Brownfields Offer Greenfields for the Research Centered CRE Investor~Distressed Real Estate Consulting Services,Inc.

Implications: While many developers have avoided brownfields because of the necessary environmental clean-up and liability risks, these sites are prime real estate redevelopment opportunities. Available funding and insurance that reduces the risk of lawsuits and cost overruns are making revitalization of these blighted properties even more ideal. For 10 years, the EPA has encouraged and empowered developers and communities to work together to revitalize contaminated properties nationwide. Funding is available through the agency’s Brownfields Program. The EPA’s Brownfields Assessment Grants and Brownfields Revolving Loan Fund Grants can help with the costs of environmental assessment and clean-up. New York State's Brownfield Cleanup Program can be a real ally to the commercial real estate developer.

Analysis:

The redevelopment of thousands of idle properties in New YorkState has become significantly more lucrative with the 2003 passage of the Brownfield Law.

This law has changed the standards governing the remediation and reuse of mildly contaminated property in New YorkState, reduced the liability facing owners and operators of that land, and provided enticing tax credits.

The path to these benefits is through participation in the State's new Brownfield Cleanup Program operated by the Department of Environmental Conservation (DEC). This program marks a major achievement for the State's environmental and business leaders who have been seeking such a law for years, encouraged in part by the success that New Jersey has had with its brownfield program.

New York's law makes reuse of these sites more likely through reduced cleanup obligations, long-term liability relief, tax incentives, and lender protection.

"Brownfield" is defined by the new law as follows: "any real property, the redevelopment or reuse of which may be complicated by the presence or potential presence of a contaminant." Such property may include manufacturing sites, oil storage facilities, gas stations, dry cleaners and sites with contaminated fill. Although a brownfield is generally thought of as contaminated land, "real property" includes both land and buildings. Furthermore, the contamination need not be severe for a site to qualify as a brownfield.

New York's Brownfield statute created the Brownfield Cleanup Program or BCP. Through participation in the Program, applicants can apply reduced cleanup standards to their property and receive liability protection from the State upon the receipt of a Certificate of Completion for the cleanup. The program is not without its obligations, however. Applicants must agree to work through investigative, design and remediation phases that include significant public involvement. In exchange for the reduced cleanup obligations (which will significantly lower the cost of putting a site back into active use), the applicant may have to install engineering or institutional controls on a property. For example, pavement may be required over an area of soil contamination. That cap must remain in place and be monitored over time. Similarly, a deed restriction (filed as an environmental easement with the State) may restrict the methods and types of development that can take place on the property. It is likely that in many cases these restrictions will be worth the reduced cleanup obligations that the program offers.

Liability protection will give some measure of comfort to those redeveloping brownfields and will be available to future purchasers. Traditionally, under the State's environmental laws (and federal law as well) owners and operators of contaminated sites were liable for contamination cleanup costs and damages without regard to fault (strict liability).

The New York BCP changes this liability scheme for those successfully completing a cleanup under it by providing a covenant from the DEC and the New York State Attorney General not to sue. Protection from contribution claims of others is provided. Lenders are also given further assurances under state law that they will not be liable for contamination when they must foreclose on a contaminated property. This should make financing the redevelopment of brownfields easier.

Tax credits of up to 22% percent are also available for those successfully participating in the Brownfield Cleanup Program. The credits, deducted directly from a tax bill, cover depreciable costs incurred for site preparation (related to the cleanup), construction costs and groundwater remediation. They are also refundable to the extent that they exceed the year's tax liability.

In summary, the brownfield sites of this nation's major metropolitan cities offer real profit possibilities for CRE development in some very pricey urban centers.