Picture a father watching his eight year-old girl up at the Little League home plate — the pitcher tosses the ball, the father’s little girl swings just like they had practiced in the backyard time and again. This time, however, the ball and bat connect at just the right point in the swing, midway down the bat face; the sound off the bat evokes a sense of power, a solid contact, neither a thud (not the end of the bat) nor a crack (not near the hands); instead a subtle boom. As the ball sails into the deeper part of the outfield over the left fielder’s outstretched glove, the girl runs, hops, and cheers, while the dad hoots and hollers. As the girl rounds third base and then stomps on home plate, her coach looks at the dad and says, “She hit it right where it counts, the sweet spot.”
It is rare in our day-to-day lives to experience that feeling of knowing we hit the “sweet spot.” What makes those moments so “sweet” is that in order to hit the sweet spot, many disparate variables need to be aligned. Alignment — remember that idea and what it represents. Cities are blessed — though some may call it a curse — by an abundance of dirty, languishing, and underused real estates. Closed factories, shuttered chemical plants, obsolete power plants — these urban properties are routinely constrained by real or perceived environmental challenges which in turn beget stigma that chills the reuse and repositioning of otherwise strategic and valuable land.
This article will start to give the reader a peek at changes afoot in the industrial redevelopment market to show why many brownfields remain stuck in development exile, while a certain few are transformed into shining examples of the marriage of environmental technology and intelligent reuse strategy to reincarnate important urban infrastructure. It is the use of experiential innovation which is increasingly moving the languishing, blighted, dirty, "eyesore" real estate from the “curse” side of the continuum to that of an asset, an urban “blessing.”
Brownfields help illustrate the well-known real estate axiom of “location, location, location.” Why? Simply put, brownfield properties have already been developed. Private and public investment have already led to the installation of co-located critical infrastructure — namely, transportation, power, water, information, and data systems. In addition, land use is already defined, established, and approved by the governing jurisdiction, and the local community has validated prior use including nearby valuable workforce.
One of the most challenging characteristics of redeveloping brownfields is the uncertainty and unpredictability of quantifying the site conditions to a sufficient extent to manage environmental liabilities and risks. The environmental challenges often include technical questions relating to the "how to" of fixing the environmental problems. Answering those questions routinely can devolve into trying to explain precise types of remediation, the costs, and impacts on timing. Even more concerning, the challenges also beg important questions about seemingly undefinable "long-tail" environmental legal liabilities with potentially cataclysmic price tags.
A handful of experienced industrial real estate experts have been working on this set of challenges in real time, resulting in an emerging suite of innovative tools and techniques to overcome the challenges and attract reinvestments. Certain types of brownfield redevelopment projects have been replicated across varied communities and their past use reveals patterns that can be mined to create a predictable path forward through remediating, repositioning, and redeploying such assets.
Fossil fuel power plants are one such brownfield vertical. Such properties are helpful examples of repeatable and fairly standardized brownfields. Power plants were routinely and strategically located proximate to urban cores and can be found, usually in significant numbers, across America in large cities and smaller towns.
For myriad reasons — ranging from evolving market forces from increasingly competitive alternative energy sources, to negative environmental impacts and increasing regulation — certain power plants are being shuttered or nearing the end of their useful lives with no capital reinvestment in sight. As such, the closed power plants and their land present an emerging and relatively unique opportunity from an urban brownfield repositioning perspective.
One of the reasons that fossil fuel power plants are attractive targets for brownfield redevelopers is that the risk analysis is generally replicable. The facilities and real estates were deployed using fairly standard and predictable methods because public utilities primarily built and operated the former power plants. The technology, site use, and management of waste and other environmental concerns were handled in relatively uniform ways. Such standardization and predictability invite a similarly standardized and predictive approach to characterizing and redeploying such properties.
With the backdrop of fossil fuel power plant use, the overarching theme to this emerging innovative approach to finding solutions for complex brownfields is an integrated business model which marries and aligns the resolution of the environmental challenges virtually "hand in glove" with every aspect of the redevelopment, ranging from early stage design and land use repositioning to the actual site preparation and construction tasks and schedule. This integrated model is not for the faint of heart. This integrated approach to brownfields requires a cohesive and experienced team of professionals fully engaged at the start of deal identification and pursuit.
In order to sufficiently cage the potential risks and transaction costs, this new breed of brownfield expert brings together a team of environmental brokers, insurers, environmental consultants, civil engineers, ecologists, and environmental and land use lawyers to understand the site, the business opportunity, create a redevelopment strategy, and then marry together the environmental solutions with the development design and construction to drive certainty and predictability to a "market-ready" end point. Although there is more up-front cost by this approach, the advantages of such predictive environmental risk modeling, more accurate offer price, and better built out redevelopment projections and timeline result in stable and reliable investment programs.
A detailed analysis of this integrated approach is beyond the summary scope of this article; however, certain primary components bear listing and include: predictive analytics (sourced both from the public domain and the respective brownfield expert's team's experiences); aligned with working, organic transaction-scenario modeling.
The transaction-scenario modeling is developed by the diligence team and modified to the unique property characteristics. Once the model is oriented for the site-specific characteristics, it is refined over numerous simulations; each scenario is built on differing assumptions and variables and then each scenario is tested and measured through proprietary computer simulations. Each of the inputs of both the predictive analytics and transaction — scenario modeling is repeatedly tested against the experiences of the diligence team to achieve a real-world application and alignment. The alignment between the environmental solution and the redevelopment solution, which is the key basis of the integrated model, helps the brownfield expert confidently and predictably hit the "sweet spot."
