For many developers, so-called brownfield sites are low on appeal and high on the “to avoid” list. However, there are several tools that can aid the development plan for these sites.

The first step to overcome is the definition of the site, as many sites that fall into the definition of brownfields are industrial sites that have groundwater or soil contamination and are not laden with hazardous waste. Secondly, in Massachusetts, there are grants, low-interest loans, subsidized insurance products and tax credits that when used effectively together can create a patchwork of remediation funding and allow for conventional funding to be secured post-cleanup. The benefits of the Massachusetts Brownfields Tax Credit (BTC) better position suburban commercial developers to repurpose these sites, which is especially important in the Greater Boston commercial real estate market where inventory of available developable land is limited.

In short, the BTC is a tool intended to encourage the reclamation of contaminated sites as well as to enhance economic growth by fostering the rehabilitation of abandoned properties. The BTC is a transferrable tax credit that covers either 25 percent or 50 percent of eligible remediation expenses. It is limited to commercial sites in economically distressed areas where the developer did not cause the contamination and spends in excess of 15 percent of the property’s assessed value on remediation.

The BTC becomes available following remediation; therefore, the credit will not assist with predevelopment funding. However, financing sources such as grants, state-backed low-interest funding and environmental insurance are available to help offset predevelopment remediation costs.

The BTC program has garnered considerable attention in recent years, for both its direct and indirect financial impact. Contaminated, often harmful properties have been cleaned up and redeveloped into income-producing, tax-paying sites.

For those looking to develop suburban commercial property, the BTC offers developers the ability to consider “dirty” sites. The remediation costs may be considerable, but a financial package that includes the BTC, bridge financing, subsidized insurance and grants can assist with these expenses, and act as a reward to developers.

So how does the BTC program work? If a property qualifies for the credit, costs related directly to the environmental cleanup, such as outlays to determine, contain or remove contamination, will apply toward the issuance of credit. By monetizing the credit, often a brownfields property owner who cannot or does not desire to use the tax credit can recover up to 50 percent of the eligible costs of cleaning up the site.

A brownfields site redeveloper should have a knowledgeable brownfields team in place to ensure ultimate success. The cleanup is led by a Licensed Site Professional (LSP), i.e. a geotechnical expert mandated by Massachusetts to act on behalf of the Department of Environmental Protection to develop, implement and execute a remediation plan. The LSP in turn will engage a testing firm, soil disposal contractor, architect, engineers and other site professionals to coordinate the remediation element of the project.

In order to maximize available brownfields tax credits it is wise to engage a tax credit consultant who can work in tandem with the LSP to capture all available tax credits, as well as to assist with the securing and structuring of the capital.

Having a knowledgeable and experienced tax credit consultant on a redevelopment team is also essential to determine whether the project is also eligible for other tax credits. For example, the adaptive reuse of a historic building or construction of multifamily affordable housing generates historic or low-income housing tax credits. These can be used in conjunction with the BTC to secure the maximum tax credit equity for the project.

The Massachusetts BTC program has resulted in a decreased inventory of contaminated land and, in a domino effect, has increased construction, employment generation and improved property values for neighboring lots. Commercial suburban real estate developers should not overlook this potentially fruitful funding avenue.

(tag)Warren Kirshenbaum is founder and president of Cherrytree Group LLC (www.cherrytree-group.com), a group of entities that offer tax credit consulting, brokerage, syndication and specialty finance services. He can be reached at warren@cherrytree-group.com or 617- 431-2266.