How to find the green in your city’s brownfields

The new EPA brownfields pilot program is helping selected cities understand how contaminated sites can be revived. But how are non-participating cities recycling distressed real estate?

When Vernon, Calif., hosted a Taiwanese delegation to discuss trade opportunities, city officials decided there was no better way to highlight local manufacturers than to stop at the Vernon Industrial Plaza (VIP).

Once a closed steel mill, VIP is now a modern industrial center with 60 firms employing more than 1,500 people.

The story of VIP is one of determination. Begun almost a decade ago, the transformation of the dormant steel mill has made the 100-acre site not only a showcase for visiting dignitaries, but also an example of how a distressed property can be recycled to play an important role in the local economy.

And, it was all done without governmental economic aid.

Long before brownfields revitalization was part of the national agenda, the turnaround of Vernon’s major steel facility represented a formidable challenge. Five miles southwest of downtown Los Angeles, the 1.25 million-square-foot property might have become an abandoned rust heap. An unwieldy configuration, as well as its former use, made selling the property an exercise in futility. Consequently, the city decided that a creative new marketing approach would be necessary.

An analysis of local real estate market conditions identified a specialized market niche, for which the mill could be adapted with a reutilization plan. Industries including metal fabricating, paper, rubber, woodworking and food processing had been unable to find local manufacturing facilities for their expansion needs. These companies, in need of outside storage and marshaling areas, were not welcomed in the new business parks and were virtually ignored by developers. But the steel mill site looked like the perfect answer.

Because the city wanted to retain that industrial base, it agreed to support a revitalization effort with a new zoning-use amendment.

Economic factors are the keys to any brownfields recycling initiative, and VIP was no exception. Vernon needed to find the money to pay for the environmental cleanup, while still pricing the property to sell at competitive market rates. Local cooperation provided an important boost. And part of the answer was on-site: valuable scrap steel that could be sold to create seed capital.

The city’s proximity to Hollywood helped it find yet another creative funding source.

For example, movie producers paid for the right to blow up unwanted buildings and clear debris from portions of the property in the filming of an Arnold Schwarzenegger action sequence.

That became the first phase of a business park lot sales program. As land areas were cleared, parcels were remediated and sold, and marketable buildings were leased to create cash flow. In each development phase, the financing was manufactured on site.

VIP is now a symbol of how market-driven ideas can make site remediation and the resulting economic revitalization happen.

The Right Reuse Plan

For communities burdened with mothballed factories and office buildings, abandoned lots and decaying waterfronts, Vernon’s new business center proves the importance of a market-oriented reuse plan. Even without Schwarzenegger’s action movies, other communities can duplicate its success by identifying market opportunities and creating reuse and phasing plans that are financially supportable.

The U.S. Environmental Protection Agency (EPA) has provided a partial answer with its Brownfields Economic Redevelopment Initiative. Launched in November 1993, the program is aimed at identifying abandoned and potentially contaminated property in inner cities. EPA expects a total of 50 pilot projects to be underway by the end of 1996. Economics, however, will still be the key to brownfields revitalization, and the EPA pilot program does not have funding for large remediation efforts.

The term “brownfields” refers to abandoned, idled or underused property where reuse is complicated by actual or perceived environmental contamination. While there is no firm picture of the number of contaminated sites, the federal Department of Housing and Urban Development’s Brownfields Redevelopment report speculates there may be 100,000 to 500,000 nationwide.

Still, given the large number of inner city sites that have become unmarketable because of environmental constraints, experts agree that estimate may be low.

More troubling, however, is the social and economic distress created by these properties. In many urban centers, the health risks from crime or poverty far outweigh any known hazards created by old industrial pollution. But abandoned industrial sites contribute to a community’s sense of despair and drive property values down, discouraging cleanup. The result is “orphaned properties” that no longer contribute to the tax rolls. Other negative impacts include:

* the clearing of clean “greenfield” sites for development that could be taking place in urban centers that have ample labor supplies;

* underused municipal infrastructure, such as water and wastewater treatment Plants, that in many cases are still being paid off by servicing municipal bonds from diminishing industrial tax rolls;

* potential health hazards, damage to groundwater supplies and contaminated runoff that makes its way to rivers and harbors, the traditional locations of many manufacturing sites;

* loss of business when companies that want to locate near urban labor centers are unable to invest in these sites because of the unpredictability of the time and cost required by remediation; and

* stalled economic development efforts.

The Bridgeport Experience

As the largest and most economically distressed city in Connecticut, Bridgeport was a logical choice for a brownfields project. Almost 50 percent of the area’s manufacturing base has been lost in the past decade alone, and not long ago, the city considered filing for bankruptcy. Valuable infrastructure is underused, and underemployment has exacerbated a crime problem.

Today, there are hundreds of acres of industrial property in Bridgeport that once supported thousands of jobs but now remain derelict and abandoned. There is a market demand for industrial sites, but in many cases, the cost of performing the required tests to define the nature of any existing pollution exceeds the value of the property.

EPA and Bridgeport have entered into a two-year cooperative agreement designed to define sites that have development potential and should be targeted for revitalization. Unfortunately, the program is not adequately funded to complete remediation programs. Consequently, defining the economic hook for private property owners will be the key to a successful program. “We’re looking at three core industrial areas that could revitalize the city including the West End, East End and the Seaview Avenue Industrial Corridor,” says Kevin Gremse, Bridgeport’s economic development specialist.

“One-third of the city’s properties are under review. We are also carefully exploring the impact redevelopment would have on the residential neighborhoods throughout these areas.”

The strategy behind redeveloping the Seaview Avenue Industrial Corridor is to connect the city’s industrial properties to its extensive transportation infrastructure, which should, in turn, increase the marketability of the abandoned properties and provide private sector incentives for remediation.

One part of Bridgeport’s approach is a new GIS that links information about environmental conditions to provide a database for potential investors and alert economic development officials about sites not likely to be heavily polluted. “We’ll be carrying out the program by trial and error,” Gremse says. “The EPA and DEP (Connecticut’s Department of Environmental Protection) are eager to cooperate with property owners in realizing a site’s full potential, while not incurring a tremendous amount of liability. It’s just a matter of working with owners on an individual basis to make this happen.”

Other Options

But the brownfields program is limited in the number of pilots it can sponsor, and most communities will have to go it alone. Still, many are beginning to succeed in transforming contaminated properties into economic generators. In virtually all successful transformations, the economic door must be open to provide financial incentives to offset some, or all of the environmental liabilities.

In some cases, community support may be helpful in eliminating zoning and waterfront development barriers that may have been well intentioned but are counterproductive to the recycling efforts.

Private sector cooperation is the key. One approach is to encourage owners to plan and package their properties for new uses, including projected financial returns that result from the plan.

This process could begin even before an environmental investigation, because remediation should be viewed as just one “line item” on the development’s balance sheet, just like debt service or leasing commissions.

It is not difficult to define the point at which cleanup costs sink the project, and that should be the reference point for designing a remediation plan that is driven — and responsive to — economics considerations.

With a cooperative effort, many perceived liabilities can be reduced or eliminated. The remediation program should be designed around a specific market-oriented reuse of the property to target cleanup dollars where they can do the most good.

When a gap exists between the money necessary to protect public health and the economic returns from revitalization, the missing dollars can be defined with some precision.

This is an important step, because it cuts the problem down to a definable size and allows property owners to assess their situations and risks.

From an economic development point of view the issue should be the project and the resulting benefits, not the pollution.

David Daddario is senior vice president and Kathleen Connolly, senior associate, North American Realty Advisory Services, New York City. The firm advises corporations and communities on the revitalization of dormant land and building assets.