Brownfields are classified by the Environmental Protection Agency (EPA) as a property in which expansion, redevelopment, and/or reuse may be complicated by the presence or potential presence of contaminants.
Brownfield properties may contain contaminants in soil and groundwater. Why would a developer knowingly invest in purchasing a contaminated property? There are several benefits to investing in properties classified as Brownfields, centered around the availability of infrastructure and economic incentives. Further, the redevelopment of a brownfield property can be accomplished with consideration of the final land reuse and how to manage the risk posed by contamination to the end user. Over the last few years, these two elements have been vital in encouraging the cleanup and revitalization of these sites. Redeveloping Brownfield sites is also beneficial to the local community as it facilitates job growth, increases the local tax base, and decreases development pressures on undeveloped land. The EPA estimates that there are over 450,000 known Brownfields in the United States.
A Brief History of Brownfields
Brownfields originated during WWII as urban areas became heavily industrialized to support war efforts. Under this economy, factories were built and operated in the center of cities so that workers could easily commute to their jobs. With little consideration for environmental issues, these sites heavily polluted the environment. In addition, environmental practices were not up to current standards and waste disposal often occurred in pits located adjacent to the factories. The operation of these facilities eventually created environmental liabilities that exist to this day. As time passed and populations began to migrate out of urban areas and into neighboring suburbs, many of these industrial areas were left abandoned. Most brownfield sites now exist in the central parts of U.S. cities as abandoned buildings and warehouses.
Renewed Value of Brownfield Properties
As time passed, property developers realized that Brownfields could be valuable assets to add to their portfolios. Urban areas have experienced property value growth as they become increasingly desirable for home buyers that want to avoid commuting. Office and retail tenants are also in the Brownfield market due to the central location and the availability of electrical and water utilities. Developing property from the ground up is costly and takes time to complete. At the same time, Brownfields are dotted across these highly desirable metropolitan areas waiting to be redeveloped into new properties. Redeveloping Brownfields provides the advantage of utilizing existing infrastructure to save costs and speed up the redevelopment process. This concept is known as urban infill, which implies that existing property is mostly built-out and the new property that is being built is essentially “filling” in the gaps. Existing Brownfield infrastructure allows for easy access to water, sewage, and electricity, and saves the time and costs associated with extending the services further away to suburbs.
The 2002 Brownfields Act
Signed into effect in January of 2002, the Small Business Liability Relief and Brownfields Revitalization Act granted special funds to assess and clean up Brownfields. The legislation was created to incentivize the revitalization of these abandoned properties through financial and tax incentives for investment and equity capital. By providing benefits to organizations or entities willing to remediate these properties, the federal government also removes environmental liabilities that are a threat to public health. This law expanded the eligibility of properties to access grants for up to $200,000 per site and streamlined the requirements for the Brownfields cleanup revolving loan fund to make funding available to nonprofits. The Brownfields Act serves as a major incentive for property developers to purchase contaminated Brownfields. Part of the available funds can also be used for technical assistance, training, and research.
In addition, environmental landowner liability protections are provided by the Environmental Protection Agency (EPA) to mitigate a participating organization or a developer’s environmental risk. The EPA stipulates these safeguards to protect the participating organization from litigation risk during the process of revitalization since the entity involved in investing and remediating the Brownfield site is not the contributor or cause of contamination at the site. The EPA and many States are ready to assist investors in explaining liability protections and financial incentives.
The Florida Brownfields Program
While Brownfield redevelopment incentives vary from state to state, Florida’s Brownfield market is booming due to a bevy of financial incentives for property developers as well as the state’s increasing growth rate. With over 1,000 people moving to Florida daily, Brownfields in Florida are attractive projects to take on due to their prime location and readily available economic benefits.
The following benefits originate from Florida’s Brownfield Redevelopment Act, created as an incentive to reduce the public health and environmental hazards present in abandoned industrial sites. Financial and regulatory assistance is provided by the state to promote the cleanup and redevelopment of these Brownfield sites.
Voluntary Cleanup Tax Credit (VCTC)
The Florida Department of Environmental Protection (DEP) established the VCTC, awarding tax credits to organizations that participate in the cleanup of Brownfield properties, which are valid against Florida’s Corporate Income Tax. Eligible participants for the VCTC include both private and public parties. $500,000 is available annually per applicant from the Florida DEP and the tax credits are dependent on the cost incurred for the cleanup of the site.
Source: Voluntary Cleanup Tax Credit | Florida Department of Environmental Protection
Job Bonus Tax Refund
Florida’s Department of Economic Opportunity (DEO) provides up to a $2,500 tax refund for each new job created on a project site registered under a Brownfield Rehabilitation Site Agreement. This incentive requires the participating organization to make at least a $2 million capital investment or be a Qualified Target Industry (QTI). At least 10 jobs must be created, and employees must be provided with job benefits.
Building Materials Refund on Sales and Use Tax
Developers that build a designated qualified home, affordable housing, or mixed-use affordable housing project on or adjacent to a site registered with a Brownfields Site Rehabilitation Agreement are eligible to receive a refund on building materials used during the construction of the designated properties from Florida’s Department of Revenue.
Additional Local Incentives
Additional local incentives vary from county to county, typically including support in the form of regulatory, technical, and financial assistance. Below are some examples of incentives your organization may be able to take advantage of when redeveloping brownfield sites in Florida. These incentives include:
- Tax increment financing through community redevelopment agencies;
- Enterprise zone tax exemptions for businesses;
- Safe neighborhood improvement districts;
- Waiver, reduction, or limitation by line of business with respect to business taxes;
- Tax exemption for historic properties;
- Residential electricity exemption of up to the first 500 kilowatts of use;
- Minority business enterprise programs;
- Electric and gas tax exemption;
- Economic development tax abatement;
- And more.
Brownfield Redevelopment Project in Florida
One successful Brownfield redevelopment project in Florida is College Town, Tallahassee, which transformed the urban fabric of the once industrial area into a vibrant community.
Located in the Gaines Street Area Brownfields Corridor, this redevelopment project turned abandoned industrial warehouses into a pedestrian-oriented, mixed residential, retail, lodging, and restaurant metropolis that caters to college students and young professionals. It is one of the most popular urban areas in Tallahassee.
Source: Gallery | FSU Collegetown
Although they may be unsightly at first glance, Brownfields can provide a significant opportunity for real estate developers seeking to add to their capital investments. With numerous economic benefits available for utilization and government protection from environmental liability, these contaminated properties located in prime locations can be an ideal option for redevelopment projects. The EPA, States, and local governments have provided these advantages and protections to encourage the rehabilitation of Brownfield areas and sites, which serve the communities by creating new opportunities for growth while also benefitting real estate developers with new opportunities through fiscal incentives.
Is your organization considering the purchase and redevelopment of a Brownfield site? Cameron-Cole’s experts have successfully managed a variety of major Brownfield developments for clients. Contact us to find out what benefits you may be entitled to.