In a perfect world, business models for brownfield projects would be one-size-fits-all.

Dream on, say brownfield financing experts, as the industry faces a perfect financial storm of tight credit, the stagnant real estate market and a recession to boot.

Whatever economic models brownfield developers used to use for assessing contaminated sites, “they threw away,” says Craig Carbrey, president and co-founder of EnviroFinance Group in Sacramento, Calif. “We have our own internal loan economics model, and we have to modify it all the time—everything’s too variable anymore.”

Scott Beckerman, Senior Vice President, Comerica Bank, Detroit

“The over-supply [of real estate] in the market, combined with depressed values, makes all deals rather difficult to do. [Being a] brownfield, unfortunately, layers another bit of complexity on top of it,” adds Scott Beckerman, senior vice president of Comerica Bank in Detroit. “Environmental contamination is a very important piece of [a prospective development project] and must be well understood, but the driver is the fundamental underlying market conditions.”

In this economic climate, understanding the specifics of the local market is even more essential to evaluating potential brownfield sites, says Louis F. Jambois, president of the Saint Paul Port Authority in Minnesota, which revitalizes underdeveloped and abandoned land.

“We do not go off and pick [brownfield sites] at random for cleanup,” he says. “We know who is interested in the sites, and what types of businesses are interested in the types of sites we have to offer. It’s not an easy process—[you] must understand the business climate in the area, real estate transactions, and the environmental impediments that certain sites have. We pool our knowledge of those things together to identify sites that we target for cleanup and redevelopment. Because we do that, the sites we clean actually do wind up getting redeveloped.”

SPPA’s latest project, a 61-acre site near downtown St. Paul that formerly housed the headquarters of 3M, is its largest development effort in 20 years, with more than 30 private and public partners. In December 2009, SPPA closed on the final parcel of the site, now dubbed Beacon Bluff. The port authority plans to sell five existing 3M buildings for reuse and the remaining property for building sites, providing a Certificate of Completion for each owner from the Minnesota Pollution Control Agency. A medical transportation service and a historic St. Paul bakery have already signed on to construct facilities at Beacon Bluff.

After spending about $8 million so far for the land, due diligence, planning and historic preservation analysis, SPPA’s goal is to generate 1,000 jobs on the Beacon Bluff site and about 465 other jobs throughout the state, says Lorrie Louder, SPPA director of business and intergovernmental affairs. “When Beacon Bluff is fully operational, we expect $182 million to be the positive effect to the entire state’s gross state product, every single year,” she says. “So there’s not just the immediate impact to the neighborhoods and the positive effect on the surrounding properties, but it affects the whole state.”

Government aid
Even as private financing continues its long, slow upward slog in most areas, government funding opportunities for brownfields are multiplying (see Legislative Report in Pg. 8 for specific funding details).

“The flip side [to tighter private credit markets] is that there’s a lot of government funding around,” says Carbrey. “If you can build them [brownfield projects] into the government funding, then that does work [economically].”

And government funding is a different animal these days, says Ken Kukovich, national brownfields coordinator for the Economic Development Administration at the U.S. Department of Commerce. “It’s been such an unusual year—not just the economy, but the different funding mechanisms that have come through. It’s hard to compare the last couple of years,” he says.

Taking the time up front to investigate all of the public funding options can make a crucial difference to the economic viability of a brownfield project. “We can start to see layering of all the various [financial] incentives out there, which really add up—particularly when we start looking at some of the incentives that are going to be available around sustainable development and energy efficiency for revitalizing existing structures,” says Beckerman.

Layering multiple funding sources paid off handsomely for a Phoenix Award-winning project in Brewer, Me., that turned a former paper mill site into a modular fabrication facility for Maine-based Cianbro Corp.

D'Arcy Main-Boyington, Director of Economic Development, Brewer, Me.

“We didn’t start with the numbers working,” says D’arcy Main-Boyington, director of economic development for Brewer and managing director of South Brewer Redevelopment LLC. “We just knew we wanted [the brownfield site] clean, back on the tax rolls, and a focal point for the community in some way.”

The city purchased the site in 2004 after its owner, Eastern Fine Paper, went bankrupt, and then formed South Brewer Redevelopment LLC to take over as owner, pursuing environmental assessments, funding and developers all at the same time.

“We invited every developer we could get our hands on to come and take a look at the mill,” says Main-Boyington. “We asked them to come and walk through the mill and tell us what is possible, what are the obstacles we need to be aware of. One of the early things we heard was that no manufacturer in their right mind was going to use the building—the whole place was like a big labyrinth.

“At the same time,” she continues, “we were trying to amass a significant amount of funding toward the project, whatever it turned out to be. We pursued EPA grants, federal earmarks, and the state of Maine even had a budget line put in for our project.”

Brewer, Main

Ultimately, the Brewer project received a number of different grants from the EPA Brownfields program and state funds—including a revolving loan fund-to remediate the site, spending $2.4 million in total on cleanup.

“We got a $350,000 assessment grant initially [from the EPA], and a $200,000 cleanup grant,” says Main-Boyington. “We later realized that we could have gotten more money through EPA cleanup grants if we had broken up the site into three parcels. We hadn’t spent the cleanup grant yet, so the EPA allowed us to after-the-fact split the parcel into three pieces. . . The EPA worked with us on it, and we applied for two additional [$200,000] cleanup grants and received both of them.”

In addition, the site got $1.7 million in federal highway funds for road improvements, a $257,000 grant from the Dept. of Housing and Urban Development to rehab the mill’s administration building, and $400,000 from the state of Maine in the governor’s supplemental budget for redevelopment.

Today, the Cianbro site has been up and running for nearly two years, and the land has increased in value an estimated $11 million, with a projected $206,000 boost in annual taxes, according to Main-Boyington. The project has created more than 500 new jobs and leveraged approximately $50 million in private investment.

“When the mill closed, it was particularly devastating for that part of town,” says Main-Boyington. “The few small stores [in the area] that had hung on were desperate. They’ve all been rejuvenated, and a few new businesses have moved into that area. But the impact is far larger—Cianbro tries to source everything as locally as possible, so many of the businesses in eastern Maine have gotten a lot of business from this.”

Rayo Bhumgara, President, Sustainable Strategies 2050, Wellesley, Mass.

Renewed emphasis on energy
Perhaps the most promising area of government funding for brownfield projects is renewable energy incentives. “It is the silver lining,” says Rayo Bhumgara, president of Wellesley, Mass.-based Sustainable Strategies 2050. “The federal government has awarded billions of dollars in [renewable energy] incentives, including tax credits, loan guarantees, and other targeted programs for renewable energy systems and energy efficiency improvements,” he explains.

“And through the American Recovery and Reinvestment Act [last year], the federal government has also given out energy efficiency and conservation block grants for a range of system construction or retrofit activities. Several states, including California, Illinois, Michigan, Nevada, New Jersey, New York and Pennsylvania, have also been aggressive in developing incentives including tax credits, grants/rebates, loans, and production incentives.”

The ARRA extended some of the existing solar and renewable energy credits, and also created a new set of production and installation tax credits for 2009 and 2010. The production tax credit (PTC) for wind energy is now in effect through 2012, while the PTC for biomass and geothermal energy facilities will extend through 2013. Owners of non-solar renewable energy facilities can also make an irrevocable election to earn a 30% investment credit rather than the PTC, throughout the period of the PTC.

Grants equal to 30% of the tax base for a facility are also available for renewable energy facilities that would normally earn a business energy credit of 10% to 30%, as long as they are placed in service in 2010, or construction begins in 2010 and is completed before the PTC terminates.

“When you layer [renewable energy funding] over brownfield incentives, what you get is a multiplier effect,” says Bhumgara. “That creates some very viable opportunities for siting and developing renewable energy projects at brownfield properties across the country.”

Renewable energy brownfield developments are also generating interest from privately financed projects. In January 2010, Laidlaw Berlin LLC, an affiliate of New York City-based Laidlaw Energy Group Inc., had its application for a permit to build a biomass-energy power plant accepted by the state of New Hampshire’s Site Evaluation Committee, with a final decision due within 270 days. Laidlaw has lined up approximately $68 million from its partners, investors and lenders to build a 65 megawatt biomass-energy power plant on the site of a former paper mill in Berlin, N.H.

Goodwin College in East Hartford, Conn., was determined to expand the private institution so it could accept more of its applicants, many of them prospective nursing students. The 11-acre site is a former petroleum tank farm along the Connecticut River that was tax delinquent and environmentally blighted.

The end result
Sometimes the best financial incentive for a brownfield redevelopment is the sense of a shared future use. Mark Scheinberg, president of Goodwin College in East Hartford, Conn., was determined to expand the private institution so it could accept more of its applicants, many them prospective nursing students.

The 11-acre site he had in mind, a former petroleum tank farm along the Connecticut River in East Hartford, was tax delinquent and environmentally blighted, but “his vision was just fabulous,” says Cynthia Petruzzello, vice president, brownfield redevelopment for the Connecticut Brownfields Redevelopment Authority, which helped provide financing for the project. “We went to the site and my feet sank in the sand five feet, just to see where they were going to build it.”

Godwin College had raised more than $24 million of the $55.5 million tab for the project, which began in 2005, and it was able to fund the remaining costs through a variety of sources.

“Todd Andrews [vice president for college relations and advancement] really rallied to find a lot of grants and funding for the university,” says Petruzzello. “They received a lot of environmental funding, and this was their first experience with a brownfield.”

Goodwin garnered $3 million in environmental cleanup funding through the CBRA, using a state tax increment financing program designed for non-profit institutions. It also received funds from the town of East Hartford, $2.23 million for construction from state of Connecticut bond funds, $140,000 for environmental assessments from the EPA, $26 million in construction financing from New Alliance Bank, and $40,000 for dock restoration and debris cleanup from the National Oceanographic and Atmospheric Administration.

The final result? A new 109,000-square-foot academic and administrative center that is expected to serve more than 3,000 students each year (compared with 1,000 students in 2004). Goodwin now employs 264 people, and more than $79 million in total direct and indirect economic benefits is projected for the state of Connecticut, along with 1,516 new direct and indirect fulltime jobs.

“This [project] is one of the poster children for getting a lot of federal funding,” says Petruzzello. “I really think they had a great vision for what they wanted to accomplish.”