Redevelopment of any brownfield property is a challenge, but in many instances the challenge of redeveloping small brownfields becomes disproportionately large.

Contaminant remediation and redevelopment remain viable options with the availability of tax credits, insurance products and other incentives for many large properties.

But at smaller properties, with smaller contamination problems (with remediation costs generally less than $500,000), these incentives are impractical or unavailable.

Consider the vacant gasoline station or machine shop located on a one-acre or smaller site. In top condition, these properties might have an assessed value of up to a million dollars – but vacant, their value is often significantly less. Asbestos and lead present in the buildings add cost to building renovation or demolition. Soil and groundwater contamination increase redevelopment costs, and remediation increases environmental compliance costs – the so-called “environmental premium.”

Very little asbestos/lead abatement, combined with soil and groundwater clean up, can push the environmental premium to more than several hundred thousand dollars. Municipal tax liens and mechanical liens only further worsen an already bad situation.

Soon, liabilities exceed the value of the property.

Research shows that vacant and contaminated properties adversely affect nearby property value. Given that stark differentiation, conventional wisdom might make remediation a no-brainer.

Still, these properties are extremely difficult to redevelop – for several reasons.

Insurance Product Availability

Insurers offer products to mitigate the cost associated with discovery of unknown contamination, provide assurance to lenders and limit the downside of environmental remediation. Literature provided by Chartis, a firm that provides such insurance, touts their products’ ability to enhance the value of the project and limit risk.

However, Chartis’ products, similar to their competitors, are intended for what might be considered large remediation projects exceeding $1 million. Insurance companies appear to have made the logical decision that the costs associated with researching the risks to underwrite small remediation projects are not warranted. If a client insists on insuring such projects, the premiums and deductibles may exceed the estimated remediation cost.

Disproportionate Costs To Secure Funding

Developers often seek tax credits and outside funding for projects, whether those projects are brownfields or clean projects. In Massachusetts, the Brownfield Tax Credit is a source of funding for past costs associated with response actions. Historical credits are available to assure maintenance of historical integrity. Housing credits are available for construction of low-income or smart-growth housing. MassHousing and the federal Department of Housing and Urban Development (HUD) both offer direct loans and tax credit programs that instrumental in determining the feasibility of marginal projects.

But with smaller projects, even though the application is relatively streamlined when viewed against a large project seeking hundreds of thousands or millions of dollars, the effort expended to complete the process is simply not worth it. For the six-unit development, or the restoration of an iconic and historic gas station, total development costs might not exceed $1 million, and their benefit is marginal compared to larger mill rehabilitations or factory demolitions.

Other Factors

Smaller properties may be encumbered by municipal tax liens, but these liens may be on the relatively small order of $10,000 or maybe $50,000. Though brownfield laws protect municipalities from incurring liability for cleanup costs associated with foreclosures, many municipalities are nonetheless reluctant to foreclose. Such a lien may not warrant the time required for the municipality to take advantage of laws allowing cities and towns to waive liens, but which require adopting special legislation. However, when dealing with small brownfields, even a small lien or liability may be the difference in the viability of the project.

Whereas large brownfield properties are often owned by corporations or real estate trusts, smaller properties are more frequently owned by individuals, estates, defunct corporations or other entities – some of which may no longer exist.

Further, the uses of small brownfields are often more limited than those associated with larger brownfields. Recent studies cite EPA programs and incentives for converting brownfield properties into solar arrays, wind farms and similar energy-generating facilities.

But these projects are being completed on relatively large open areas, including solar panel arrays on landfills and abandoned factories. Even Brockton’s acclaimed “Brightfield” project, a solar power facility on a former manufactured gas plant, was constructed on 3.4 acres – a large parcel by small-brownfield standards.

The Solution

The solutions to addressing the challenges associated with small brownfield properties may be somewhat self-evident:

• Provide a means of reducing the risk to developers and lenders. Solutions could include pooling risk for small projects or streamlining the application and underwriting process.

• Streamline the process associated with tax credit and funding applications. Small projects involving housing, historical elements and small business development should also be attracted to these incentives.

• Provide a means by which municipalities have flexibility to negotiate tax property liabilities. Liabilities should never be so excessive as to prohibit redevelopment.

 Small brownfields projects often require multiple stakeholders to effectively participate in the risk of redevelopment. Property owners must understand the actual value of their property. Municipalities must be willing to sacrifice past tax revenue in hopes that redevelopment will restore future value. Lenders must learn to get comfortable with these smaller projects. Arguably, even the developers and consultants need to accept some level of risk associated with these projects in order for the project to move forward.

Only after more stakeholders have some skin in the game will these small brownfield properties turn from vacant eyesores into productive properties.

Samuel W. Butcher is vice president of operations at Braintree-based environmental consultancy Goldman Environmental Consultants Inc.