (BEA), as defined under Part 201 of Michigan Act 451, and utilized engineering controls in lieu of costly remediation that merely transports liability (i.e. hazardous waste, contaminated soil, petroleum substances etc.) from project sites to landfills, thus turning pro-formas upside down and curtailing economic development benefits – job creation, reusing land, elevation of taxable value, removal of eyesores and enhancing community image.  Generally other states award incentives to brownfield redevelopers but they are still responsible for cleanup.  Due in large part to our causation-based liability scheme crafted during Governor Engler’s watch . . . in Michigan the polluter pays. 

As brownfield redevelopment just celebrated its’ 10-year anniversary in Michigan, developers appear to have a greater understanding of risk associated with environmentally impacted sites and functionally obsolete/blighted buildings than ever before.  Coupled with a “bottomless” toolbox to close financial gaps, an undervalued real estate market and willing LUGs, developers have decided that brownfield redevelopment can be a cash cow. 

Guest Blog Post written By Doug Brown, ASTI Environmental.  Doug also is the co-chair of the Brownfields Transaction Forum for the conference.