Blighted properties are common in many urban areas, and with due diligence often present cost-effective and profitable redevelopment opportunities. Redevelopment of these types of projects is often referred to as Brownfield projects if considering the presence or potential presence of contaminants in the subsurface. Brownfields redevelopments can present great benefits and advantages to the surrounding community.
Advantages of the redevelopment of these properties include: revitalizing a property and surrounding properties, creating jobs, rejuvenating businesses, adding much-needed housing, increasing tax revenue, reducing crime, and increasing the efficiencies and quality of life for residents and workers.
Redevelopment of blighted properties does come with challenges, such as density, parking, financing, city approvals, and more. Blighted properties can have environmental issues that are best addressed proactively to reduce the risk of cost and schedule overruns as future liability issues during redevelopment.
These issues should start to be addressed during due diligence and before construction activities commence to reduce the uncertainty on potential project costs and timeline implications. Environmental issues can sidetrack the development process of some properties but most sites, if handled correctly, can present significant upside if these issues are identified during the due diligence and integrated into the development processes.
Common environmental concerns include:
Identifying environmental risks before the acquisition of properties is critical, as is assigning potential costs to these risks. Depending on the nature of the transaction, these items are often useful as leverage during negotiations.
A Phase I Environmental Site Assessment is a good starting place for identifying whether environmental issues may exist at a property. If a Phase I identifies potential risks, these reports may recommend additional investigation (Phase II) in the form of soil, soil vapor, and groundwater sampling. Phase II is used to identify whether contamination is present (i.e., from fuels, solvents, pesticides, toxic metals), and with enough sampling can determine the extent and magnitude of contamination.
Resolving these impacts can include leaving and managing impacted soil in place as much as possible since the significant cost from impacted soil is digging it up and paying to dispose of it. Regulatory agencies such as the local health departments, if approached under voluntary cleanup assistance programs, can accommodate leaving all or a good portion of impacted soil in place if the risks to human health and the environment are identified and resolved in a mitigation plan.
For more significant contamination issues, such as extensive soil and groundwater contamination from a gas station or dry cleaner releases, funding in the form of State or Federal grants can be available. Obtaining a grant with the help of a qualified environmental consultant can be the difference-maker in acquiring, cleaning up, and redeveloping a blighted property. These grants don’t typically cover all the costs associated with these cleanups but can cover the majority of these costs with some additional time required to do a cleanup.
Developers can also take out an environmental insurance policy to console a nervous lender or investor. Environmental insurance can cover clean-up requirements, third-party claims for bodily injury and property damage, and associated legal expenses resulting from pollution or contamination. Policies with various term lengths and deductible amounts are available to satisfy the concerns of lenders or equity investors.
The redevelopment of blighted urban properties is a necessary part of the life cycle of a property and a community. It’s critical to identify potential environmental risks during the due diligence process – before you choose to purchase the site. With proper planning, the mitigation or remediation of these impacts can be incorporated into the development process and result in a vibrant, profitable project that protects human health and the environment, and help owners, lenders, investors, and users of these properties sleep well at night.
Luke Montague is a professional geologist (PG) and licensed contractor with 19 years of experience primarily in environmental consulting, as well as in the areas of geotechnical engineering, general contracting, commercial and residential development, and property and asset management.
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