Urban Fields Of Dreams
In a bygone era of urban industrial might, the 33 acres on Baltimore's South Highland Avenue throbbed to the beat of a thriving copper-smelting operation. But the smelter, built in the early 1900s, shut down in 1977. Now, the foundry and most of the buildings are abandoned hulks, their roofs collapsing, their windows and downspouts stripped off by scavengers. Scraggly grass and weeds push up from trash-strewn grounds laced with PCBs and other hazardous materials. "It's an industrial wasteland," says Robin Grove, deputy director of waste-management administration at Maryland's Environment Dept.
Hundreds of thousands of other industrial sites in cities across the nation have met a similar end. But the land off Highland Avenue is poised for a revival. By late this year, what is now urban blight will be transformed into 750,000 square feet of warehouse space--already 85% leased. "The state gets a contaminated site cleaned up, and we create jobs for the community," says developer Tom Obrecht. "It's a win-win for everyone."
It's the stuff of leading-edge urban policy, a laboratory for what's known as "brownfields" redevelopment. The idea is to realize the potential of the nation's estimated 200,000 to 500,000 vacant urban industrial sites, many of them contaminated with a witches' brew of chemicals, for boosting tax bases and revitalizing troubled neighborhoods. Cities already have infrastructure, labor, and a concentration of resources in place; transforming environmental wastelands, the argument goes, can tap those assets and spark growth.
TAX CREDIT. More than half the states have passed legislation or developed policies to reduce the liability threat inherent in such properties and ease cleanup requirements. Congress is considering a host of similar proposals. And the Clinton Administration kicked off a $10 million grant program last year and has slightly relaxed the Superfund law that governs hazardous-waste cleanups. In early March, it proposed a $2 billion tax credit for developers. These programs are "bringing new development, new jobs, and new hope to communities," argues Environmental Protection Agency Administrator Carol M. Browner, who visited sites in Pittsburgh, Philadelphia, and Denver in May to hammer home the message.
These government initiatives aren't the only answer to urban decay. The market is developing its own solutions, especially for the minority of sites owned by large corporations that acknowledge their contamination liabilities. Thanks to growing cleanup savvy and to innovative new insurance products that limit cleanup costs and liability for both buyer and seller, "we now have large pools of institutional investors who understand these properties and are prepared to invest in them," says James A. Chalmers, brownfields guru at Coopers & Lybrand. Indeed, a new study of successful projects in Chicago, where demand for urban locations is strong, suggests that market forces are working effectively without government intervention.
Still, most experts are convinced that thousands of sites across the U.S. can get a crucial boost from judicious tweaks in environmental policy and legal status. Take Baltimore's Highland Avenue project. Developer Tom Obrecht knew there was demand for warehouse space near the city's thriving port. And it didn't take him long to find the smelter. But getting financing was another matter. Numerous banks turned Obrecht down, fearful of unknown costs of future cleanups.
That's when the state stepped in. It paid half of the $80,000 needed to assess on-site pollution levels. More important, it issued an innovative consent decree absolving Obrecht and his backers of future liability--as long as they carried out a state-approved cleanup plan. The waiver isn't all-inclusive: It doesn't protect against lawsuits from third parties, such as a neighboring landowner. As a result, most banks continued to shy away. Obrecht finally raised $11.5 million from a private investor and Mercantile Safe Deposit & Trust Co.
State officials also demonstrated flexibility in the cleanup plan itself. Instead of requiring every last trace of pollutant to be extracted from the soil, they allowed Obrecht to pave over areas with low levels of contamination. "We've got to take into account the ultimate use of the property," explains Grove. "This site will never be residential--and there's no groundwater that could be contaminated." Some environmentalists have criticized such easing of standards. as backsliding on health and safety. Officials retort that the sites are safe and that a moderate cleanup is far better than none at all. "There's not enough money in this world to do everything 100% the right way," sighs Karen Waldron, brownfields coordinator for the city of Trenton, N.J.
FROM GAS TO BEER. The success on Highland Avenue has been replicated across the nation (table, page 80). Minnesota, a pioneer in this sort of urban redevelopment, began offering companies and developers liability protection in 1988. Now its pollution-control agency is processing requests for some 180 sites a year. One prominent example: an old Texaco Inc. storage-tank facility in downtown St. Paul that was recycled into a brewery, printing plant, and other businesses.
Minnesota's efforts are aided by a state law that allows state officials to determine which properties won't be subject to the federal Superfund law, with all its attendant liability woes. In other states, developers still fear that they may be held liable for huge future Superfund cleanup costs. The EPA has tried to allay these fears by agreeing not to take federal action if property owners comply with state rules. That may not be enough. "Most people think the only real solution is a change in the federal Superfund law," says John Gates, CEO of CenterPoint Properties Corp., an industrial developer in Chicago.
Even with a radical overhaul of Superfund regulation, moreover, brownfields redevelopment isn't a magic bullet for cities. Experts say there's little or no chance for urban areas, limited by acreage and financial resources, to win major businesses like a Saturn Corp. or a BMW plant. And even smaller projects may require big subsidies. St. Louis successfully turned a small contaminated site in a deteriorated commercial district into retail space. But the work cost $850,000--for space valued at less than one-tenth that much.
LOW VALUE? The scale of such subsidization indicates how little effect government policy may have where the underlying demand for property is weak. "The fact that these properties aren't moving is not necessarily due to contamination," explains James Harveson, director of economic development in Trenton's Housing & Economic Development Dept. "There's still the issue of whether the real estate has value." Of scores of sites in Trenton, the city considers only three to be truly marketable. In fact, Richard O'Connor, vice-president of the environmental cleanup firm Roy F. Weston Inc., figures that because of poor location, inadequate size, or other flaws, only a "tiny sliver" of the hundreds of thousands of these urban wastelands is capable of wooing industry back.
Still, a new study from the University of Illinois Great Cities Institute suggests that brownfields subsidies can be good social policy. Public costs--from infrastructure construction to traffic congestion--are higher when industries seek the suburbs. Given better liability protection and eased cleanup rules, then, urban redevelopment can be competitive. On Highland Avenue and hundreds of other streets, brownfields projects are helping cities win small victories in the battle against economic obsolescence.