Green building and brownfield development are walking hand-in-hand these days, with urban infill projects likely to take a lead in the multi-housing comeback. The availability of land close to urban transit centers is diminishing, and the existing sites near these hubs are often perceived as being environmentally challenged.
At the same time, public sector incentives are poised to play an even more important role as catalysts that can fill funding gaps. In addition to HUD’s Brownfield Economic Development Initiative, there is a long list of federal financing programs, including loans, grants, equity capital and loan guarantees, and tax incentives and tax exempt financing.
“In terms of site cleanup and reuse, ‘green’ is rapidly becoming the ‘new brown’ for both remediation and redevelopment,” says Charlie Bartsch, senior program advisor for economic development at the Environmental Protection Agency (EPA). “Many public tools and strategies can support this trend—tax incentives can complement a range of traditional federal (and state) programs, help position properties and increase the financial attractiveness of brownfield investments.”
Bartsch is also realistic when it comes to current real estate issues and their impact on brownfield financing decisions. Underwriting remains tight, with between $700 billion and $1 trillion in commercial loan re-financing/extensions by 2013 that could result in more defaults and foreclosures. Vacant land and property values are also dropping, while clean-up and site preparation costs increase.
But, according to Bartsch, the long-term forecast features a growing demand for sustainable end-uses. “Green [building] equals reduced O&M (operations and maintenance), which equals market appeal,” he says. “This fits well with smart-growth redevelopment strategies.”
Bozzuto Group’s silver stars
Supporting Bartsch’s optimism are two LEED-certified brownfield multifamily developments recently built by The Bozzuto Group.
The Fitzgerald, a mixed-use community in Baltimore’s Mount Vernon district, has received LEED Silver certification, while Riverwalk at Millennium has become the first LEED-certified apartment project in Conshohocken, and the largest in the Philadelphia area.
Riverwalk at Millennium, a 375-unit apartment community, experienced significant fire damage in the fall of 2008, and half of the development required a complete rebuild from the ground up.
“One of our challenges was to turn a disastrous fire into a positive reconstruction effort,” says Don Tracy, development manager with Bozzuto. “Working with our clients at JP Morgan Chase, [we made] the decision to pursue LEED certification.”
Bozzuto was a partner in the development, as well as builder and property manager, of Riverwalk. This brownfield site was built over an abandoned, heavily contaminated industrial facility. The development was later sold to a division of JP Morgan Chase.
“We were retained as property manager by a close corporate partner, so it was an easy decision to support them in their sustainability goals,” says Tracy. “Brownfield sites can be components of the LEED certification process, and Riverwalk’s location is integral to its success as an apartment development.”
The Fitzgerald—on the site of a former coal yard—is now the largest LEED-certified residential community in the Baltimore area. It is also home to Maryland’s first public electric-vehicle charging stations.
The Fitzgerald is a joint venture between The Bozzuto Group, co-owner and developer Gould Property Co., the New York State Teachers Retirement System, and former Baltimore Raven Michael McCrary, and sits on 4.6 acres of land owned by the University of Baltimore. The original site had been covered over by a university parking lot before the brownfield remediation.
“There is a wealth of wonderful neighborhoods and city attractions near the site, and a light rail stop at its doorstep,” says Jeff Kayce, vice president and developer for The Bozzuto Group. “And there stood this parking lot as a hinge-pin between all of these areas. So we decided to create a building that would serve as a connection point and create some vibrancy on the street.”
Bozzuto received $50,000 from the state in assessment assistance, as well as payment in lieu of taxes from the City of Baltimore for the next 20 years.
“If not for these two programs, we would have sought out the brownfield tax credits,” says Kayce. “In one of our other developments in the city, the brownfield tax credit is crucially important to the underwriting of that project.”
The Fitzgerald—comprised of 275 apartments, 24,000 square feet of retail and a 1,245-space public parking garage—is part of a redevelopment effort by the university and surrounding community.
In May, it received the Urban Land Institute’s (ULI) Award for Excellence in the Americas competition. Selected from more than 140 entries throughout North and South America, The Fitzgerald will now advance for consideration in the ULI Global Awards for Excellence program, which honors projects that demonstrate cross-regional lessons in real estate development.
“The Fitzgerald was a good candidate, primarily for its brownfield development,” says Stuart Kaplow, chair of the U.S. Green Building Council’s Maryland chapter. “The transit system locations, mixed-use development, LEED certification and urban infill also played significant parts in winning us this award.”
Kayce was also quick to credit the State of Maryland’s University of Baltimore and its president, Bob Bogomolny, for the success of the project. “The fact is that the Fitzgerald emerged out of the vision of President Bogomolny,” says Kayce. “He pushed us hard during the process, and that resulted in a decidedly modern building in Baltimore’s architecturally diverse Mt. Royal corridor.”
Federal financing incentives abound
Uncle Sam is doing its part to encourage green and brownfield site clean-up and reuse. Developers just need to know where to look and how to qualify.
Charlie Bartsch, senior program advisor for economic development at the EPA, put together a laundry list of federal financing incentives for brownfields and green development projects:
✓ The EPA Clean Water Act provided more than $3 billion of construction capital, including brownfield mitigation to correct or prevent water quality problems and groundwater contamination.
✓ The Brownfield Cleanup Cost Expensing Incentive allows new owners to recover clean-up costs in the year incurred. The incentive has received little use, according to Bartsch, due to “on-again, off-again availability, lack of information and poor structuring as a deal-making incentive.”
✓ HUD/Community Development Block Grants are funded individually by state and include demolition and removal; rehabilitation of public and private buildings; and more.
✓ USDA Rural Development Programs meet broadly defined objectives by offering business loans, intermediary re-lending and rural development grants. Eligible activities can include site clearance and prep work, rehab, and the construction of real estate improvements and amenities.
✓ Rehabilitation Tax Credits offer 20 percent credit for historic structures (certified by the state) and 10 percent for “non-historic” development, with no certification required. In 2009 alone, 1,044 projects earned a total of $1.12 billion in credits.
✓ Energy tax incentives offer developers a $1.80/sq. ft. deduction for commercial building construction that saves 50 percent of energy costs and $0.60 for 20 percent energy savings. On-site renewable tax incentives include 30 percent of costs for solar and wind systems and 10 percent for geothermal heat pumps and other installations.
✓ New Market Tax Credits at 39 percent over seven years for equity investments in low-income communities. More than $24 billion was awarded to 463 Community Development Entities since 2001. As many developers know, however, there are caveats to earning these credits, and approvals are time-consuming and complex.
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