Common Obstacles to Brownfield Redevelopment
The redevelopment of contaminated land (brownfields) provides a number of economic, environmental, and community benefits to stakeholders as well as to the surrounding urban area. Although we can make our cities more efficient, equitable, and economically vibrant through brownfield redevelopment, there are significant obstacles to successful re-use that can discourage some developers. Following are some of these key challenges and to suggest some potentially useful mitigation strategies.
Fragmented ownership leading to difficult land assembly
The vast majority of brownfield properties are located in urban areas, called infill areas because any development fills in between existing built-up properties. Ownership in cities, however, is often more fragmented than in undeveloped areas – and infill areas typically have a greater number of parcels than an area of equal size in a greenfield location. Consequently, land assembly for redevelopment in infill areas is more challenging because multiple owners require additional time for negotiations and the amenity of infill locations often drive transaction costs up. Furthermore, in older, infill areas where properties have been purchased several times, it is more difficult to establish chains of title before ownership can be transferred.
Fortunately, there is an easy and logical solution to problems of land assembly: denser development. Indeed, smaller sites can still host profitable developments, and in many cases the benefits of prime location outweigh the negatives of a small footprint. Some municipalities also offer land assembly assistance programs to infill developers interested in creating affordable housing.
By definition, brownfields are sites with real and/or perceived environmental contamination, and therefore redevelopment on such land is more difficult since contaminants must be removed before construction can begin. The risks of contamination and cleanup costs can be a daunting prospect for potential developers, but often the sale prices of such properties reflect the associated liability for cleanup. The lower purchase price associated with brownfield properties can offset later cleanup costs.
Fortunately, there are a number of options for developers to limit cleanup costs. Among insurance products available to developers, pollution liability insurance covers property value declines associated with the discovery of pollution, and cost-cap insurance limits cleanup cost overrun by covering costs exceeding those projected in a remediation plan. Further, federal, state, and local governments often work with brownfield developers to provide tools and assistance for contamination assessment, cleanup, and redevelopment. In Minnesota, U.S. EPA, the Minnesota Department of Employment & Economic Development, the Metropolitan Council, and some county (Hennepin and Ramsey) and municipal governments offer funding programs to infill developers.
Want to learn more? Read more in our Brownfields Resource Guide.
Higher upfront capital costs
Infill development has higher upfront capital costs than greenfield development. Specifically, infill development often require demolition of existing structures, more expensive design features like facades and finishes, and steel or reinforced concrete construction systems to support taller buildings on a smaller lots. The higher upfront costs of infill development mean that initial rates of return can be lower than for other types of development, but infill projects also typically command higher rates of return over longer periods due to higher rent and sale prices. Essentially, developers can often turn a greater profit on infill development if they hold onto the property for a longer time before selling.
More limited financing options
The complexity and uniqueness of many infill developments makes such projects more risky than greenfield development, which makes it more difficult to secure financing from risk averse investors. Indeed, not only do infill projects typically require more expensive and technical rehabilitation and construction, but they also are often located in lower-income communities and require multiple financing sources due to the mixed-uses they encompass. Given these risks inherent in infill development it can be harder to secure financing from investors and financial institutions, but fortunately brownfield sites are often eligible for local, state, and federal assistance, which can close financing gaps and make redevelopment viable. Infill development can be equally or more profitable than greenfield development – despite greater perceived initial risk – and as more developers and lenders participate in brownfield redevelopment barriers to financing are likely to be eased.
Longer regulatory approval process
Although momentum is shifting in cities like Minneapolis and St. Paul, where new zoning codes better enable mixed-use neighborhoods and developments, many cities still mandate the separation of land uses. In cases where a developer chooses to pursue a mixed-use project on an infill/brownfield site, the process to get approval to deviate from zoning codes can be lengthy and costly. Furthermore, the potential contamination of brownfield land means that developers must rehabilitate the site to levels of contamination acceptable to government standards, which adds another level of complexity and necessary regulatory approval. More recently, however, local government have started cutting red tape in response to the successes of mixed-use infill projects. In the Twin Cities, for example, the Metropolitan Council has prioritized transit-oriented development and in response has adopted a strategic action plan to facilitate dense, mixed-use infill development along important transit corridors.
United States Environmental Protection Agency. Office of Sustainable Communities and Smart Growth Program. Smart Growth and Economic Success: Investing in Infill Development. EPA, Feb. 2014. Web. http://www.epa.gov/dced/pdf/economicsuccess/Developer-Infill-Paper-508b.pdf
United States Environmental Protection Agency. Anatomy of Brownfields Development. EPA, Oct. 2006. Web. http://www.epa.gov/brownfields/overview/anat_bf_redev_101106.pdf
Metropolitan Council. TOD Strategic Action Plan. Met Council, June 2013. Web. http://www.metrocouncil.org/Communities/Publications-And-Resources/Transit-Oriented-Development-(TOD)-Strategic-Actio.aspx