Community-Based Development of Brownfields: Opportunities and Challenges Kris Wernstedt Associate Professor, Urban Affairs & Planning Virginia Tech University, Alexandria KnowledgePlex, National Vacant Properties Campaign, and Metropolitan Institute Expert Chat 1: July 19, 2007

interviews of current and former staff in community-based organizations, city housing/development offices, state environmental organizations, LISC, universities, and technical assistance providers (thanks to Lincoln Institute of Land Policy)

CDCs and Brownfields: Alternative Perspectives “CDCs and other non-profits are accustomed to challenging sites since in stronger markets they often have only challenging sites available to them. We are primed to take on brownfields.” “The marginal properties that CDCs might take on—the ones that are not worth it to the private sector—have less room for error.”

A “Normal” Development Project for CDCs? standard acquisition of property through purchase (market and HUD), tax foreclosure, surplus, donation, RFPed, etc. but a brownfield site has extra liabilities requires extra environmental investigations to characterize liabilities beforehand (due diligence) liability protections may be available  prospective purchaser agreements  some states provide special protections to CDCs  VCPs help do uncertainties remain?

Common CDC Finance Model for Residential Developments bank loans w/ relatively low loan/value ratios public sector subsidy (e.g., TIF, CDBG) low income housing tax credits (LIHTCs) important to CDCs in some markets

Common CDC Finance Model for Residential Developments, w/ Brownfields Twist investigation and cleanup costs typically small relative to overall project costs environmental costs can be uncertain, but so can all other development costs “ The bottom line is your fee is your risk management and nobody else chips in theirs.”

Example of CDC Residential Brownfield Development 50+ unit development for affordable housing for seniors 2 / 3 acre lot, a former dairy, train station, fueling, and storage facility, with petroleum-contaminated soil $11.4 million project roughly $240,000 for cleanup

Financing Example $1.4 million loan $850 K public subsidy $400 K developer fee (deferred) $300 K housing grant $700K green & brown subsidies $1 million commercial sale $6.8 million LIHTC equity pricing may vary $.83 - $1.02 on a dollar of credits 5 ¢ swing on $6.8 million > $300,000 difference compare to $240,000 cleanup cost

Brownfield Considerations federal and state brownfield subsidies may be available carrying costs during investigations and remediation need to be managed financial aspects of environmental liabilities can be tricky possible reluctance of lenders & investors to get involved may be forced to carry liability back into parent CDC because of grant eligibility requirements may take on additional liability and regulatory scrutiny unknowingly, through tenants and others

Brownfield Considerations federal and state brownfield subsidies may be available carrying costs during investigations and remediation need to be managed financial aspects of environmental liabilities can be tricky possible reluctance of lenders & investors to get involved may be forced to carry liability back into parent CDC because of grant eligibility requirements may take on additional liability and regulatory scrutiny unknowingly, through tenants and others location may make commercial element appealing, but CDCs are frequently unfamiliar w/ commercial financial components

Legal and Political Issues reluctance or unwillingness of some municipalities to exercise tax foreclosure on contaminated properties (DNA problem) unlike local government units, CDCs often lack special liability protections at brownfield sites except for special purposes e.g., Indiana’s 2007 brownfields amendments exempt some nonprofits that “acquire ownership to assist and support a political subdivision’s revitalization and reuse of a brownfield for non-commercial purposes, including conservation, preservation, and recreation” brownfield grant criteria may be problematic for residential redevelopments by CDCs

State BFields Grant Criteria

Federal & State Regulatory Issues CDCs may lack direct access to state and federal funding sources property ownership requirement for bfields grant money can put CDC at risk need to work w/ new agencies w/o history of relationship

Federal & State Regulatory Issues environmental permitting/approval process may not mesh w/ construction timing e.g., a $1.4 million pre-development loan at 6% costs $40,000+ extra with a 6-month delay wet weather costs can rise public ownership during assessment can reduce carrying costs

Market Issues window for CBO acquisition of brownfields through tax sales can be small outbid in strong market out-speculated in weak markets in some markets, no need to take on brownfields since there are plenty of options availability of brownfields may be limited because of contract sales

Market Issues contaminated properties may be concentrated in neighborhoods CDCs don’t serve some CDC movement from place-based approaches to metro orientation brownfield redevelopments traditionally reflect a target of opportunity, a market development model with less specific focus on community building

Area-Based CDC Alternative allure of area-wide brownfield approaches cumulative effects of redeveloping multiple properties can increase property values, tax revenues, and other community benefits over an entire neighborhood depressed by a small number of contaminated sites ↓ costs through economies of scale in assessment, remediation, & infrastructure provision allows risk sharing across multiple sites

Area-Based Environmental Assessment

540 acres ~2,000 properties (commercial, industrial, residential) 75 parcels identified as “sites of concern” 20 Phase I assessments completed

Cost of Area-Based Environmental Assessment property by property $45,000 for Phase I’s $15,000 for overall review $60,000 + meetings area-based Sanborn maps, chain of title review, city and state records, etc. $25,000 total

Takeaways “process of development is like hair on fire 24/7” brownfields may just be a little hotter need to be opportunistic, but also danger of zero sum game when done in ad hoc fashion lots of experts, both public and private, out there to help CDCs manage brownfield redevelopment processes one step at a time

Kris Wernstedt Urban Affairs and Planning