Can Private Markets Rescue Urban Brownfields?

Professor Marie Howland at the University of Maryland has a really useful and interesting paper in the most recent issue of Cityscape: A Journal of Policy Development and Research (Volume 12, No. 3, 2010) published by the U.S. Department of Housing and Urban Development. Her paper, “The Private Market for Brownfield Properties,” is an interesting and useful snapshot of the dynamics of industrial real-estate market, and provides some interesting insight into what it takes to redevelop industrial property in urban areas.

Professor Howland investigated whether a private market exists for “brownfields,” contaminated industrial sites in urban areas frequently abandoned after companies moved or went bankrupt. She examined the land transactions and characteristics for 144 brownfield sites in Baltimore and found about one third of the properties found “market-clearing” prices over a two year period. Getting the other properties to sell, she speculates, may have more to do with site adequacy and public services (market factors) than cleaning the sites up themselves (environmental factors).

This is a pretty significant finding. Most brownfield policies focus on cleaning up sites. This was the purpose of the notoriously expensive Superfund program as well as dozens of state-based programs independent of federal efforts. Howland’s research suggests that private parties may be willing to clean up the sites if they are economically viable in the market place, and economic viability may be more important than potential contamination. Here’s the abstract:

“This study examines land sales over a 10-year period—1990 to 2000—in one southwest Baltimore industrial district—Carroll Camden—to determine the effect of land contamination on property sales and sales price. I tracked all sales, selling price, time on the market, and the presence of land contamination in the 5,580-acre area. The results indicate that after the mid-1990s, contaminated parcels sold on the private market, with price discounts that accounted for contamination and cleanup. Out of the 144 parcels sold over the 1990-to-2000 decade, positive and market-clearing prices were found for 45 parcels with either confirmed or historical-reasons-to-suspect contamination. Interviews with owners and brokers of parcels on the market for 2 years or more and analysis of the data indicate that the contaminated parcels that did not sell within the 2-year period (1) had above-market asking price; (2) were small and odd-shaped; (3) had inadequate road access for modern trucks; (4) had outdated water, sewer, and telecommunications connections; or (5) had incompatible surrounding land uses.

“Two policy implications result from these findings. First, if a city such as Baltimore wants to revitalize an industrial area—maintaining its industrial function and remediating contamination—government-subsidized cleanups may not be the most cost-effective policy. Rather, the city should (1) modernize the outdated infrastructure, including roads and fiber optic connections; (2) remove the outdated residential structures that sit in the midst of the industrial area and diminish the desirability of some land parcels for industrial use; (3) consolidate small and odd-shaped properties that are not conducive to modern manufacturing, warehousing, or other industrial uses; (4) ensure city services are efficiently provided, including trash cleanup and police and fire protection; and (5) improve access and egress for modern trucking. The evidence from the Baltimore study indicates that the private sector will discount land prices and assume cleanup responsibilities. The second policy implication is that the market is capable of brownfield cleanup in some locations.”