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History of the Brownfields Market and the Role of Brownfields Capital
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In 1980 Congress passed the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA/Superfund), which regulates conduct at orphaned waste sites, attempts to reduce liability, and provides a funding mechanism to recover U.S. Environmental Protection Agency (EPA) clean-up costs. CERCLA forcibly brings environmental liability to the attention of the business community through strict, joint and several liability that requires responsible parties to cover the costs of clean-up without regard to the percentage of individual environmental contribution or harm. Furthermore, it inhibits the transfer and sale of contaminated property.
In 1995 and 1996 the EPA adopted Risk Based Corrective Action (RBCA) standards that the American Society for Testing and Materials (ASTM) created to establish risk-based cleanup criteria at sites where petroleum and chemical release has occurred. As a consequence, the clean-up levels at certain sites may vary based on their assessed risk and the cost to remediate those properties is reduced. In response to this modification, the first wave of specialty development companies began operations dedicated to acquiring brownfields. Brownfields began to be viewed as an investment opportunity and the insurance industry began issuing expanded policies for them. In 1996, the first private equity/institutional funds were raised to finance the acquisition of brownfield properties however, on-going environmental liability concerns have prevented capital from entering this marketplace and less than $1 billion has been raised to date.
Remarkably, the current market value of brownfields is estimated between $520 billion and $2 trillion. The large disparity between the two estimated values can be attributed to the Environmental Protection Agency’s known contaminated properties ($520 billion)and the National Brownfields Association's estimate ($2 trillion), which includes non-disclosed properties.
Until this point, the firms and investment funds investing in brownfields have attempted to consolidate all of their expertise within one firm. As a result,the success of the project relies solely on the credibilty and capability of one company. Additionally, most current investment in brownfields is focused on the arbitrage created by the value of the property in relation to the value of the property after the environmental remediation. Consequently, the value of the contaminated property is vastly diminished simply because of the scarcity of buyers and capital.
In contrast, Brownfields Capital provides a platform for the entire industry to participate in these projects, and it finances the entire project through vertical construction. Investors are able to invest in a fund that relies on inter-industry cooperation and specialization instead of having to rely solely on the competence of one consolidated firm. Likewise, investors are not asked to invest in a group of projects, in which the cost of remediation makes up a significant portion of total project costs. Instead, Brownfields Capital investors are able to rely on qualified firms that specialize in several disciplines related to brownfields projects and the investment risk is spread over multiple projects. This unique platform will permanently change how these projects are formed and financed.
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