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| OPPORTUNITY IN UNCERTAINTY |
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By Craig Carbrey
By now it’s no secret that uncertainty is the only certain thing left in the real estate market. And with virtually all traditional forms of development remaining stagnant, finding opportunity in a more specialized discipline, such as brownfield development, is no easy task.
But even amidst the direst of circumstances, there are opportunities surrounding the redevelopment of contaminated land. However, opportunity for development needs to be highly strategic and is location sensitive.
The trend today and likely into the foreseeable future is “smart growth” and transportation-orientated development. The majority of these proposed developments are located near employment centers and transportation hubs. Municipalities encourage such developments because they do not put a strain on capital resources and use existing infrastructure at no additional cost with the benefit of an increased tax base. The need for infill properties to fulfill this objective provides a unique opportunity for brownfield development, particularly in major cities.
Another key strategic opportunity concerns a potential increase in available properties. Legacy companies with discontinued or abandoned facilities have been largely able to fly under the radar and have not faced a great deal of enforcement for environmental concerns. Over time the enforcement of these facility cleanups will increase because of the changing attitude of government along with the ability of the regulator to focus on these issues. This phenomenon could put a larger number of contaminated properties on the market and create additional remediation and redevelopment opportunities as enforcement continues.
The difficulty today is assessing the market and determining where and how the recovery will take place. There is still significant difference between the bid and the ask on the sale of a property. Sellers who do not have to sell are sitting on the sidelines waiting for the market to reappear and the buyers in the marketplace are generally opportunistic purchasers looking for distressed buys. This makes it very difficult to establish value and bring back normalcy in the marketplace.
But while the opportunity for well-located, reasonably priced properties is selectively available, the point of contention remains pinpointing a timetable for development and securing capital for what will certainly be a long-term play. While a difficult task by any measure, the extended period of time needed to undertake tasks such as environmental due diligence and remediation actually provides developers with the needed window of time to wait out the turmoil in the markets before breaking ground.
While the market has drastically changed, many of the opportunities have not. And for well-capitalized developers operating with a long-term plan, brownfields offer a glimmer of light amidst the all of the darkness.
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