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Finance and Fund Brownfield Development

The complicated process and legal hurdles of acquiring, cleaning and reusing brownfields sites can be expensive in terms of site preparation expenses and fees, and costly in terms of time delays.  Site evaluation processes, testing, possible legal liabilities, and other factors serve to deter private participation in activities to bring old industrial sites back to productive use.  In many situations, the private development and financial sectors are not able or willing to act on their own to ensure that the full economic potential of site reuse will be achieved.  This is because of the following factors:

bulletUncertain Costs and Timelines: Cleanup costs can range from next to nothing up into the millions, depending on the extent and nature of the problem and the cleanup standards established. Buyers, lenders and investors need to quantify their risks and costs and pin down project timelines in order to evaluate proposals and to make projects succeed. The environmental variables associated with brownfields complicate this task.
bulletAccess to Capital: Financial institutions are reluctant to make loans associated with potentially contaminated properties for three reasons. First, lenders fear that unexpected cleanup liability could bankrupt borrowers and thus jeopardize the loan. Second, these properties make undesirable collateral. In the event of a borrower’s failure to pay back a loan, the bank could end up taking title to contaminated property. Third, the law is unclear as to the circumstances under which lenders who engage in workouts with borrowers to help them avoid default can themselves be sued as operators of a hazardous waste site. All this can have a chilling effect on the availability of capital for redevelopment.

Possible Sources of Fund

Private Sector Financing

bulletResponsible parties. Prior to redevelopment, many sites are cleaned up by the party responsible for the environmental contamination.
bulletPurchasers. Often times a property can be cleaned up by the new property owner when a responsible party could not be identified or held accountable, or where the party was financially insolvent.
bulletCommercial Banks. Many banks are reluctant to loan money on brownfield projects until remedial work at the site has been certified as complete.  However, banks are increasingly exploring the role of lending on contaminated property, and many will do so.
bulletFoundations. Private foundations may be sources of money for cleanup and redevelopment.

Public Sector Incentives

The public sector can do much to help level the economic playing field between greenfield and brownfield sites. Creatively crafted and carefully targeted incentives and assistance can help advance cleanup and reuse activities.

Funding to Cleaning Up Contamination

bulletThe companies or agencies responsible for causing the contamination if they are economically viable, particularly if the state has a strong program which assigns them strict liability for their contamination;
bulletSpecial cleanup funds created by state or local governments;
bulletPublic funds established to finance the redevelopment of depressed economic areas;
bulletTax incentives established under special federal, state, or local programs; and
bulletThe future developer (depending upon the value of the site and the cost of cleaning up the contamination).

Funding The New Development

bulletThe future developer;
bulletBanks or other investors, particularly if they have some corporate commitment to invest in urban redevelopment;
bulletPublic funds established to finance the redevelopment of depressed economic areas, to create public areas such as parks, or for other special purposes; and
bulletTax incentives established under special federal, state, or local programs.