Full text of Bridges : Community Affairs, Winter 1996

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Winter 1996
News and Views
on Community Affairs
for the
Eighth Federal Reserve District

Brownfields: Finding Use for Forgotten Land
Brownfields are abandoned,
economic activity which built
unusable and economic activity
local industrial plant locates
idled or underutilized industrial
metropolitan areas. To communi- continues its outward growth, conA
in an area of the city that is
and commercial facilities where
ties, brownfields represent reduced suming “greenfields,” or raw land
robust and growing. It chooses
this location because of convenience to the interstate, rail service,
and plenty of neighborhood residents that can be employed. The
plant benefits the community
through jobs and overall economic growth. Several years pass and
demand for the plant’s product
diminishes, so it begins to decrease
its workforce and eventually closes.
Since this was the main employer
for the area, the surrounding
community begins to decline, and
the plant is idled, using up land
that could be used for other
economic development. The
property and facilities that remain
are commonly referred to as
“brownfields.”

expansion or redevelopment is
complicated by real or perceived
environmental contamination.
These properties have fallen out of
the mainstream of commercial
real estate transactions, government redevelopment and other
use-generating strategies frequently because their cleanup costs
exceed the value of the property.
Brownfields have minor contamination but potential to
be redeveloped for
industrial, commercial, recreational or
residential purposes.
Ironically, brownfield
sites once contained the
employment base and

economic activity, lost employment opportunities, a diminished
tax base and physical
blight. Brownfields
contribute to disinvestment in the urban
core because the
land is
considered

in more rural areas.
This special issue of Community Affairs focuses on the redevelopment of brownfields and how
some communities are
accomplishing this.

CRA a Key
to Property
Redevelopment

Because most brownfield sites
are located in low- to moderateincome areas, the revised Community Reinvestment Act (CRA) is
a critical tool to restoring the viability of these properties. Under
new CRA regulations, the community development definition
includes “loans to finance
environmental cleanup or
redevelopment of an industrial

site as part of an effort to revitalize
the low- or moderate-income
community in which the property
is located.”
As laws are changed to limit
lender liability, many community
development organizations are
actively pursuing the economic
potential of brownfields. This
should raise the comfort level of
those financial institutions that

have the opportunity to redevelop
brownfield sites.
The good news is that all sectors
are working in collaboration to
increase the predictability and
consistency of cleanup standards,
levels and costs. Capital and credit
should start flowing once again,
bringing brownfields off the sideline and back into the mainstream
of productivity and profit.

Barriers to Brownfield Redevelopment Crumbling
uncertain, an asset can quickly
redevelopment is the uncertainty
about environmental contaminaongstanding impediments to
become a liability when costs
surrounding risk and liability.
tion of real estate and the ensuing
Lfields—barriers
the redevelopment of brownexceed the value of the property.
Although many brownfields pose
liability to all parties of a transacthat deter investment, encourage urban sprawl,
and inhibit the potential of prime
real estate—are starting to be
removed.
Brownfield properties are the
ghosts of industrial productivity
which originally built urban
areas. Federal and state policy is
now recognizing a responsibility to
do whatever is necessary to remove
barriers so that the sites can compete in the marketplace again.
One of the biggest changes is
that the Clinton administration
and the Environmental Protection
Agency (EPA) are putting a high
priority on revitalizing urban
areas spoiled by environmental
contamination. It has launched
the Brownfields Economic Development Initiative to empower
states, communities, and other
stakeholders to work together in a
timely manner to prevent, assess,
clean up, and reuse brownfields.
The Comprehensive Environmental Response, Compensation,
and Liability Act, commonly
known as Superfund, created most
of the non-level playing field to
brownfields redevelopment. Barriers primarily involve environmental liability to owners, sellers,
lenders and borrowers. Old industrial sites are usually contaminated, and new owners risk assuming
liability for potentially costly
cleanups. Liability under Superfund for all cleanup costs can be
assessed against the owner at the
time of cleanup regardless of fault
or when contamination occurred.
Uncertainty about cleanup costs,
standards, levels, and the time
frame for cleanup has maintained
a lock on otherwise market-driven
opportunities. If cleanup costs are

One way current owners of
brownfield sites can avoid liability
is by showing themselves as “innocent” landowners, but the statutory
definition of innocence is too strict
for many to qualify. The current

little actual risk, the potential for
environmental hazards has kept
lenders away. Lenders and developers have been inclined to pursue
market opportunities in suburban
undeveloped land or “green-

10 Benefits of
Redeveloping Brownfields
1. Reduce inner city blight
2. Lower taxpayers’ burden for economic and
social costs of the inner city
3. Open new market opportunities and expand
financial relationships for lenders
4. Increase employment opportunities
5. Increase tax base/revenues
6. Promote environmental and public health benefits
7. Reduce urban sprawl by removing barriers to
potential redevelopment of dormant
metropolitan areas
8. Provide appealing location for infrastructure,
transportation, and workforce availability
9. Provide more affordable alternative than
outlying greenfields
10. Allow for multiple layers of business financing
opportunities, subsidies, and incentives
owners of brownfield properties are
usually reluctant to sell because
any person who owned (or operated a facility on) the property when
contamination occurred remains
potentially liable for the cleanup.
This is true even if the property has
been sold and they had nothing to
do with the new contamination
that is the immediate cause of
the problem. For lenders, the
greatest impediment to brownfields

fields.” Lenders fear making loans
because the bank may become
liable for a contamination
cleanup and, if the lender ever
foreclosed, the “owner” of the site.
Often seen as a deep pocket,
lenders are concerned about longterm exposure to environmental
liability.
Lenders also fear devaluation of
real estate collateral if contamination is discovered. Uncertainties

tion inhibit market-driven economics because the environmental
liability to the borrower must be
factored into the lending formula.
All aspects of the lending decision
are affected including creditworthiness of the borrower, value of
collateral and cash flow.
The good news is that fear of
environmental liability is becoming a thing of the past and no
longer needs to be an obstacle to
commercial or industrial redevelopment projects. The EPA has
removed nearly 25,000 of the
36,000 sites from its Superfund
database to erase the stigma that
all sites contain serious environmental problems. These sites
contain low levels of contamination and represent potential for
redevelopment.
Federal law now protects lenders
with a security interest in a property. EPA granted exemptions provide greater certainty and help the
lender with manageable risks.
Recently enacted legislation in
most states increases incentives
and benefits for voluntary cleanup
on the part of private parties.
Uncertainties may also be reduced
through the use of indemnity
agreements, which promise the
purchaser of a site will be held
harmless of discovered environmental liabilities.
As liability issues are alleviated,
the participation of lenders in
brownfields redevelopment is critical for the return of this real estate
to the mainstream of the economy.

Brownfield
Grants to Fund
Projects in
Three Eighth
District Cities

hree Eighth District cities have
TEnvironmental
been chosen by the Federal
Protection Agency
(EPA) for a Brownfields Economic
Development Initiative Pilot project grant. The grants will fund
activities in Louisville, St. Louis
and East St. Louis, Ill.
The two-year Brownfields pilots
are designed to help reverse the
effects of years of disinvestment
that currently plague urban communities. According to the EPA,
“The pilot projects will encourage
partnerships to use the cleanup

New construction on brownfields, like this one in St. Louis, helps re-energize neighborhoods.

and redevelopment activities
employed at pilot sites as a Brownfields redevelopment model that
can be applied elsewhere in the
cities and their regions. The pilots
are a tool to see how the partnerships will work together.”
Successful collaborations start
with a common vision. Keeping
this shared vision in mind, each
pilot has identified specific objectives. Michele Duffe, Director of
Real Estate Development for the St.
Louis Development Corp. says,
“We designed the pilot to promote
economic development founded
on a healthy and sustained environment. It will test redevelopment models, direct special efforts
toward removing regulatory barriers, and facilitate coordinated public and private efforts.” The intent
of the Mississippi River Gateway

Initiative pilot project in East St.
Louis is to develop a sustainable
secondary materials manufacturing district. The Louisville pilot
will test the idea of a municipality
temporarily taking a site title in an
effort to create a unique method of
uniting cleanup and redevelopment efforts.
The pilot projects are aware of
the value of a holistic approach to
economic development. Experience suggests that solutions to
tough job market problems are
found when new jobs are created
in close proximity to the labor
force. The St. Louis Pilot site is the
Dr. Martin Luther King Business
Park. It is contiguous to other
redevelopment projects including
a proposed housing and golf
course development and three private housing developments currently under construction. Pilot
communities are concerned with
developing the workforce of the
surrounding neighborhoods.
Louisville’s pilot includes that
community’s most distressed
neighborhoods, and the Mississippi
River Gateway pilot area includes
neighborhoods in nine different
communities.
Each pilot recognizes the necessity of exercising good partnering
skills. The first step has been to
identify all pertinent players and
use them in appropriate ways.
Community volunteers provide
invaluable technical assistance
and expertise. Each pilot uses
citizen advisory panels and project
review boards to ensure community
participation. The pilots involve
many partners and layers of
programs including Enterprise
Community, Enterprise Zone,
Empowerment Zone and tax
incentives. “The interchange of
programs, services, initiatives and
entities working toward a common
vision is essential,” Duffe says.
continued on p. 4

Who Should
Be Involved in
Brownfields
Redevelopment?
1. Lenders
2. Environmental
liability management firms
3. Environmental
Protection Agency
(EPA)
4. Citizen volunteers
5. Community-based
development
organizations
6. State government
7. City government
8. Regulatory agencies
9. Property owners
10. Economic development organizations
11. Insurance industry
12. Investors and
developers
13. Environmental
contractors
14. Public relations
professionals
15. Commercial real
estate experts
16. Environmental
lawyers
17. Economics specialists
18. Urban planners
19. Geographic
Information
Systems specialists
(mapping)
20. Funding
organizations

Resources
A. The EPA has issued the
following policy resources
for removing potential barriers
to brownfields redevelopment:

•

Policy on Superfund
Enforcement Against Lenders
and Government Entities That
Acquire Property

•

Underground Storage Tank
Lender Liability Rule

•

Policy Toward Owners of
Property Containing
Contaminated Aquifers

•

Guidance on Agreements with
Prospective Purchasers of
Contaminated Property

•

Guidance on Deferral of
National Priorities List
Determinations While States
Oversee Response Actions

Grants
continued from p. 3

For example, Louisville’s first
working project, the Garfield Pilot,
is located in the Louisville Empowerment Zone, 25 percent of which is
classified as brownfields. In 1994,
Louisville applied for a HUD
Empowerment Zone grant but was
denied. Rather than accepting
defeat, a Community Board made
up of more than 100 residents went
forward with the strategic plan it
devised for the grant application
and, in September 1995, established the Louisville Brownfields
Working Group Subcommittee.

Approaches for Getting Started
The EPA Homepage on the
Internet can be reached at
http://www.epa.gov.

The July 1996 issue of
Mortgage Banking magazine
suggests the following steps:

B. The General Accounting Office
has issued these reports:
Community Development and
Reuse of Urban Industrial Sites,
GAO/RCED-95-172 and
Superfund—Barriers to
Brownfield Redevelopment,
GAO/RCED-96-125. They are
available free of charge by
calling (202) 512-6000. GAO
reports on the Internet at
info@www.gao.gov.

1. Evaluate the feasibility
and desirability of entering
into an agreement with
federal authorities to resolve
the Superfund liability of the
new owner and plan the best
way to negotiate such an
agreement.
2. Evaluate the pros and cons
of working exclusively with
state authorities.
3. Carefully consider various
aspects of cleanup liability.

C. The Bank of America,
headquartered in San Francisco,
has created a partnership with
the California Resources
Agency, the Greenbelt Alliance,
and the Low Income Housing
Fund and set out a vision of

growth entitled “Beyond
Sprawl,” to revitalize central
city brownfields and protect
rural resources. For informa-

Community collaborations are
producing strategies to mitigate
fear and uncertainty and manage
the risk associated with brownfields.
Louisville has benefitted from specialized knowledge developed within the community. In 1995, the
EPA and HUD collaborated on the
largest brownfield research project
ever by awarding the University of
Louisville and Northern Kentucky
University a grant to conduct the
Analysis Plan and Research Design
to study the impact of environmental hazards and regulations on
urban redevelopment.
Community members of all
three pilot communities are work-

ing hard to overcome the barriers
to recycling brownfields. A major
concern of bankers is lending
money on properties that are feared
to have environmental problems.
“One of the barriers we must contend with is selling lenders on the
fact that the land is clean,”
explains Dr. Peter Meyer, Professor
of Urban Policy and Economics at
the University of Louisville. Dr.
Meyer and his staff have been
researching brownfields since the
early 1990s.
Although barriers to the redevelopment of America’s brownfields
are coming down, they represent
one of the most complex chal-

Contributors: Judy Armstrong, Matthew Ashby, Kim Bowlin, Tamme Mattingly, Keith Turbett and Glenda Wilson
Community Affairs is published by the Community Affairs Office of the Federal Reserve Bank of St. Louis. Views
expressed are not necessarily official opinions of the Federal Reserve System or the Federal Reserve Bank of St. Louis.
Community Affairs is also available on the Internet at http://www.stls.frb.org.
Please direct any questions or comments to Glenda Wilson at (314) 444-8317.

4. If the property in uncontaminated but is included in a
site listed on the National
Priorities List, evaluate the
chance of having EPA
redefine the Superfund site
so as to exclude the uncontaminated parcels.
5. Use the prospect of a
brownfields redevelopment as
an opportunity to convince
regulatory authorities to be
reasonable in their choice of
cleanup remedy.
6. Evaluate private arrangements to minimize liability
risks.

tion on the Internet, contact
http://www.bankamerica.com/
community.

lenges facing community reinvestment efforts today. Most urban
communities have hundreds of
idled industrial sites representing
thousands of unproductive acres.
Collaborative ventures are making
progress toward opening new market opportunities for once productive land. The partnership models
being developed in each of the
three Eighth District pilot communities show that even the toughest
challenges can become a window
of opportunity for community reinvestment.
For further information contact
Matt Ashby at the St. Louis Fed at
(314) 444-8891.