Revitalization-Ready Guide - Chapter 5: Reuse Implementation Strategy
- Risk Management Tools and Approaches
- Brownfields Investment Package
- Resource Roadmap
- Leveraging Resources
- Site Investigation and Cleanup
- Property Disposition
Risk Management Tools and Approaches
Risk management includes several activities, including risk evaluation, risk control and risk transfer. This section provides an introduction to the tools and approaches that are commonly used by local government when redeveloping brownfield sites. Risk management is discussed in more detail in Appendix A.
Risk evaluation identifies likely adverse events and includes a two-part evaluation for each event: the likelihood of an adverse event occurring, and the consequences of that event. A particular event may be likely to occur, but if the consequences are low, the risk also could be considered low. If an event has a high likelihood of occurring and a high potential consequence, the risk may be considered high and unacceptable.
Risk is a function of the likelihood and consequences of an adverse event. In evaluating risk, both factors need to be considered together. In the graphic below, Point A (high likelihood, high consequence) is a high-risk event, while Point B (high likelihood, low consequence) and Point C (low likelihood, high consequence) represent only low-risk events.
Once potential adverse events are identified and there is an understanding of their likelihood and consequences, potential ways to manage these risks can be considered. The risks can then be reassessed under the risk management approach.
Ideally, risk management evaluations are made on a quantified basis. However, they are often made on a qualitative or comparative level: How likely is it? What could happen if it occurs? And what can be done to minimize either or both? Incomplete or unreliable information complicates these determinations.
As a practical matter, risk management usually comes down to managing uncertainty. For example, when crossing the street, a pedestrian evaluates the frequency and speed of the cars, the distance to be traveled, their own agility, conditions of the road, and other relevant information before making that decision. Without that information, the pedestrian doesn’t have certainty of safety and may decide that crossing the street is not worth the risk.
Uncertainty in the context of redevelopment can be associated with information that:
- is potentially available, but unknown (e.g., data gaps in sampling and analysis); and
- must be inferred or imagined because it involves an event that has not yet occurred and is not fully within one‘s control (e.g., will EPA take an enforcement action? Will an abutting property owner sue?).
These categories of uncertainty are often interdependent. For example, with greater understanding of the environmental condition at a property, the local government can more certainly predict whether EPA or the state might require further investigation or cleanup of the property.
Risk management is typically conducted in an iterative, staged manner and can involve traditional tools or other approaches, including:
- Insurance products.
- Indemnification agreements.
- Additional data gathering.
- Delay of acquisition until further cleanup is completed.
- Use of a different method of property acquisition.
There are no shortcuts to risk management. The selection of risk management tools and approaches to use in any particular circumstance will depend on the local government’s needs and sensitivity to risk. No one tool or approach is likely to provide absolute protection.
Some tools and approaches, such as insurance products or contractual provisions, can provide important benefits, but should not be used as a substitute for careful analysis and proactive strategies that reduce uncertainties and the source of potential risks.
No one tool or approach is likely to provide absolute protection. Employing multiple layers of protection will often be necessary — with specific tools and approaches reinforcing or building on others. For example, indemnification agreements can be most effectively negotiated if the parties have a clear understanding of the risk they are attempting to transfer. Indemnification agreements also may need to contain specific escrow or insurance provisions that back up the indemnification provisions. Similarly, insurance underwriters may be more likely to provide broad pollution coverage and charge the lowest premiums for environmental conditions that are well-characterized and controlled.
Each tool and approach has distinct limitations that must be understood in order to be used effectively. For example, indemnification agreements can be used to clarify responsibilities between the local government and another party, such as the property owner and developer; however, the indemnification agreements will not necessarily shield the party being indemnified against CERCLA liability. Local governments should seek expert legal advice regarding the use of indemnities and should be aware that, depending on the circumstances of their use, they also may undercut the ability to meet the requirements of some CERCLA liability defenses. As another example, insurance products can limit a local government’s financial exposure with respect to the specific circumstances defined by the coverage but may be inappropriate as a long-term solution. Insurance products also are difficult to obtain for smaller-scale projects and may be prohibitively expensive in some cases.
Risk management tools and approaches can generally be separated into three categories to 1) better understand or quantify risks; 2) control risk; or 3) transfer risk. The sections below provide additional discussion for each of these categories. Within each of these categories, risk management tools can generally be further categorized as relating to:
- Property activities.
- Statutory/regulatory protections.
- Transactional activities, including contract provisions.
- Insurance.
Some risk management tools and approaches associated with each of these categories that are available to local governments are identified in Appendix A. The uses and limitations of some of these tools are further described on EPA’s Brownfields website. Useful resources available on that website are:
- Environmental Insurance and Risk Management Tools: Glossary of Terms
- Environmental Insurance Helps Ensure Redevelopment
Before discussing specific risk management tools and approaches, the local government should first gather information that can reduce data gaps. To that end, one of the most important steps that a local government can take is to consult with EPA or the state agencies overseeing the cleanup with respect to the environmental status of the property and the cleanup required for the property. EPA and the states understand the legal and technical complexities associated with the cleanup and reuse of brownfields and are sympathetic to the challenges that local governments face in tackling them. They want to help local governments safely bring properties burdened by environmental issues back to the public tax rolls.
Understand/Quantify Risk
Understanding the risks involved in a transaction or a course of action is the foundation of risk management. Information gaps can hinder the ability to adequately define and quantify project risk — and can in themselves introduce risk — and efforts to close the most significant of those information gaps will often be the first focus in managing risk. Where significant information gaps exist, the local government will need to assess whether the costs and risks of obtaining that information are justified.
Risk quantification considers the potential economic costs attributable to that risk and allows that risk to be accounted for in the project pro forma. Not all risks can be reduced to purely economic terms; however, some risks may need to be evaluated on a qualitative or comparative basis. Actions to understand and quantify risk are generally associated with property activities (see table above).
Control Risk
Some risks can be controlled by taking actions to eliminate or reduce the source of the risk. One example of risk control is assuming the responsibility for conducting a cleanup action in accordance with applicable regulatory requirements. A local government may also control potential liability and risk by ensuring that the local government meets the criteria for qualifying for and maintaining any applicable statutory liability exemptions. Risks also can be controlled through transactional strategies and insurance mechanisms. Actions to control risks are generally associated with property activities, statutory/regulatory protections, and transactional activities (see table below for examples).
| Property Activities a Local Government May Take |
Statutory/Regulatory Protections |
Transactional Activities |
|---|---|---|
|
|
|
Transfer Risk
Transfer Risk Transactional Activities Insurance Indemnification Comprehensive General Liability Representations and Warranties Pollution Liability As Is Provision Errors and Omissions Covenants Cost Cap Assumption, Retention and Release Provisions Secured Lender Schedule of Included or Excluded Liabilities Finite Risk Post-Signing and Pre-Closing Conditions Institutional Controls and Post-Cleanup Action Care Fixed Price or Performance-Based Contracts Risks that the local government cannot control cost-effectively can sometimes be transferred to third parties through mechanisms such as indemnification agreements and insurance. For example, if the local government ends up with a statutory obligation to clean up contamination at a property, risk transfer can potentially reduce its financial exposure. It is critical to understand the limitations of the risk transfer mechanisms. Actions to control risks are generally associated with transactional activities and insurance (see table below for examples).
| Transactional Activities | Insurance |
|---|---|
|
|
Documentation – Summarizes risk and liabilities and actions (refer to the Constraints tab in Revitalization-Ready Workbook)
Brownfields Investment Package
A brownfield investment package is a document and/or website that will help you communicate the distinctive assets, advantages, and financial information for your redevelopment project. It should describe a viable investment opportunity based on your community’s specific goals and redevelopment vision.
While a brownfield investment package ("package") is used to explain the overall market traction and potential for the redevelopment in a way that attracts local, regional, and national capital and other resources, it also helps communities organize their stakeholders around a unified vision and make decisions driven by market realities and site potential.
The process of creating a brownfield investment package offers your community an opportunity to better understand the obstacles and constraints that can be overcome through prioritized local investment and development decisions. It is especially useful for weaker market areas. Your community can use the process to think through how to implement that redevelopment and organize assets and incentives in ways that advance sustainable and inclusive growth.
Many communities establish a task force led by public, private and civic institutions as their first step in designing a package. This approach helps ensure that a broad mix of city, anchor institutions and community leaders can work together and with the community to create the package. The task force is often set up to assign responsibilities with firm deadlines to the members. Once the package is complete, the task force members can help bring visibility to the package and identify appropriate incentives (e.g., zoning, low-cost or no-cost land, tax increment financing and tax abatements) that align with the community’s vision and priorities.
Organizing a task force is not feasible for every community; however, your community can create the package with an organization leading the effort who coordinates with key stakeholders and keeps the community up to date. Encourage key stakeholders to voice their support throughout the process to signal local commitment to the project. When complete, use as many channels as possible outside your local area to bring the highest visibility to the package.
In addition to describing key investment opportunities, local flavor and enthusiasm should be evident throughout the package. Use the package to celebrate the unique character and assets within your community. Your brownfield investment package should contain the following common elements:
Economic Context
All communities exist within (and are economically attached to) a broader area and regional economic ecosystem. To that end, the brownfields investment package should represent the redevelopment area at varying economic levels based on market potential. It should set the economic context by providing information on driving market clusters, sectors, institutions and companies that define its unique assets and demonstrate the strongest economic growth opportunities given general trends and dynamics. When applicable, it also should explore recent trends in entrepreneurship, company formation and growth, and venture funding.
Governance Context
The brownfields investment package also should act as an introduction to local governance by providing an overview of government structure and leadership. It should indicate which state and local entities are the most important points of contact and include their contact information. The package needs to provide a transparent description of any local resources and incentives relevant to your redevelopment.
Local Information
After setting the larger context, the brownfields investment package should present a granular assessment of your community’s competitive position and prospects. It should include specific information on growth dynamics, investment patterns and catalytic projects in the immediate area.
Project-Specific Information
The brownfields investment package also should describe the range of opportunities specific to the redevelopment area. This should include whether it is near infrastructure, areas of economic growth, the availability of additional land and buildings for economic use, or the presence of anchor institutions like universities, hospitals, and major employers. It is useful to include whether your community has site control, how the redevelopment aligns with city goals, completed conceptual design(s) and adequate financial analysis.
Areas of Focus
The brownfields investment package should be grounded in local data and local opportunities. It should reveal a distinctive economy with several pathways for growth and investment. The package should be used to set the stage for different types of investors – public, private and civic - to immediately familiarize themselves with your community and redevelopment opportunity. The package should generally include the following key focus areas:
- Regional introduction and governance;
- Market summary;
- Area overview and assets;
- Specific property overview; and
- Development potential.
Resource Roadmap
After project costs are determined, your community will need to identify potential funding sources to implement necessary actions. Funding sources can include:
- Tax increment financing (TIF), or TIF equivalent.
- Tax credits.
- Tax exemptions.
- Enterprise Zones and Quality Jobs Programs.
- Opportunity Zones.
- New market tax credits.
- Permit/impact fee waivers and rent abatement.
- Sales tax revenue sharing.
- Grants.
- Bond issuance.
- Cash/local government direct investment.
- Job credits.
To help with the funding responsibilities, a local government should engage in partner discussions or develop a Resource Roadmap (see EPA’s Setting the Stage for Leveraging Resources for Brownfields Revitalization and Plan for Brownfields Redevelopment Success: Resource Roadmap) to identify potential sources for the funding needed for the project, as well as the timing and requirements that are associated with the funding. The Resource Roadmap will serve as a useful tool for developing a strategy for leveraging funding for brownfields and community revitalization.
A Resource Roadmap is a document, sometimes in matrix form, that identifies revitalization priorities, their key components and phases, and the estimated cost for each project component and phase (or at least the most important next phases). While the Resource Roadmap is similar to the sources and uses chart in that they both identify sources of funds for a project, it serves as a strategic guide to project leveraging by matching individual project components to appropriate funding and financing sources, whereas the sources and use chart provides an accounting of available funds to identify, organize and balance potential expenses, funding needs and sources of funding. The Resource Roadmap identifies all potential funding sources for your project, including the timing and complexity of the funding process. In concert with the other planning phases, the Resource Roadmap outlines a strategy for identifying and tapping into available funding sources for individual project components from federal, state, philanthropic, private sector and local financing sources.
The Resource Roadmap can be a handy guide for project teams pursuing grant and loan funding. It also can be a great information tool to provide to local leadership (such as a city council) and funding champions (such as state and local legislators).
The Resource Roadmap can help map out potential sources of funding and how to meet matching-share requirements for individual funding sources. Communities also should be able to inform developers/investors of available sources/incentives and financial benefits to allow projects to progress where financing gaps exist that would otherwise make projects economically unviable.
What is involved in creating a Resource Roadmap?
- Defining the specific project components and phases for each priority brownfield project.
- Estimating costs for each component and phase.
- Identifying the best sources for funding each component and phase.
- Creating a chart or matrix with this information, organized by project component and phase.
- Updating the Resource Roadmap as funding commitments are pursued and secured.
Leveraging Resources
Leveraging is the use of existing resources or funding to attract additional resources or funding. Wise use of existing investments may lead to other investments (funding or other types of resources) from other parties. It is a good idea for communities to begin their brownfields redevelopment projects by establishing strong leadership, assembling a team of committed partners, engaging with the community, and carefully assessing how to make the best use of limited local dollars so that initial local investments will leverage additional funding.
Initial investments, when made strategically, can result in attracting additional investments because they establish commitment to a project, instill confidence in the potential success of a project, and address the sustainability of the project. Initial local investments can include:
- Using available local funds for planning, site assessments or property purchases.
- Focusing personnel on identifying and securing sources of seed money for a project (e.g., government or foundation grants) and those that will leverage additional investment (i.e., community planning grants or brownfields assessment or cleanup grants).
Examples of leveraging include:
- When a local government uses its own local resources to purchase property and conduct an environmental assessment of the property, or when a local government obtains a brownfields assessment grant and uses those funds to assess the environmental conditions at the property, the community can use the results of that investment to attract private investment.
- The initial investment in the property purchase or the environmental assessment demonstrates commitment on the part of the local government to the reuse or redevelopment of the property.
- The same initial investment in the environmental assessment of a property provides information to potential investors or developers that can delineate the level of risk associated with further investments in the property or project.
- Many nonprofit funders require grant applicants to demonstrate local commitment to a project by committing matching funds or in-kind resources, such as staff time and the use of locally owned equipment.
- Local investment or project commitment: Private investors and developers often judge a project’s potential for success by the degree of local investment and commitment.
- Redevelopment projects established within local government master plans as priority projects may have a better chance of attracting private investment than projects merely listed in a Request for Proposal (RFP) or real estate posting.
- Projects or properties where local governments invested in infrastructure improvement, transit upgrades or beautification projects may have a greater advantage in attracting additional funding due to the demonstration of local commitment.
- Federal and state agencies may give preference to grant applicants who can demonstrate commitments of resources from other funding sources, particularly when the locality uses those resources in effective ways to make genuine progress toward meeting project goals.
- Projects where strong local leadership shows a willingness to collaborate with other partners and investors demonstrate a potential for sustainability. Potential investors are attracted to projects where local leaders are committed to working with them over the long term for the mutual benefit of all investors.
- Strong public participation and the ability to demonstrate community commitment to a project also can be leveraged to attract the collaboration and investment of private partners. Investors need a sense of commitment and a level of confidence that their investments will lead to success and an acceptable rate of return.
- Technical assistance and in-kind contributions from project partners demonstrate local commitment to the project, which often is essential when applying for state and federal grants and in attracting outside developers.
- The EPA guide Setting the Stage for Leveraging Resources for Brownfield Redevelopment will help local communities successfully leverage resources for brownfields and community revitalization. It focuses primarily on what communities can do before they solicit funding to organize themselves and make the preparations necessary for mounting a successful leveraging effort. The guide provides a step-by-step approach to help localities organize efforts to pursue and secure funding from a variety of sources for brownfields and community revitalization, including successful case studies and resources from EPA.
References:
EPA: Anatomy of Brownfields Redevelopment
EPA: Community Actions that Drive Brownfields Redevelopment
Site Investigation and Cleanup
An important part of the reuse implementation strategy is developing an approach to address the site’s environmental condition and related cleanup. This approach needs to include how environmental cleanup activities will be handled during any property transaction or the redevelopment activity.
As discussed in the Environmental Liability section in Chapter 4, a completed site investigation is important to understanding and addressing potential risks and liabilities to the local government or to a current or future owner or developer of a property. In particular, the completed site investigation is needed to evaluate potential remedial actions that will be required for the property, and the potential for land use and engineering controls that may impact the use of portions of the property. Decisions with respect to remedial action, including the use of land use controls, should be made in the context of the proposed use for the property. The approach to remedial action on the property will be critical to the reuse.
The approach to site investigation and cleanup may differ depending on the property disposition strategy selected. In some cases, if the local government is planning to purchase the property, it may elect to complete the investigation and the cleanup activity prior to bringing on a developer or transferring the property to a developer. In cases where the economics of a property transaction support the transfer of the responsibility for completing the cleanup, the local government may want to have a future buyer or developer complete the remedial action.
Integrating implementation or completion of remedial actions with development activities on the property can create synergies and project efficiencies. For example, roads, parking and foundations can act as engineering controls by limiting direct contact with contaminated soil. Locating monitoring wells and remedial action equipment, and taking into consideration the location of buildings and structures on the property, can be critical to the ability to effectively develop the property. These synergies and efficiencies provide an economic benefit while accelerating the implementation and completion of development on the property. Taking advantage of these synergies and efficiencies can be achieved by involving the agencies overseeing the investigation and cleanup required for the property in the reuse planning process.
EPA Brownfields Road Map to Understanding Options for Site Investigation and Cleanup: Sixth Edition
Property Disposition
The disposition of a property requires defining an approach to ownership and development of a brownfield property in a manner that provides value to the current and potential future owner and developer. Depending on the property disposition strategy [AP2]that is to be used, the approach for disposition may be different. For example, if the local government is the owner of the property and intends to remain as the owner, disposition may involve the lease of the property to a developer or a contract with a developer to develop the property. If the local government is planning to purchase the property or transfer the property to a third party, the disposition will be the sale or transfer of the property. The disposition may involve a request to solicit and identify prospective purchasers or developers.
Interested Parties
A local government or other development entity will need to identify parties interested in acquiring, redeveloping, leasing and using the redevelopment site. Potentially interested parties should be identified based on the attributes needed to complete the proposed development. For example, a potential consideration is identifying parties that have experience with brownfields redevelopment or access to resources necessary to successfully implement the reuse plan.
Expression of Interest (EOI) Process
The process typically includes testing the market through an expression of interest (EOI), potentially followed by a more formal request for proposals. An EOI is a formal, often confidential, process that will gauge interest in a site and identify potential redevelopment opportunities. The process involves a written request for non-binding EOIs, site tours and review of responses. The EOI request packages materials that describe the site, available utilities and infrastructure, and environmental status. Through the EOI process, communities can obtain conceptual development proposals and pre-qualified development teams.
Request for Proposal (RFP) Process
An RFP is a formal, competitive process for obtaining acquisition and redevelopment offers for a redevelopment site. It involves a written RFP package with documentation on site conditions and assets, copies of existing surveys and deeds, information about site tours and interviews, and a review of proposals. The solicitation materials of the RFP also should clearly define the municipality’s goals for redevelopment. The process is usually implemented after completing a site reuse assessment. Interested parties must have access to reliable information on the site to submit a bid.
Outreach
As part of the process, it is crucial to reach out to necessary markets to identify interest and relay information on site potential and EOI/RFP status. This may include outreach outside of the regional area to markets that may have interest in the assets unique to the municipality. The outreach process also may include scheduling events around the EOI/RFP processes to attract key individuals from the development community to the municipality for them to visit the site and understand the potential opportunities for redevelopment. The outreach process should occur before and during the solicitation process. The more thorough the outreach process, the better the opportunities for achieving the desired redevelopment goals.
References:
EPA: Plan for Brownfields Redevelopment Success: Evaluation of Market Viability
EPA: Plan for Brownfields Redevelopment Success: Site Disposition Strategy