Acompany that redevelops what is
known as a “brownfield” can see long-term financial savings on its real estate purchase and, at the same time, enhance a
community’s local environment.
“In most cases, you can turn that property
into an asset, in part because the government
provides funds for redeveloping it,” says Jeff
Lemanski, a senior vice president in Grubb &
Ellis’s Detroit office.
Smart Business talked to Lemanski about
the difficult but eminently profitable venture
of redeveloping a brownfield.
What is a brownfield?
‘Brownfield’ is a term that describes an
environmentally impaired property. A property might qualify as a brownfield if it’s contaminated, blighted or functionally obsolete.
Not as common are functionally obsolete
properties because of factors like antiquated
mechanical systems and lead water service
lines. Brownfields are very common in
Michigan due to the industrial nature of the
state’s economy. Many brownfield properties
are the result of leaking underground storage
tanks, old landfills, chemical spills, illegal
dumping, dry cleaning tanks and rail yards.
Some of the successful brownfield redevelopment projects in the area include Ford
Field, Comerica Park, Arvin Meritor and
Renaissance Global Logistics on Fort Street,
Fairlane Green (the former Ford Motor
Company Allen Park Clay Mine), the Home
Depot in Southfield (former landfill) and the
Detroit International Riverfront Project.
What is Michigan Act 381?
Michigan Act 381 is the Brownfield
Redevelopment Financing Act, which establishes a method to finance environmental
response activity to a contaminated property.
The incentives available include low interest
loans, grants, tax credits, expense reimbursement and tax deductions. Some expenses
that may be available for reimbursement
include demolition and infrastructure
improvements like grading, parking and
installing utilities. Many times, a brownfield
TIF (tax increment financing) can be established. With a TIF, the value of the property,
which is typically depressed, is capped prior to redevelopment. Then, the incremental
increase in taxes due to the brownfield development can be applied as an incentive to
clean up and develop the property. Thus, the
municipality provides an incentive due to the
increase in value of the brownfield that it
would have never realized had the property
not been redeveloped.
Why consider buying a brownfield for commercial or industrial development?
For several reasons: First is the potential
for a profitable development. Second, incentives are available for brownfields that aren’t
available for normal developments. Third is
the satisfaction of converting a problem
property to a productive property. Fourth,
you improve the impact on the environment.
What issues are associated with redeveloping a brownfield?
Brownfield redevelopment can be challenging but very rewarding. Because you are
dealing with contamination, the process of
identification, cleanup, due-care planning
and applying for brownfield incentives takes
longer than a normal real estate development. Developers need to plan for the process to take more time than with a nonbrownfield.
When working with municipalities and
other government agencies on a brownfield
redevelopment, it is best to fully understand
the process required by the municipality
prior to the commencement of the project. It
is critical to contemplate issues early in the
process and assemble an experienced team
to meet all the challenges of working with
brownfields.
Where does the real estate broker enter into
the process?
The broker can advise the seller, create a
disposition strategy, sell the property and
assemble a diverse team to create a successful brownfield development after the sale.
Some companies specialize in developing
brownfield properties. Knowing these companies can speed up the process and improve
the chances of successful development.
How much time does a total decontamination
and redevelopment take?
It depends on the scope of the development
and the nature of the contamination. I have a
client who took six months from the time he
started the process to the time a tenant
moved in. Most projects will take longer.
Does brownfield redevelopment pay off
financially for a company?
Brownfield redevelopment can be a winwin situation. Sellers win when they sell the
property and eliminate or reduce any inherent risk. Buyers win because they acquire
the property — usually at a significantly
reduced price — and hopefully create a profitable development. The community wins
with a ‘cleaned-up’ property that is paying
taxes and creating new jobs. Neighbors win
due to their property value increasing and
the elimination of a problem property, and
the environment wins. Because of the lower
acquisition prices and incentives available,
brownfield redevelopments can be very
profitable when done right.
JEFF LEMANSKI is senior vice president in Grubb & Ellis’s Detroit office. He serves on the executive committee of the National
Brownfield Association, Michigan Chapter. Reach him at (248) 447-2707 or [email protected].