Brownfield opportunities for developers and investors

Brownfield article
In the present climate it can be tricky to identify real estate assets where clients are able to realise value. Across the development and investment markets a far more sector focused approach is being taken. Some sectors are hot, some are not…. At Fladgate we are helping our clients identify those sectors where opportunities can be unlocked and in particular we are focusing on the opportunities presented by brownfield development and investment in our Brownfield campaign.


We live in a world where it is becoming mainstream to be vegan, it’s a social faux pas to forget your own bag when shopping and plastic packaging is on the way out. Concerns about our environment and the likely extinction of many species have increasing profile and influence. Set against this is the reality of a growing population worldwide, a trend of increasing urbanisation set to continue for many decades in the UK and a shortage of housing. There is an opportunity in the property market to leverage off these demographic changes by delivering schemes which cater to society’s changing needs by reusing redundant space. 

Our established developer clients have been involved in brownfield development and regeneration for a long time. They are highly specialised at what they do and are expert at delivering schemes to cost and on time (even with the usual brownfield “quirks” factored in). They are passionate about what they do and have great vision and an ability to maximise the use of sites. And what they really care about is “placemaking” – their ability to reinvent or relaunch an area whilst retaining a sense of heritage and history. 

We recently carried out a client survey and 73% of our clients believe that brownfield is a growth sector for the next three years. Our sweet spot is acting for entrepreneurial clients who we class as “trend initiators”, so we think this is a message worth listening to. 

What our survey also revealed is that new entrants and lenders are nervous about some of the challenges presented by brownfield. There is increased likelihood of contamination issues needing to be dealt with and though sites will already have infrastructure links and utility connections most will need major overhaul to accommodate a modern more intensive development. Lenders and investors are sensitive about the potential costs and delays that may be caused by addressing these issues. 

As with any development, rights of lights issues can also present, especially if the intensification of use means building upwards and increasing the envelope of the building. There are also likely to be historic rights on the title relating to previous use and often parcels of unregistered land (especially when a developer is consolidating smaller plots to piece together a larger site). 


All of these issues are matters which experienced developers are very used to dealing with. A developer will be looking to tie down these issues as soon as possible to de-risk them. Third party consent processes need to be initiated as soon as possible so these do not hold the project up further down the line. Contractors in the current market will be very resistant to taking on any remediation risk so developers will prioritise carrying out investigations to quantify remediation costs. With rights of light and title issues, insurance is often the solution so that the developer can proceed quickly but still ensure its funder and investors have confidence that any issues that present down the line can be mitigated. 

Our developer clients see all these issues as part of the course of their business. They have the experience to be able to address issues as they arise either internally or by engaging consultants. This track record is very important in securing financing arrangements. Because of this Brownfield is not a sector likely to see a high influx of new developer entrants. However, by partnering with established developers, investors can increase their exposure to this growth sector. 

Brownfield is an opportunity for the property industry to be part of a much needed wider solution to address the serious issues affecting our environment. Given growing “consumer conscience” we expect this sector to be increasingly attractive to investors. It is an example of sustainability and business opportunity going hand in hand and a sector to watch in the future. 

JENNY SARGEANT | Partner
Fladgate LLP


T: +44 (0)20 3036 7288
E: jsargeant@fladgate.com

 

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