Diamond in the rough? Brownfield Sites – considerations for Investors and Developers

Even in the age of remote and flexible working, the march of urbanisation whereby the majority of our citizens live and transact business in our cities and large towns is unlikely to be reversed. As populations and economic activity increases, cities must build up or build out, or find ways to repurpose existing land stock within the city limits. Within this, the redevelopment of brownfield sites is an invaluable resource to draw upon. The political imperative is plain to see – whether used to tackle the chronic housing shortage in Ireland or repurposed as enterprise hubs, brownfield sites are too important to ignore when demand for land within our cities is at a premium.

A brownfield site can refer to any previously used land but is primarily used for the purposes of this article to refer to land having a previous industrial use as a result of which the ground soil may have become contaminated with pollutants.  The classification provided by the Concerted Action on Brownfield and Economic Regeneration Network (Cabarnet) is particularly instructive for present purposes:

“A site that has been affected by former uses of the site or surrounding land, is derelict or underused … requires intervention to bring it back to beneficial use, and may have real or perceived contamination problems.”

This article briefly considers the opportunities and challenges faced by investors and developers in bringing brownfield sites into play for redevelopment and what can be done to tip the scale in favor of brownfield viability.

Price is understandably a key selling point of brownfield sites. The cost of the land (before accounting for complicating factors discussed below) is significantly lower than greenfield equivalents. The advent of derelict and vacant site levies and the forthcoming residential zoned land tax should also provide some sell-side pressures to dispose of brownfield sites which might otherwise have been retained by landowners in expectation of rising land prices – albeit the implementation and enforcement of these levies has been problematic to date, beset by legal challenges and non-payment.

A second key selling point for brownfield sites is the surrounding infrastructure.  As well as the general benefits of proximity to urban and commercial centers and the desirability of central locations to potential residents and workers, vital infrastructure is already in place in the form of roads and services that would have serviced the previous use of the land, avoiding the often material time and cost allowances that must be made by greenfield developers to build out this infrastructure from an isolated site into public services.

There are also wider societal benefits to redevelopment of these sites to be considered, aiding urban social regeneration in post-industrial areas, and even contributing to the greening of the local environment. While these are not matters that would have traditionally been to the fore as considerations for investors and developers per se, this important societal and environmental intervention in bringing a brownfield site back to life can now greatly contribute to the achievement of Environmental Social and Governance (ESG) goals by institutional investors and developers.

While the opportunities and benefits of brownfield sites are clear, the challenges posed by this asset type nevertheless provide considerable pause for thought. Uppermost in this regard is the level of uncertainty as to cost of remediation and planning viability for development on these sites. The Ireland Brownfield Network has identified a critical absence of a unified formal brownfield land assessment and management regime, except for those sites licensed by the Environmental Protection Agency (“EPA”). Indeed, the EPA’s own licensing process for remediation and recovery of contaminated soils can take in excess of two years before a final decision is issued. In contrast to other European states, Ireland continues to lack specific legislation in this area.  In the absence of viable treatment and reuse options for contaminated land, developers typically turn to ‘dig and dump’ disposal to maintain manageable timelines for development, however Ireland has negligible hazardous waste landfill, in turn requiring over-reliance on costly export of contaminated waste.

Wildlife and biodiversity concerns may also be raised where potentially toxic and disruptive substances are to be disturbed by brownfield development, or where protected species have become a fixture of the site itself.

It is essential that investors and developers frontload their environmental diligence on the ground to ascertain the extent of the exposure on site and quantify the costs and timings of remediating this. This may entail significant up-front expenditure on full environmental surveys to analyse soil, groundwater and surface water, before the investor or developer can determine if the acquisition and development of this land is viable from the outset. Where there is any contamination – or simply derelict structures to be torn down – timelines and costs will mount accordingly and this must be balanced against the advantages of site location and land price. The final decision will therefore rest on multiple factors on a case by case basis.

The uncertain balance of challenges and opportunities for brownfield sites raises the question of what can be done to tip the balance in favour of brownfield development in these circumstances. In addition to the stick of vacant and derelict site levies encouraging those sitting on land to put that land to use or sell it to someone who will, there is unquestionably scope on the part of central or local government to offer the carrot of tax incentives to developers actively seeking to acquire and develop brownfield sites.  Land remediation relief was introduced as early as 2001 in England and Wales, although inadequacies in this regime (level of relief, barriers to access) have been identified and modifications sought with mixed success in the intervening years in that jurisdiction.  In Ireland, a target of 50% of new housing on brownfield sites in our cities and 30% elsewhere is proposed in the National Planning Framework Ireland 2040 plan. However, the regulatory simplification and monetary incentivisation actually required to make this viable (and ideally preferable to greenfield opportunities) remains lacking to date.  Local authorities can contribute by continuing to identify and rezone all viable industrial sites for residential or mixed use development as appropriate.  A further option is for central government to provide seed capital to local authorities to acquire (whether by CPO or otherwise) and develop brownfield lands themselves, particularly in circumstances where a site is not economically viable for private development, but where public development of that land will serve a clear public good.  There is even the option for central or local government to directly investigate and remediate sites for redevelopment, whether publicly or privately – removing a considerable source of hesitancy for developers ready and willing to build if some of these upfront barriers and uncertainties can be neutralised.

Elsewhere, at a regulatory and legislative level an urgent review of the planning process for assessment and management of brownfield sites is called for, together with greater availability of treatment and reuse options for contaminated soil to avoid wholescale reliance on costly and inefficient export of waste.

The challenges and opportunities of each specific site, briefly sketched in this article, must be carefully deliberated while regulatory, legislative and governmental supports continue to evolve. While brownfield cannot be a panacea for urban sprawl and in particular the housing crisis, it unquestionably holds the potential, with adequate supports, to mitigate these phenomena and unlock desperately needed stock in the heart of our urban centres.

How we can help

If you have any queries or concerns, or would like to discuss the above in further detail, please feel free to contact Keith Doyle in our Real Estate Department (kdoyle@bhsm.ie / +353 (0)1 440 8308).

This article is for general information purposes.  Legal advice must be obtained for individual circumstances.  Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.