Brownfield Association
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Doing the Deal, Before the Deal Does You! About the National Brownfield Association Non-profit member-based educational organization for Brownfield professionals Network for exchanging ideas, experiences, and information Property Owners, Developers/Investors, Transaction Support Professionals Government Information, Education, and Events STAMP (Site Technical Assistance for Municipal Project) Building Sustainable Communities Workshop series The Big Deal October 3-4 Chicago IL Leadership BOD Advisory Board Chapters Sponsorship Association Events Newsletter Membership Group Individual Program Agenda 10:15- 12:15pm Workshop Goals/Overview of Tri-State Brownfield Programs John Means, WA Department of Ecology About the Brownfield Market Property Valuation Robert Colangelo, NBA Brownfield Risks and Solutions Robert Colangelo, National Brownfield Association Frank Chmelik, Chmelik, Sitkin & Davies 12:15 – 1:00 Lunch Public financing and Incentives to Stimulate Site Reuse Mike Stringer, Maul Foster & Alongi, Inc. Case Study: Boise Cascade Mill, Yakima Brad Hill, Principal Cascade Mill Properties, LLC Structuring the Transaction Robert Colangelo, NBA 3:00-4:30pm Role Playing Exercise Jim Darling, Maul Foster & Alongi, Inc. Robert Colangelo, NBA Presenters Robert Colangelo, National Brownfield Association Frank Chmelik, Chmelik, Sitkin & Davies Brad Hill, Principal Cascade Mill Properties, LLC Jim Darling, Maul Foster & Alongi, Inc. Mike Stringer, Maul Foster & Alongi, Inc. Workshop Goals Overview of Tri-State Brownfield Programs John Means, WA Department of Ecology About the Brownfield Market Robert Colangelo, NBA Publications Brownfield News. Founder and Publisher, Robert V. Colangelo, Environomics Communications, Inc. Chicago: Feb. 1997- Dec. 2008: Vol. 1-12. Szymeco, Lisa A., and Thomas C. Voice. Brownfield Redevelopment Guidebook for Michigan. Ed. Robert V. Colangelo, et al. Chicago: Robert V. Colangelo, Environomics Communications, Inc., 2001. Colangelo, Robert V., et al. Brownfields: The National Perspective. Chicago: Robert V. Colangelo, Environomics Communications, Inc., 2000. Colangelo, Robert V., and Ronald D. Miller. Environmental Site Assessments and Their Impact on Property Value: The Appraiser’s Role. Chicago: Appraisal Institute, 1993. Colangelo, Robert V. Buyer Be (A )ware: The Fundamentals of Environmental Property Assessments. Dublin, OH: National Water Well Association, 1991. Terminology Environmental Laws Highest and Best Use Polluter Pays Place Making Brownfields Code Building Greyfields Reposition Environmental Justice Debt Blight Equity Public Private Partnerships Adaptive reuse Environmental Risk Functionally obsolete Environmental Liability Land constrained Real Estate Real estate appraisal Mixed Use VCP Land Bank MCL NFA Sustainable development Real Property a legal term encompassing real estate and ownership interests in real immovable property. Blight a "condition of property in parts of a city, town, or neighborhood that are detrimental to the physical, social, and/or economic well-being of a community”. Greyfield land is typically commercial real estate or land which is underutilized, typically producing far less revenue than it would if properly managed Brownfield land is vacant or underutilized properties where the perceived presence or existence of contamination impedes its productive use – “Real estate transaction with environmental personality” Evolution of the Brownfield Market 1990-2000 - The Beginning Mayors raise awareness about the Brownfield issue- EPA responded with assessment grants State voluntary cleanup programs (VCPs) offer flexile cleanup based on end use and a way to bring finality to cleanup and clarity to liability Specialty companies emerge to buy/develop Brownfields, provide capital and environmental insurance products 2000- 2007- The End of the Beginning Brownfield Revitalization and Environmental Restoration Act promulgated in 2001-2002 EPA Regions negotiated MOUs with states States develop robust incentive programs and promote brownfield redevelopment as economic development Larger development companies enter the market Sellers become more comfortable divesting properties 2008- 2011 - The Decline • Great recession - housing markets collapse, vacancies increase in commercial office and retail, investors shun real estate as an asset class • Brownfield redevelopment activity declines 2012- Present- The Rebirth Brownfields becoming normalized Building sustainable communities- Build green on brown! Brownfield Development R i s k Greenfield Development Sustainable Community Code building R e w a r d About the Brownfield market? How many Brownfields are in the US? How many have been cleaned up? How many have been redeveloped? How many have been repositioned to a highest and best use? USEPA estimates that up to 1 million properties are considered a “brownfield site” as defined in HR 2869. The United States General Accounting Office estimates as many as 425,000 Brownfield sites. Other estimates suggest that there are 5 million acres of abandoned industrial property in urban areas. Portland urban growth boundaries 30 percent of all available land considered to be Brownfield NBA estimates that between 5,000-10,000 individuals make their livelihood in the US Brownfield market 80:20 Rule Brownfields Good Bad Ugly •5% of environmentally impaired sites have strong real estate market attributes that will allow them to be redeveloped without incentives, using private capital. •15% of sites have favorable real estate market attributes, but need public subsidies, government incentives or a change in use to make them viable to generate the economic returns necessary to attract sufficient private capital. •80% of sites have bad real estate market attributes or have a combination of liabilities that greatly exceed the unimpaired value of the property. $ 100,000 property value/$1,000,000 liability $100,000,000 property value/$1,000,000 liability Property Valuation Robert Colangelo, NBA www.brownfieldassociation.org 2009 Brownfield = Uncertainty Property value Site characterization Cost to clean up known contamination Risk of undiscovered contamination Cost of ongoing treatment/operation and maintenance Cost to maintain institutional controls & engineered barriers Third party cost recovery Government re-opener Third party liability exposure Highest and Best Use Industrial Commercial Residential Major Place-making Parks Development Vacant Mixed Use 1900’s Recreation Parks Residential Commercial Blighted Industrial industrial & Abandoned 2010 Slide content courtesy of Soji Adelaja, Ph.D., Michigan State University, Land Policy Institute Real Estate Property Value Market Value - is the price buyer and seller agree to after analyzing available information for their own best interest. Appraisals are an estimate of value and can be used to Establish a baseline value Secure financing Dispute property taxes Support internal decision making Traditional appraisal methods often are difficult to apply to Brownfield sites because of environmental exclusion/caveat to appraisal Cost Approach Sales Comparison Approach Income Approach Factors that affect real estate property value Location • Transportation and access Demographics • Population density and diversity Highest and Best Use • Functionality Market Conditions • Supply and demand Liabilities • Tax, legal, financial, • physical & environmental Brownfield Value Easy Positive Value can be increased through financial Difficult incentives and by repositioning a site to a Neutral highest and best use. Value can be diminished through liabilities, risk & stigma. Very Hard Upside Down US Conference of Mayors, Recycling Americas Land estimates 30% of all Brownfield sites are perceived to be contaminated “As Is Where Is” Valuation IMV = CMV – (CC + EL + OL) IMV = “As Is” Valuation is the Impaired Market Value (Decrease in value due to liabilities) CMV = Clean Market Value (Value estimate, using BOV assuming no liabilities and no change in use) CC = Carrying Costs (Expenses for taxes, insurance, financing, maintenance and security) EL = Environmental Liabilities (the cost to cure, or clean up the property and the reduction in value due to stigma) OL = Other liabilities (Cost to cure title and other encumbrances such as assessed unpaid taxes, liens, judgments, building code violations, demolition, etc…) Highest and Best Use Valuation IMV = (TC+EL+OL+ R + K) – I IMV Impaired Market Value TC Transaction costs EL Environmental liabilities OL Other liabilities (Tax, legal, financial, physical…) R Repositioning costs and cost to secure incentives K Cost of capital (interest, rate of return plus risk premium) I % of total value of government Incentives that apply Brownfield Risks and Solutions Robert Colangelo, National Brownfield Association Frank Chmelik, Chmelik, Sitkin & Davies Market Sectors Stakeholder Perspective Property Owners Mange/bound liabilities Maximize real estate asset value Developers & Investors (public & private) Generate a ROI Can highest and best use be achieved? Certainty and time? Government Protection of human health and the environment Economic development Transaction Support Assist buyers and sellers with transactions by charging a fee for services. Minimize liability Brownfield Transaction Risks & Liabilities Environmental Site characterization Cost to clean up known contamination Risk of undiscovered contamination Cost of ongoing treatment/operation