Do you know what a brownfield is? You could ask someone–but you might get different answers depending on who you ask. And you might be surprised by the range of answers. Depending on what definition is applied, someone might tell you there are 130 brownfields in Detroit, or 114,000.
At British Petroleum, I learned that a "brownfield" is a mature oil or gas field in decline or in the final stages of its productive life. A brownfield could also reference any existing onshore or offshore facility, and the term "brownfield modification" refers to any upgrade of an existing facility.
What is the law?
If you ask a real estate professional, they might cite Congress and the "Small Business Liability Relief and Brownfields Revitalization Act," which defined "brownfield" to mean (with certain exceptions and exclusions) "real properties, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant." Emphasis mine.
Properties which "may be" contaminated could include any property in transition from one owner to another, or from one use to another. Prudent transaction advisors tend to take nothing for granted and treat every transaction as if the property "may be" contaminated–if only until proven otherwise, and to the satisfaction of a lawyer and lender.
But if the only requirement for a property to be a "brownfield" is that someone perceives that hazardous redevelopment obstacles might exist, then Congress established a subjective test. A brownfield is in the eye of the beholder, according to Congress, and individual opinions can vary wildly. And even when subjective opinion is absolutely false it can have real consequences–like false testimony in a trial–and this is true in markets too, especially in real estate and redevelopment.
In real estate, perception is often reality both at the high end and the low end of the market. Perception rules the price of an apartment overlooking Central Park or an abandoned gas station. Positive perceptions drive prices up on the high end, but negative perceptions can do more than drive prices down – they can hamstring real estate transactions and leave properties in a kind of real estate limbo. Too often enough people presume that a property that "may be" contaminated is definitely contaminated. Some will assume the worst, which infects the marketplace with negativity and drives perceived remediation and redevelopment costs up.
Today the market perceives that many properties are "upside down"–that their cost to clean up and redevelop is higher than a realistic market return–whether they are in fact upside down or not. Few bother to confirm their suspicion, and so brownfields that "may be" contaminated persist as maybes–often for many years, even decades.
Understanding this, Congress fit the definition of brownfield to include properties being held back by negative perceptions about redevelopment difficulty. Between 1995 and mid-2013, the U.S. EPA awarded brownfield assessment grants to provide investigations of more than 20,000 properties, create real data and answer the brownfield questions hanging over a property’s reuse potential. Congress broke the brownfield cycle for thousands of properties and leveraged nearly $18 dollars of private capital for every $1 of public capital funneled through the brownfield program to fund initial investigations and cleanups that spurred redevelopment ripple effects in the private sector.
In this way, Congress designed "brownfield" as a temporary status for a property as it moves through its lifecycle – from a property in limbo with many questions, to a property with fewer questions and more hard data, to a property redeveloped into productive use again.
Congress was also clear about what a brownfield was not in the exclusions it defined. If a property didn't have redevelopment doubt and questions, then it was not a brownfield. The same "Small Business Liability Relief and Brownfields Revitalization Act” excludes nine categories of real property "the term 'brownfield site' does not include"–such as any property where a removal action is planned or ongoing, a property on the National Priorities List (Superfund), or any property subject to an administrative order, court order, or judicial decree requiring environmental response. Unlike Congress' subjective brownfield test, these types of properties have fewer questions and been red flagged for remedial action of some kind. These brownfield exclusions are objectively contaminated and pose a current health risk or would pose a health risk to tenants of the property if occupied.
The exclusions become the rule
Congress did not give these nine categories of real estate a name, but perhaps it should have. By failing to coin a term, Congress left it open as to what to call these brownfield exclusions. Many informal definitions include both categories of property – even though Congress clearly separated the two. "Brownfield" has become an imprecise catchall term, to the detriment of the real estate market and transactional hopes of properties everywhere.
In some cases, such as Homefacts.com, only the brownfield exclusions are referred to as brownfields. Unlike Congress, Homefacts uses an objective test: a "brownfields site is any land in the United States that has been contaminated by hazardous waste and identified by the Environmental Protection Agency (EPA) as a candidate for cleanup because it poses a risk to human health and/or the environment." These are exactly the kind of properties Congress intended to exclude, but for Homefacts the brownfield exclusions pose clearer, objectively-defined risks to its residential user base.
By using the term to refer to the exclusions, however, Homefacts feeds the propensity to assume the worst of questionable properties. Once the label "brownfield" is applied the market can respond by stigmatizing the property even if uncontaminated. "Brownfield stigma" is most unwelcome in residential areas where voters live and the law requires the highest cleanup standards. This is perhaps one reason why Homefacts uses an objective standard and limits the number of brownfields it reports – to avoid over-reporting and limit negative stigma to those properties known to be contaminated, rather than every suspicious property.
For different reasons, New York Governor Andrew Cuomo recently proposed to change New York's definition of brownfield to a similar objective standard: a site where contaminants exceed soil cleanup objectives or other health-based environmental standards. This is a considerable change from current New York law, which mirrors Congress' dichotomy between brownfields with subjective problems and the nine exclusions with clearly objective, physical obstacles to reuse. Such a break would mean the State of New York could adopt a definition of "brownfield" in direct contradiction of Congress, because a property exceeding soil cleanup objectives – as Governor Cuomo would define it – is exactly the type of property excluded from Congress' definition of "brownfield."
Not only would this compound confusion in the redevelopment industry about just what a brownfield is, but if Governor Cuomo is successful in changing the definition, what will old brownfields–as defined by Congress–be called in New York? Much of the vacant, abandoned, obsolete and underutilized property locked in land use limbo would no longer qualify as a brownfield. New York would repeat Congress' mistake, but leave the other side of the redevelopment spectrum without a name.
But while some in the redevelopment space are narrowing the definition of "brownfield," other forces are pulling the definition the other way: towards a more open and inclusive standard aimed at even more types of properties.
Cracking the rule wide open
Krista Sprenger of Lend Lease, New York sees a lot of "brownfield" redevelopment opportunity in central business districts. The commercial office building monoculture of past generations is giving way to a new century of preferences and design possibility. In the Urban Land Institute's Product Council Insight: Outlook for Redevelopment and Reuse, Sprenger suggested "[i]nstead of creating more single-use property types, we need to reimagine these–what I call vertical brownfields – as a mixed-use offering." Vertical brownfield redevelopment can diversify land uses and achieve more balance, she offered, "within those central business districts that are now ghost towns on the weekends."
Municipalities too are widening their brownfield programs to target "underutilized" property. St. Louis is one example, which provides: "[t]he purpose of the St. Louis Brownfield Program is to return underutilized and contaminated sites back to productive use." And there's a lot to be gained in an individual transaction by squeezing a property into a brownfield program. Developers certainly welcome any sweetener they can get.
So while some are drawing the definition of "brownfield" more narrowly, others are opening the definition up to include millions of new properties with obsolete monocultures or "underutilized"–however that may be interpreted and applied locally.
This was the subject of a robust discussion in a NALGEP session at a recent RTM Communications Inc. conference in Philadelphia I attended. Many welcomed the wider latitude a more open definition of “brownfield” provides. Some voiced concerned "underutilized" could be a slippery slope that would lead to overuse, as developers pressured to get more and more private property into programs with public redevelopment dollars.
Uncertainty still reigns
It's a vitally important question because depending on which brownfield prism you look through you will see a different number of brownfield properties. How many brownfields are in Detroit? Again, it depends on who you ask. A recent search on Homefacts yielded 130 brownfields in all of Detroit "identified by EPA as a candidate for cleanup"–less than the number of Superfund sites (150). However, a recent federal study–one of the first comprehensive and methodical surveys of its kind–documented 78,506 lots with dilapidated structures in Detroit and 114,000 vacant and abandoned lots.
The redevelopment industry knows there is a huge spectrum of different types of properties that exist–there just isn't a set of definitions complete enough to capture them all. This is why some are pushing the definition of "brownfield" one way while others pull it the opposite direction.
At a time when exurban expansion has virtually halted and greenfield development is becoming an endangered species in many markets, redevelopment is becoming the new real estate normal. And yet, the redevelopment space is still bottled up, dysfunctional or broken. Redevelopment economics are better than ever and our redevelopment know-how is greater than ever, but sellers still struggle to find buyers and developers capable or interested in their redevelopment opportunities. Likewise buyers, vendors and other redevelopment professionals spend a lot of time and resources searching and evaluating redevelopment opportunities.
Confusing terms and contradictory definitions are not the root of everything bottling up the redevelopment segment, but markets thrive on transparency and clarity of communication. Right now, the redevelopment space has neither. Worse, markets abhor confusion and right now the redevelopment space has plenty.
How many transactions could be made in a trading pit where every trader had their own terminology to refer to what they were trading? This communication problem can be worse in a brownfield context where the transactional stakeholders must interface with a crowd of redevelopment stakeholders that is much larger–including the general public. The terms we use in the redevelopment space and how we define them is vitally important because they have legal impact, they narrow or broaden the availability of government assistance, and they influence decision-makers and the public alike.
Clearing the lanes
Our redevelopment marketplace at BrownfieldListings.com is clearing the lines of communication. We built Brownfield Listings to connect buyers and sellers of challenged properties and act as a platform for professional participation and community collaboration. We connect transactional stakeholders with each other as well as with other redevelopment stakeholders. Inside our platform, Sellers can send clear signals to the marketplace by tagging their listings with conditions and characteristics specific to their property or the relevant market. Published on our platform, Sellers can engage professionals and the public in an online workspace where ideas can be shared and consensus built.
"Brownfield" is not an over inclusive catchall term on our platform, but one tag in a Taxonomy that sellers use to classify their property conditions. Buyers and vendors can search by these tags and find only the types of properties they are looking for. If everyone can communicate more clearly and easily, then together we can all make a healthy and thriving redevelopment marketplace that improves outcomes for everyone.
Dan French is the founder and CEO of Brownfield Listings, LLC.