Successful development of contaminated properties often requires forward thinking, adherence to sound real estate investing principles, and understanding the dynamics related to the environmental issues, the regulatory framework, the players and the ultimate uses of the property. It also requires legal professionals who are versed in the law with the creative ability to think “outside the box” and thus negotiate optimally with the regulators, lenders, municipal leaders, experts, and of course their clients, to make deals happen. We can help you navigate the narrows and rapids of the NC Brownfields Program, a very helpful program for those contemplating buying contaminated property for redevelopment.
Such redevelopment has become popular over the past 20 years, as those with a keen sense for the land use potential of polluted and often less expensive properties, rather than plowing over land outside the urban fringe, seek to make profitable real estate investments AND “do the right thing” by “recycling” those parcels as the sites of all kinds of productive ventures. Along with the rewards of bringing a new, productive use to a previously decayed (and often urban core) area, there is a handsome tax break for such forward-looking people: The State of NC ignores 90% of the worth of brownfields property improvements in the first year post-improvement and post-Brownfields Agreement, and the savings continue for five years as follows:
- 90% off the property’s appraised value in Year One
- 75% in Year Two
- 50% in Year Three
- 30% in Year Four
- 10% in Year Five
- Average discount first five years post-development: 50%
As the only lawyer the NC Brownfields Program has had in its 15 years of existence, I was responsible for developing and negotiating approximately 215 Brownfields Agreements in that period, each one a learning experience for the program. My experience has been that it’s a matter of striking the right balance between facilitating redevelopment and protecting public health and the environment, typically through negotiating the extent of any assessment, monitoring, cleanup and/or Land Use Restrictions to be set forth at the heart of the Brownfields Agreement, with the goal of allowing those commercial, industrial or residential uses, or a mix thereof, that are consistent with the development purposes and protective of public health and the environment. We advise our clients at the start to understand fully the property’s intended uses, and caution them that there may be limits to what the land can be used for, with allowed uses often conditioned on investigation and, if necessary, implementation of appropriate protective measures. The average developer farprefers some investigation, monitoring and deed restrictions to active remediation (which is often prohibitively expensive). At the end of the day, the brownfields return for the developer includes:
Liability protection that shields the new owner, successors, developer and lenders from further regulatory action (barring reopeners) and, as noted, shields them from claims for remediation to “unrestricted use” standards (meaning, in the case of groundwater, Title 15A of the North Carolina Administrative Code, Subchapter 2L).
- Limited cleanup requirements that are risk-based in nature and designed to facilitate re-use, often including only Land Use Restrictions.
- Potential for assistance with assessment.
- Bringing dormant, vacant, unused properties, often in the urban setting, back onto local tax rolls and into the fabric of the community.
- Attractive net tax incentives for five years as described above.
- Enhanced goodwill with the surrounding neighborhood, local government/community, business development leaders, and other interest groups.
- Demonstrated ability to analyze and execute smart, creative real estate redevelopment within budgets and timeframes, involving communities, lenders and governmental entities.
Come in for a free consultation and we’ll discuss the Brownfields prospects for an environmentally challenged property you’ve had your eye on.