Step 2 - Evaluation (sub-directory)

• Canadian Market and Drivers
• Property Valuation
• Barriers and Socio- Economic Benefits
• Project Viability
• Land Value after Remediation
• Conduct Research (due diligence)
• Legal Framework
• Financial Barriers
• Risk Evaluation and Management
• Develop a Business Case

Property Valuation

• Access to nearby labour pool
• Addresses crime and safety issues (removes abandoned, derelict buildings and illegally stored or disposed substances from the site)
• Arterial access available
• Clean up of contaminated sites (often no municipal funds needed)
• Community improvement (removal of blighted/stigmatized areas)
• Employment creation and new opportunities during and after cleanup and development
• Utilization of existing infrastructure
• Reduced greenfield development (which is costly and contributes to sprawl)
• Limits environmental liability to municipality
• Port-water ingress/egress
• Proximity to city core
• Rail adjacency
• Recyclable resources
• Reduced logistics/distribution costs
• Reduces urban sprawl
• Reuse of ‘hard’ and ‘soft’ services (costs already covered)
• Synergies with neighbouring firms
• Tax base restoration and preservation
• Unique zoning
• Zoning conversion

1. Positive Value Sites:
• Primary Market sites that are viable, profitable, “Right Side Up” sites
• Marketplace will absorb development (needs and costs)
• Possesses good location and development potential
• Minimal incentives required
• Risk involved is spread between “as-is” value and “after clean-up” value, which can provide market returns
• Represents 10-20% of current brownfield market.
  
2. Neutral Value Sites:
• Secondary Market sites that are perceived as “zero value”
• Possess many of the positive attributes associated with primary market sites, but absorption is at a slower rate
• Gain on investment is typically long term without upfront incentives and funding
• Some policy changes, tools and inducements are required to assist process due to significant front-end costs
• The property likely has no value to a developer without upfront assistance
• There is a positive value gain to the municipality, community and all levels of government
• Worthwhile for governments to invest and create incentives to develop these properties
• Represents 60-80% of current brownfield market
  
3. Negative Value Sites:
• Secondary Market sites that are perceived as negative value, “upside down”
• Properties may be orphan, abandoned, escheated or owner is bankrupt
• Land value is often very low
• Severely challenged environmentally, socially and economically
• Cross-over economics are absent
• High-risk development for investors and developers
• May contain high risks for municipalities and other stakeholders
• Lands will remain dormant without government assistance and financing
• Generous allowances are mandatory
• Requires dedicated undertaking by all stakeholders
• Extreme measures are needed
• Represents 10-20% of current brownfield market

1. Cleanup Factors
   • Effectiveness of cleanup
   • Cost of cleanup
   • Lifecycle of cleanup (time required to complete various phases of project) 
     
     There are 3 typical stages in the Lifecycle of a Contaminated Property:
     
     1. Discovery: The time between discovery of the environmental hazard and knowing the extent of contamination and remediation cost.
     2. Approved and financed remediation plan: The time required to obtain a remediation action plan based on professional assessment of the extent of contamination and implementation of the remediation plan.
     3. No further action required: The point after remediation has been completed.
        
2. Future Land Use
   • The degree of difficulty and effectiveness of cleanup
   • Land use and zoning of current and adjacent properties
   • Approvals required for anticipated zoning conversion
   • Existing and anticipated infrastructure required
   • Market needs for anticipated usage
   • Location: proximity to core, transportation nodes, market
   • Labour pool available
     
3. Risk Factor Considered by Purchasers Investors
   • Possible errors in the risk assessment process (hidden costs)
   • Possible liability due to future changes in regulations and legislation
   • Ignorance and lack of knowledge
   • Changes in science (may determine new health risks or long term risks)
   • Increase in projected clean-up cost (contingency risk)
   • Perceived risk (sensationalized concerns and media reporting)
   • Pure phobia (general aversion to change, environmental problems, risks, etc.)
   • Trouble factor (investors may seek a higher return on investment or not realize projected investment)
   • Problems in achieving normal levels of financing (ratio and rate)
     
4. Effects of Stigma
   • Reduces demand
   • Reduces future value expectations
   • Increases yields necessary to attract investors
   • Increases equity requirement
     
5. Diminution in Value
   • This is the difference between the unimpaired and impaired values of the property being appraised
   • The difference in value can be due to the increased risk and/or costs attributable to the property's environmental conditions
   • The diminution in value can also be affected by the upfront costs involved and time spent awaiting approvals, cleanup, redevelopment and anticipated future land use/occupation.

• Jeff Westeinde: Tunnelling Through the Cost Barrier: The Business Case For Turning Brownfields Into Green Buildings (Oct 22, 2004)
• Neil Hardy: Land Value after Remediation (Sep 21, 2004)
• Brian Villemaire: Brownfields: Practical Issues and the Socio-Economic Benefits of Redevelopment (May 28, 2002)