Fields of Vision

New England states revitalize potentially toxic properties

by Emma Johnson

What is good for the environment is good for communities. And what is good for communities is good for real estate. This dynamic is thriving in the booming trend of cleaning up brownfield sites--properties deemed by the federal government as toxic or potentially toxic, and requiring environmental remediation.

Once considered high investment and litigation risks, developers are increasingly experiencing the benefits of investing in rehabbing brownfield sites. In fact, 50,000 sites have gone through state-sponsored cleanups since 1994, and experts estimate the total number--including those purely controlled by private efforts--exceeds 450,000.

A large portion of these projects are located in New England states, which have the nation’s longest history of industry--and therefore the largest number of abandoned industrial properties. These are typically in older and densely populated communities. Further, the nationwide trend of re-urbanization in which inner-city living is once again desirable is especially concentrated in East Coast cities, upping the demand for downtown addresses.

Evans Paull, senior policy analyst with the Northeast Midwest Institute, a Washington, D.C.-based think tank that tracks brownfield trends, said state and federal policy have made once untouchable properties into attractive business propositions for developers and local governments alike.

“Brownfield sites are often undervalued because the current owners can’t or are afraid to deal with the environmental issues of the properties,” Paull said. “Plus, there are regulation issues; it can take a long time to get through the up-front site preparation, and it can mean a greater investment. Many of the costs are uncertain.”

GOVERNMENT SUPPORT
Until recently, there was also a greater degree of liability risk because of contamination, or perceived contamination, at brownfield sites. In 2002, however, Congress passed legislation stating that developers are immune from federal lawsuits regarding the contamination as long as they follow certain remediation procedures. This is just one in a series of steps taken by the federal government to encourage local governments and private interests to take on brownfield projects.

Another major incentive is financial. Since 1995, the Environmental Protection Agency (EPA) has invested $800 million in the assessment and cleanup of brownfields--an investment that has leveraged more than $9.8 billion in cleanup and redevelopment; assessed more than 10,700 properties; and helped to create more than 44,360 new jobs, according to Northeast Midwest Institute information.

The EPA funds are granted to either governments or non-profit organizations that can then lend the money to private sector businesses at very low or even zero percent interest. The EPA also makes grants available for site assessment and remediation. Starting in 2008, private companies are eligible for grants of up to $200,000 per project to assess contamination, and up to $1 million for remediation.

COMMUNITY BENEFIT
The majority of successful brownfield projects have resulted from local governments partnering with the private sector to better the communities at large, said Catherine Finneran, brownfields coordinator for Massachusetts Department of Environmental Protection. Massachusetts has one of the most active and oldest brownfield programs.

“A lot of communities are looking at large-scale redevelopment, and they see a brownfield project as just one component--in many cases the gateway project,” Finneran said. “Cleaning up and redeveloping sites generates tax revenue and improves the quality of life in the neighborhood. If you redevelop a factory site, you bring thousands of workers with it, and businesses around that site get serviced.”

One successful example of full community development from a single brownfield property is the United Shoe Machinery site in Beverly, Mass. Built at the turn of the 20th century, the then state-of-the-art shoe factory was the largest reinforced concrete structure in the world until 1937. For the next seven decades, it employed as many as 6,000 people, many of whom lived in the downtown Beverly neighborhood where the plant is located.

When United Shoe dismantled in the 1970s, the plant closed and the vacant building soon became a drag on the entire city of Beverly. The broken windows and overgrown grass became an eyesore, and the lack of commerce created an economic blight in the city center.

In the mid 1990s, Boston-based Cummings Properties bought the site for $500,000 and invested another $65 million of private funds to develop the 32-acre Cummings Center, a retail and office park that now employs 5,000 people and has been part of revitalizing downtown Beverly.

While Cummings did not use any EPA-stemmed funds, the company did work closely with the city of Beverly, which granted the project a 10-year tax abatement and worked closely with Cummings to bring the project to fruition. Today, Beverly property values are up and the city center is once again alive, Steve Drohosky, Cummings Properties vice president and the center’s general manager said.

“We would do it again,” he said. “We saw this as a diamond in the rough and it has actually turned into that.”

Emma Johnson is a contributing writer for JPM.

Source: Nov/Dec 2007 issue (Volume 72, Number 6) of JPM®, Journal of Property Management.