What is a Brownfield?
A brownfield is a property where expansion, redevelopment, or reuse may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. The EPA defines brownfields broadly to include abandoned gas stations, former dry cleaners, closed factories, old landfills, and other properties with real or perceived environmental contamination.
Brownfield vs greenfield
A greenfield is undeveloped land with no contamination concerns. A brownfield has history that creates environmental questions. The distinction matters because brownfields are significantly cheaper to acquire (the contamination risk is priced in) but may require costly cleanup before redevelopment. Investors who specialize in brownfield redevelopment can create substantial value by acquiring cheap, cleaning up, and redeveloping or selling.
EPA Brownfields Program
The EPA's Brownfields Program provides grants and technical assistance for assessment and cleanup. Grants are available to local governments, nonprofits, and tribes (not directly to private investors, but investors benefit from publicly funded cleanups). Some states have voluntary cleanup programs that provide liability protection to developers who clean up brownfield sites to state standards.
Investment opportunity
Brownfield redevelopment can be highly profitable. A contaminated commercial property might sell for 50-70% below its clean value. If cleanup costs are less than the discount, the investor profits. Tax incentives (including the Brownfields Tax Incentive that allows immediate deduction of cleanup costs) improve the economics further.
Risks
Cleanup costs can be unpredictable. What starts as a $100,000 cleanup can escalate to $500,000+ if contamination is more extensive than initially assessed. CERCLA (Superfund) liability can attach to current and former owners. A thorough Phase 1 and Phase 2 environmental assessment before purchase is essential.