3 . Has the developer obtained environmental insurance ? A Pollution Legal Liability policy will protect against unknown contaminants and thirdparty liability claims .
4 . When you make your investment , will the balance of the capital ( debt and equity ) be in place ? If not , recognize that a construction loan on a brownfield property will likely be underwritten more conservatively than a loan on a greenfield property . Some commercial banks won ’ t consider lending on a brownfield . When a loan is available , the loantovalue and loantocost ratios may be 510 % lower than for a clean property .
5 . Is there a financing gap that wouldn ’ t occur on a similar greenfield property ? Because debt and equity may be less available for a brownfield site , the developer will often have the option to cover remediation costs with a public finance mechanism such as tax increment or special district financing . Many municipalities have a Brownfields Revolving Loan Fund to provide developers with lowcost debt to cover remediation costs , which incents developers to clean up toxic sites . Some states also offer tax credits for brownfields cleanup .
6 . Is the project return reasonable given the risk associated with a brownfield site ? Developers expect a premium return for taking on the risk of a contaminated property – investors should be rewarded with a portion of that premium .
Image by Arek Socha from Pixabay
We always recommend obtaining appropriate legal and tax advice before investing . That said , the best riskmitigation strategy lies in underwriting the developer . Invest with those that have significant brownfields experience and a proven track record .
Image by Gordon Johnson from Pixabay
This is by no means an allinclusive list of due diligence an investor should consider , or of the risks associated with brownfield redevelopment . We always recommend obtaining appropriate legal and tax advice before investing . That said , the best riskmitigation strategy lies in underwriting the developer . Invest with those that have significant brownfields experience and a proven track record . Ask about their relationships with the regulatory agencies , lenders , design professionals , contractors , prior investors , insurance providers , and environmental consultants .
Real estate developers often raise money from individual investors in relatively small increments , allowing qualified investors the opportunity to participate directly in the success of a single development project . These investments are not without risk , and your due diligence should be thorough . Along with understanding the project ’ s market , projected returns , construction risk , and competition , an investor should be fully aware of the site ’ s prior uses and any contamination that may be present .
Everyone can win in a brownfield redevelopment – you as an investor , the developer , and the overall community . Financial benefits are compelling but contributing to the elimination of blight and toxic contamination in a neighborhood is the true reward .
MEET PATRICIA GAGE
Patricia Gage is a principal at RE Solutions , a company specializing in creating value for brownfield development projects . She can be reached at
patricia @ resolutionsdev . com or 303.482.2618 .
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