What exactly is a brownfield? The name really does say a lot… a brownfield is an unused (or under-utilized) commercial or industrial property that is contaminated from past uses. Common brownfields include sites like previous gas stations or old manufacturing plants. These properties become derelict because they have been abandoned by their owners, usually due to financial reasons. So why do we care about brownfields? They can be a good investment option for someone with some risk tolerance. These properties can provide an opportunity to redevelop the brownfield into a much more desirable asset. Common redevelopment options are multi-tenant residential buildings, commercial units, or a combination of both.
Brownfields fall into “tiers”, of which there are 3 (top, middle, and bottom). The top tier brownfields make up 15-20% of sites. These are the most attractive as the market value of the finished product will greatly exceed the costs of remediation. Most brownfields fall into the middle tier (60-70%), where the potential for return on investment is still there, but remediation costs are high. For the top and middle tier sites, these are usually located in or close to urban centres. Bottom tier brownfields (15-20%) are the sites where nothing will happen without government intervention. This is due to remediation costs exceeding any potential return and usually because these sites are in rural or remote areas.
Redeveloping brownfields is like recycling… with time and energy, you can transform a once unwanted product into a fresh and desirable good, all at a profit. There are also social and environmental benefits, like the enhanced quality of life through neighborhood revitalization, reduced site hazards, reduced urban sprawl, and protection of ecosystem health. So why isn’t everyone doing this? Firstly, it can be challenging to acquire funding because financial institutions do not easily lend when risk is involved. There is also a potential for liability associated with the contamination, which can vary depending on the approach taken to remediate the property (digging all the contamination out = lower risk; risk assessing/ treating contamination in-situ = higher risk). The regulating bodies (municipal and provincial) can cause delays as they need to review and approve plans.
Redeveloping brownfields is a complex process that involves multiple stakeholders: property owners, public organizations, developers, lenders, insurance agencies, and industry experts. Every brownfield will have its own challenges and there are no one-size-fits-all solutions, but there here are some examples of how to address the challenges mentioned above:
- Government-provided tax grants and low-interest loans to make brownfield redevelopment more attractive for the middle- and bottom-tier sites.
- Protection from liability for brownfield stakeholders (i.e. there needs to be a clear end for liability once a site has been remediated)
- To avoid regulatory delays, a permanent staff member of the regulating body can have their salary covered by the developers
Getting into brownfield redevelopment is not for everyone. However, with successful partnerships, it can be a great investment option for all parties while giving the community a cleaner, more useful property.
Please contact WES if you have any questions or would like to discuss further.