Transcript Slide 1

Community-Based Development
of Brownfields: Opportunities
and Challenges
Kris Wernstedt ([email protected])
Associate Professor, Urban Affairs & Planning
Virginia Tech University, Alexandria
KnowledgePlex, National Vacant Properties Campaign, and
Metropolitan Institute
Expert Chat 1: July 19, 2007
• interviews of current and former staff in community-based
organizations, city housing/development offices, state
environmental organizations, LISC, universities, and technical
assistance providers (thanks to Lincoln Institute of Land Policy)
CDCs and Brownfields:
Alternative Perspectives
• “CDCs and other non-profits are accustomed
to challenging sites since in stronger markets
they often have only challenging sites
available to them. We are primed to take on
brownfields.”
• “The marginal properties that CDCs might
take on—the ones that are not worth it to the
private sector—have less room for error.”
A “Normal” Development Project for CDCs?
• standard acquisition of property through purchase
(market and HUD), tax foreclosure, surplus, donation,
RFPed, etc.
• but a brownfield site has extra liabilities
 requires extra environmental investigations to characterize
liabilities beforehand (due diligence)
 liability protections may be available
 prospective purchaser agreements
 some states provide special protections to CDCs
 VCPs help
 do uncertainties remain?
Common CDC Finance Model for
Residential Developments
• bank loans w/ relatively low loan/value ratios
• public sector subsidy (e.g., TIF, CDBG)
• low income housing tax credits (LIHTCs)
important to CDCs in some markets
Common CDC Finance Model for
Residential Developments, w/
Brownfields Twist
• investigation and cleanup costs typically small
relative to overall project costs
• environmental costs can be uncertain, but so
can all other development costs
• “ The bottom line is your fee is your risk
management and nobody else chips in theirs.”
Example of CDC Residential
Brownfield Development
• 50+ unit development for
affordable housing for
seniors
• 2/3 acre lot, a former
dairy, train station, fueling,
and storage facility, with
petroleum-contaminated soil
• $11.4 million project
• roughly $240,000 for
cleanup
Financing Example
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$1.4 million loan
$850 K public subsidy
$400 K developer fee (deferred)
$300 K housing grant
$700K green & brown subsidies
$1 million commercial sale
$6.8 million LIHTC
 equity pricing may vary $.83 $1.02 on a dollar of credits
 5 ¢ swing on $6.8 million >
$300,000 difference
 compare to $240,000 cleanup cost
Brownfield Considerations
• federal and state brownfield subsidies may be
available
• carrying costs during investigations and remediation
need to be managed
• financial aspects of environmental liabilities can be
tricky
 possible reluctance of lenders & investors to get involved
 may be forced to carry liability back into parent CDC
because of grant eligibility requirements
 may take on additional liability and regulatory scrutiny
unknowingly, through tenants and others
Brownfield Considerations
• federal and state brownfield subsidies may be available
• carrying costs during investigations and remediation need to
be managed
• financial aspects of environmental liabilities can be tricky
 possible reluctance of lenders & investors to get involved
 may be forced to carry liability back into parent CDC because of grant
eligibility requirements
 may take on additional liability and regulatory scrutiny unknowingly,
through tenants and others
• location may make commercial element appealing, but CDCs
are frequently unfamiliar w/ commercial financial components
Legal and Political Issues
• reluctance or unwillingness of some municipalities to exercise
tax foreclosure on contaminated properties (DNA problem)
• unlike local government units, CDCs often lack special
liability protections at brownfield sites except for special
purposes
e.g., Indiana’s 2007 brownfields amendments exempt some nonprofits that
“acquire ownership to assist and support a political subdivision’s
revitalization and reuse of a brownfield for non-commercial purposes,
including conservation, preservation, and recreation”
• brownfield grant criteria may be problematic for residential
redevelopments by CDCs
State BFields Grant Criteria
ECONOMIC DEVELOPMENT
increase taxable property/grant $
jobs/grant $
wages
distress
unemployment rate
median income
commuting patterns
plant layoffs
property value decline
population decline
manufacturing decline
local/private investment/$grant
project commitment by business
impact on community
ENVIRONMENTAL IMPROVEMENT
MATCH QUALITY & QUANTITY
INNOVATIVENESS
50%
6%
6%
6%
6%
6%
6%
6%
25%
15%
10%
Federal & State Regulatory Issues
• CDCs may lack direct access to state and
federal funding sources
• property ownership requirement for bfields
grant money can put CDC at risk
• need to work w/ new agencies w/o history of
relationship
Federal & State Regulatory Issues
• environmental permitting/approval process
may not mesh w/ construction timing
e.g., a $1.4 million pre-development loan at 6%
costs $40,000+ extra with a 6-month delay
wet weather costs can rise
public ownership during assessment can reduce
carrying costs
Market Issues
• window for CBO acquisition of brownfields
through tax sales can be small
outbid in strong market
out-speculated in weak markets
• in some markets, no need to take on
brownfields since there are plenty of options
• availability of brownfields may be limited
because of contract sales
Market Issues
• contaminated properties may be concentrated
in neighborhoods CDCs don’t serve
some CDC movement from place-based
approaches to metro orientation
• brownfield redevelopments traditionally reflect
a target of opportunity, a market development
model with less specific focus on community
building
Area-Based CDC Alternative
• allure of area-wide brownfield approaches
cumulative effects of redeveloping multiple
properties can increase property values, tax
revenues, and other community benefits over an
entire neighborhood depressed by a small number
of contaminated sites
↓ costs through economies of scale in assessment,
remediation, & infrastructure provision
allows risk sharing across multiple sites
Area-Based Environmental Assessment
Area-Based Environmental Assessment
• 540 acres
• ~2,000 properties
(commercial, industrial,
residential)
• 75 parcels identified as
“sites of concern”
• 20 Phase I assessments
completed
Cost of Area-Based
Environmental Assessment
• property by property
 $45,000 for Phase I’s
 $15,000 for overall
review
 $60,000 + meetings
• area-based
 Sanborn maps, chain of
title review, city and
state records, etc.
 $25,000 total
Takeaways
• “process of development is like hair on fire
24/7”
brownfields may just be a little hotter
• need to be opportunistic, but also danger of
zero sum game when done in ad hoc fashion
• lots of experts, both public and private, out
there to help CDCs manage brownfield
redevelopment processes one step at a time
Kris Wernstedt
Urban Affairs and Planning
[email protected]
www.uap.vt.edu/faculty/people.htm