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BROWNFIELD UNLOCKING OPPORTUNITY
A report designed for lenders, investors and developers looking at the current views and ideas of leading real estate professionals from across London. Includes perspectives
on why brownfield is increasingly attractive and the reforms that could unlock further potential.
2 Brownfield–UnlockingOpportunity
Building on previously developed land is nothing new. Dig down in any long-populated area and you will find layers of settlement and construction where buildings have reached the end of their lives or their uses have been relocated.Sometimes we see a gradual rise in ground level as new buildings recycle the foundations of the previous generation. Such an approach presented little opportunity for remediation.
Our legal framework of property rights, both of landowners and neighbours, reaches back a long way, but regulations for development control, environmental protection and health and safety bring a new complexity to what we now call brownfield development.
For the developer and funder, that complexity brings risk and opportunity, if you know how to unlock it.
CONTENTSDefiningbrownfieldandattitudesacrossthesector 3-5Obstaclesandchallenges 6-7Developerandinvestorconcerns 8-10 Thelegalperspective 11
INTERESTED IN JOINING THE DEBATE? Contactevents@fladgate.comforaninvitationtoanexclusivedeveloperandinvestorpaneldiscussioneventon13November2019.Forfurtherinformationvisitwww.fladgate.com/brownfield
Brownfield–UnlockingOpportunity 3
DEFINING BROWNFIELD
GREENFIELD OUTSIDE THE GREEN BELTConstructiononagreenfield–onwhatonedeveloperreferredtoas“traditional land”–oughttobeasimplerprocess.Onceconstraintssuchastopography,wildlifeanddrainagehavebeenconsidered,itpresentsablankcanvastodesignerandbuilder.Policypresumptionsagainstgreenfielddevelopmentnonethelessmeanthatimmediateopportunitiesarerare.
Theapparentinterchangeabilityofthetermsgreenfieldandgreenbeltinresponsestothissurveycomesfromthelikelihoodthatanotherwisedesirablegreenfieldsitewillbe inthegreenbelt.
Thereasonsforgreenbeltdesignationsarediverse.Theoriginalintentionmighthavebeentopreventurbansprawl,toavoidthemergeroftwoconurbationsortopreservethesettingofhistoricbuiltenvironment.Whatallgreenbeltshaveincommonisthattheyneighbourexistingconurbationsandthereforeofferthemosttemptinggreenfieldlocationsforusessuchashousing,warehousingorretail.
Forthetimebeingatleast,developerscanlook,buttheycanrarelytouch.
“ For the developer and funder, that complexity brings risk.”
WOULD YOU CONSIDER INVESTING IN A BROWNFIELD SITE IN THE FUTURE/AGAIN?
EXPERIENCE OF BROWNFIELD DEVELOPMENTGivencurrentpolicypressures,fewdeveloperscanrelysolelyongreenfielddevelopmenttostayactive:81%ofrespondentshadexperienceofbrownfielddevelopment.
Forsomethisisduetolackofgreenfieldopportunity.Othersfollowaprincipledobjectiontogreenfielddevelopment,aredrivenbyshareholderrequirementsorseebrownfieldlocationsasbestsuitedtotheirtargetmarkets.Onedeveloperneatlydescribesa“greaterproximitytoexistingservices,infrastructureandcommunitiesthangreenfield.”
APPETITE FOR FUTURE WORKThosedevelopersandlenderswhocurrentlyrelyongreenfieldsitesseethewriting onthewall.Noneofthemruleoutfutureuseofbrownfieldsites.Infact,allofthose newtobrownfieldsites–withoutexception–expectedthemtobeamoreattractiveinvestmentinthenextthreeyears.
Someoftheconversionstobrownfielddevelopmentmightbereluctant,butthepessimismabouttheattractivenessoffutureinvestmentcomesfromthosewithexperienceofbrownfielddevelopment.
4 Brownfield–UnlockingOpportunity
ATTITUDES TO BROWNFIELD DEVELOPMENT
YES – I HAVE AND WOULD AGAIN
YES – I WOULD CONSIDER IT
NO
58%
38%
4%
INVOLVED IN BROWNFIELD BEFORE
DO YOU BELIEVE BROWNFIELD SITES WILL BECOME MORE OR LESS ATTRACTIVE INVESTMENT OPPORTUNITIES IN THE NEXT THREE YEARS?
MORE ATTRACTIVE
LESS ATTRACTIVE
INVOLVED IN BROWNFIELD BEFORE NOT INVOLVED IN BROWNFIELD BEFORE
83%
17%
Therewereclearthemesinthereasonsgivenforbrownfield’sgrowingattractivenessasaninvestment.Justoverathirdcitefewerandfewerappropriategreenfieldopportunities;20%areconsciousofgrowingdemandforhousingandlogisticsdevelopment;8%seetheappealofbeingclosetoexistinginfrastructure,while asimilarproportionseenorelaxationofgreenbeltrestrictions.
Brownfield–UnlockingOpportunity 5
Greater proximity to existing services, infrastructure and communities than greenfield.
OBSTACLES TO BROWNFIELD DEVELOPMENT
Developersandlenderswillbeconsciousofarangeofissuesindevelopingbrownfieldland–someofthemlegalissuesandsomemorecommercialinnature.Thereishugeoverlap,ofcourse:whereyoucan’tdoadeal,youmightneedtoresorttothelawtoimproveyourposition.
IN PAST BROWNFIELD PROJECTS, EXPERIENCED LENDERS AND DEVELOPERS WORKED WITH LAWYERS TO DEAL WITH THE FOLLOWING ISSUES:
PLANNING
REMEDIATION
RIGHTS OF LIGHT
INFRASTRUCTURE
HISTORIC RIGHTS
OVERSAILING AND ACCESS ISSUES
62%
22%
5%
4%
2%
5%
LEGAL ISSUESAlawyermightexpecttobeinvolvedtolineupandtiedownobligationsonplanning,finance,construction,rightsoflight,neighbouragreements,remediation,utilities,accesstoinfrastructure,landownershipandoccupancy.Theycanalsoprovideclientswithaholisticapproachtoprojectdeliverythroughthevalueofexpertanticipation,avoidingissuesattheoutset.
Timingallthesematterseffectivelyisessentialiftheprojectistostayonschedule.Fromaclient’sviewpoint,though,theseissuesacquiremarkedlydifferentweights:62%seeplanningasthemajorlegalissuetobedealtwith,whileonly22%putremediationfirst.Rightsoflightandoversailingoraccessissueswerealongwaybehind,withonly6%identifyingthemasthemostsignificant.
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DO YOU SEE RESTRICTIONS AROUND PLANNING TO BE PROHIBITIVE TOWARDS BROWNFIELD SITE DEVELOPMENT?
YES
NO
62%
38%
Brownfield–UnlockingOpportunity 7
PLANNINGOnedeveloper’sreferenceto“thearchaic,outdatedandcostlyplanningsystem”illustratesthefrustrationthatmanyfeel.
Thatfrustrationisnotlimitedtobrownfielddevelopment,ofcourse,and31%ofrespondentsacknowledgelowerplanningriskwithbrownfieldthangreenfield.Policysupportforbrownfieldmakesanultimateconsentmorelikelyandithelpsthatneighboursarelesslikelytoobjecttothereplacementofaderelicteyesorethanthe lossofviewsacrossgreenfields.
Inpractice,planningtendstobeanissuefordevelopers,ratherthanfunders.The latterexpectplanningrisktohavebeenremovedbeforetheywilllend.
8 Brownfield–UnlockingOpportunity
WHAT CONCERNS MEAN THAT YOU WOULD NOT CONSIDER INVESTING IN A BROWNFIELD SITE?
HIGHER ENVIRONMENTAL RISK ADDITIONAL COST – E.G. DEALING WITH RIGHTS OF LIGHT, PLANNING HISTORIC RIGHTS, WASTE REMOVAL & CONTAMINATION
GREATER UNKNOWNS UNTIL CONSTRUCTION IS UNDERWAY
SPEED – IT TAKES LONGER WITH BROWNFIELD
22% 33%
27% 18%
COMMERCIAL RISKS AND OBSTACLESFundingdominateswhenweraisethecommercialrisksandobstaclesinbrownfielddevelopment–andlendersarealmostaslikelyasdeveloperstorankithighest.
Whyisitsohardtoobtainfundingforasitewherethedeveloperhasalreadydecidedthatrisksareacceptable?Adeveloperandafunderwillcalculatedifferentrisklevels
DEVELOPER AND INVESTOR CONCERNS
fromthesamesiteandtherisktendstobegreaterforthefunder,whowillbesensitivetoanyuncertaintyovercostsordeliverability.Intheeventofadeveloper’sinsolvency,afundercanbeleftholdingasitewithsignificantclaimsforcontamination,aninjunctionagainstdevelopmentbasedonrightsoflightoronerousplanningconditions.
DEVELOPER LENDER
Brownfield–UnlockingOpportunity 9
Responsesbackupthisanalysisbyshowingagreaterconsciousnessofmostrisk fromlenders.
Itisalsoinstructivethatlendersareslightlylessoptimisticthandevelopersabouttheinvestmentpotentialofbrownfieldsitesoverthenextthreeyears:77%oflenders seethemasattractiveinvestments,incomparisonwith84%ofdevelopers.Risk-takingbydevelopersispartlydrivenbythepotentialrewards.
PLANNING REFORM: A JOB NEVER DONE?Governmentpolicyhasremainedconsistentinpromotingbrownfielddevelopment overgreenfield.
SowhatmorecanGovernmentdo?
Thecarrotsoftaxorfinancialincentivesdon’tappeartobetheanswer.Thisisnotaproblemthatanygovernmentcanthrowmoneyat.Theconsequencesofplanningrisk aresimplytoogreattobemitigatedbyincreasedprofit.Instead,70%ofrespondents seeplanningreformastheanswer.
“There has to be incentive for brownfield development to distinguish it from greenfield. The environmental card will be played even harder, which is completely correct, but this contradicts against the archaic, outdated and costly planning system, and the ever growing need for local authorities to demand higher S106 and CIL levies as their central government funding decreases. This then counters development viability.” Developer
10 Brownfield–UnlockingOpportunity
WHAT COULD THE GOVERNMENT DO TO HELP INVESTMENT AND DEVELOPMENT OF BROWNFIELD SITES?
RELAX CHANGE OF USE PLANNING RESTRICTIONS TAX INCENTIVES
CONSISTENT LOCAL AUTHORITY APPROACH TO PLANNING ACROSS REGIONS
INFRASTRUCTURE LOANS OR OTHER FINANCIAL INCENTIVES
41% 21%
29% 9%
Manypoliticiansregardthejobasdoneonplanningpolicy.AnewNationalPlanningPolicyFrameworkisinplace.Anewraftofpermitteddevelopmentrightshasbeenintroduced.Futurelegislationwillfocusonresourcingtheplanningsystemtogivefulleffecttonewpolicy.
Lendersanddevelopersarepushingbackontheseassumptions.Useclassesaretooinflexibletorespondtomarket,socialandtechnologicalchangesinreasonabletime.Localismismakingthewholesystemtoounpredictable.
Inthelegislativepipelineisanaccumulationofenvironmentalregulation,suchasthebiodiversitynetgainobligation.ThisgreenstickwillbewieldedbysuccessiveGovernmentstoremoveeventhecurrentlevelofchoicebetweengreenfieldandbrownfield.
THE LEGAL PERSPECTIVE
PLANNING REFORM: A JOB NEVER DONE?Withthemarketpresentingchallengingconditionsforrealestateinvestors,lawyers needtohelptheirclientsunlocktheopportunitiesavailable.
Fladgateisutilisingitsextensiveexpertiseinthisareaandisconstantlylearningfrom ourclientstounlocktheopportunitiespresentedbybrownfieldsites.Wearesharing bestpracticefromeducatedclientswhohavefoundcreativewaystoaddressthe potentialrisksinvolvedtorealisevalue.
Ourdeveloperclientsarepassionateaboutrecyclinglandtocreateneighbourhoods andmakeplaces.Theseclientshavethevisionandinnovationtoworkwiththehistory oftheirland,whetherthatmanifestsitselfinawkwardcorners,contaminationorreputationalissues.
Howdowewanttoownoruseland?Whereandhowdowewanttolive?Brownfieldredevelopmentisessentialtoaccommodatingacontinuingtrendtowardsurbanisationandmeetingthechangingneedsofsociety.Itsatisfiesadesiretoprotectthenaturalenvironment,promoteregenerationandprovidewell-locatednewhousing.Weneed tomakeitwork.
OUR SURVEYThisreportisbasedontheinputinMay2019of63realestateprofessionals,21%of themlendersand78%developers.
Brownfield–UnlockingOpportunity 11
“ Lawyers need to help their clients unlock the opportunities available.”
FladgateLLP,16GreatQueenStreet,LondonWC2B5DGwww.fladgate.com/expertise/real-estate-law/brownfield/
#FladgateBrownfield
Mark HarnettPlanningPartner+44(0)[email protected]
Miles CrawfordPlanningSeniorAssociate+44(0)[email protected]
Gavin WhitneyRealEstatePartner+44(0)[email protected]
Olivia BatemanConstructionPartner+44(0)[email protected]
Adam BakerRealEstateSeniorAssociate+44(0)[email protected]
Tim FoleyRealEstateLitigationPartner+44(0)[email protected]
Richard ReubenChairman,RealEstatePartner+44(0)[email protected]
Amanda Hado-BodfieldRealEstatePartner+44(0)[email protected]
Gary SmithRealEstateFinancePartner+44(0)[email protected]
Hollie DochertyConstructionSeniorAssociate+44(0)[email protected]
Kim McMurrayRealEstateFinancePartner+44(0)[email protected]
Nick WoodRealEstateAssociate+44(0)[email protected]
FLADGATE BROWNFIELD TEAM
Jenny SargeantRealEstatePartner+44(0)[email protected]
Stephen LewisRealEstatePartner+44(0)[email protected]
Marc SosnowCorporateRealEstatePartner+44(0)[email protected]
