There is a variety of lending institutions that provide products and resources for studies, assessments, site remediation and brownfields redevelopment.

The major banks of Canada have always been recognized as the traditional sources for financing large developments. Concerns regarding lenders’ liability have led to the need and development of other private funding sources. Private lending institutions that are involved in brownfield transactions include: chartered banks, credit unions and trust companies.

Exposure to a customer’s environmental risks is a significant concern for lending institutions that may be held liable for substantial cleanup costs and other liabilities that exceed the risk protection and financial depth of most borrowers. Prior to securing financing, a potential stakeholder/developer must be prepared to answer a series of questions that would satisfy a potential lender’s concerns of investing in a redevelopment transaction while reducing their exposure to risks and liabilities.

Please review the subsections of Brownfields Toolbox - Financial Barriers in Step 2 - Evaluation, which provides key points on: Lenders' Concerns, The Advantages, What the Lender Needs to Know, and Typical Provisions in Loan Agreements.

The Kilmer Brownfield Equity Fund L.P. (the "Fund"), founded in 2006, is the first private equity fund in Canada dedicated exclusively to the redevelopment of brownfields. The $100 million fund is structured as a limited partnership with both institutional and private investors. In 2006, the Fund was awarded a "Special Brownie Award" by the Canadian Urban Institute in recognition of its innovations in the financing of brownfields. This is relevant because the difficulty in accessing capital through conventional real estate financing channels has been a pervasive stumbling block to brownfield redevelopment.

The Fund is a specialized real estate developer which acquires brownfield properties and redevelops them for its own account, financed with equity provided by its investors. For clarification, the Fund does not see itself as a financing source for third-party brownfield developers, though, in certain cases, the Fund will consider partnering with owners of brownfield sites.

The Fund is managed by Kilmer Brownfield Management Limited, which consists of a management team of experienced brownfield specialists and includes leaders in the Canadian brownfield industry. The collaboration of the different specialty areas represented within the Fund's management team-which include environmental risk management, real estate planning and development and finance-is a critical component of the Fund's ability to manage risk and unlock value in its brownfield redevelopment projects. Successful redevelopment strategies arise from the dialogue between these disciplines and are constantly refined through an iterative approach.

The Fund works closely with vendors of environmentally-impacted sites to ensure that their particular needs are satisfied. The investment process for the Fund is as follows:

• The Fund targets brownfield projects where the total redevelopment budget falls in the $5 to $15 million range, with a maximum of $20 million equity invested in any single project.
• The Fund will acquire a brownfield site and will provide indemnification to the vendor for environmental liability.
• Redevelopment consists of remediation to regulatory site closure and often rezoning to a higher-and-better end land use.
• When the redevelopment is completed, the restored site is sold to a developer or end-user, who will complete the development process through the vertical build-out of the site.

The Fund is able to offer vendors of brownfield properties indemnification from environmental liability. Vendors of brownfields should be aware that standard "as is, where is" transaction language will not necessarily protect past owners from potential regulatory environmental liability. The Fund uses approved site closure mechanisms together with environmental legal liability insurance to back its indemnification to vendors. Corporate owners with a sophisticated understanding of brownfields have recognized the merit of the Fund's approach.

In addition to Fund's usual practice of purchasing brownfield sites outright, an opportunity also exists-under the right circumstances-to joint venture with the vendor on projects. The Fund recognizes that, for some vendors, there might be a real benefit to joint venturing on the redevelopment of their environmentally-impacted properties.

The Fund was established in response to several factors which improved the risk-reward relationship of brownfield redevelopment specifically in Canada:

1. Legislative reforms governing site closure and limiting exposure to regulatory environmental liability.
   
2. Land-use planning reforms aimed at curbing urban sprawl and promoting sustainable growth and urban intensification.
   
3. The availability of sophisticated risk management products, like environmental liability insurance.
   
4. Municipal incentives promoting brownfield redevelopment.
   
5. Stricter corporate disclosure requirements for contingent environmental liabilities.

For further information, including projects by Kilmer, please visit the Kilmer corporate profile.

www.kilmergroup.com/brownfield/