Brownfields Update for the Pacific Northwest

Building on brownfields has its rewards. Developers often pay pennies on the dollar for contaminated land. Many brownfields sit in prime locations, along the waterfront, in the center of cities, and near transportation hubs. There’s even the nice feeling that comes from rehabbing a piece of land that has long sat vacant-creating jobs and cleaning up an eyesore at the same time.

All of this is weighed against unknown risks. How serious is the contamination? How deep does it go? How far has it spread? Put bluntly: how much money can you afford to spend to fix a property whose problems may be more severe than anyone realizes?

That makes financing a brownfield a tricky proposition. Banks are in the business of making loans. But they don’t want to make loans on projects that may come back to bite them.

“Generally, they’re pretty gun shy,” says Steve Saylor, a program manager for Washington state’s Department of Community Trade and Economic Development (CTED), who oversees low-interest loans for brownfields. “Any time you put the shovel in the dirt you never know what you’ll find.”

In some instances, regulatory agencies can help determine the scope of contamination. But everyone is taking a chance when they invest in a brownfield. And that means when you approach a bank you need to have done your homework, and then some.

“What we look for is somebody’s who’s got their act together. It’s a serious, more complicated process,” says Michael Wearne, vice president of environmental services at Columbia Bank in Tacoma, Wash. “A borrower has to be prepared, do more due diligence and engage a quality attorney, a quality consultant. And they need to understand it’s going to take longer.”

Wearne, who speaks frequently at brownfields conferences around the country, has worked with developers on contaminated properties for years. These days, many of the choice pieces of real estate sit in contaminated areas, although some aren’t defined strictly as brownfields. For instance, Wearne’s bank has made loans to developers who wanted to build in the Pierce County community of Fife, where groundwater is contaminated with arsenic.

“You could get real scared, real quickly or say ‘that’s part of the problem that’s there,’” Wearne says. “We’ve made a half dozen loans down in that area.”

Mostly, Wearne says, lending boils down to this: “Credit, collateral and character.”

And how does Wearne assess someone’s character? Typically, he looks for a developer who hires a quality consultant and attorney to help with a brownfield project.

“Those things often cost you more and they mean you are aggressively attacking the problem. That tells me you’ve got character,” he says. “If you’re trying to cut corners, I don’t want to do business with you.”

Walt Postlewait with the Bank of Astoria in Astoria, Ore., a subsidiary of Wearne’s bank, said he expects developers to have good cash flow and very solid, dependable businesses.

“It’s based on the strength of the borrower,” says Postlewait, an assistant vice president and loan officer. “If you’re a strong borrower, then a brownfield site may be of interest. It can be a very good investment for the buyer. But a questionable buyer, with inconsistent cash flow or limited equity, ‘don’t even waste your time.’ Really, it’s an arena for A-credit, A-businesses.”

Both Wearne and Postlewait say the touchy-feely rewards that come from cleaning up a long-standing environmental problem do little to persuade banks.

“We know that it’s reclaiming something that is useless and contaminated and at the end of the day we’re leaving the state in better shape for our kids and grandkids,” Postlewait says. “But that’s a minor byproduct. We’re in the business to loan money and mitigate risk.”

He adds, “It’s not the bank’s money, it’s the depositors’ money. We’ve been entrusted to care for the money and we really need to make sure we’re being professional and diligent with that loan.”