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Innovative Solutions Prove
The Value in
Brownfields Lending
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T 1 hile
Finding Unique Financing Solutions
redeveloping brownfields makes environmental sense, often
the deciding factor in returning abandoned properties to productive use is
whether a particular deal makes financial sense. Financial institutions make
that determination based on a number of factors, including a firm
understanding of the potential returns and a fair characterization of the
risks. The Cities of Des Moines, Iowa and Wheeling, West Virginia have
each collaborated in a unique way—with a federal lender and a local,
community-based financial institution—to complete both a picture of the
risks and rewards and a financing package for redevelopment. The results
of these innovative collaborations not only include cleaned up and redeveloped
properties, new businesses, and new jobs, but also increased confidence for
financing entities that brownfields lending can make sense.
For Des Moines, Iowa, a $2 million injection from the Federal Home Loan
Bank (FHLB) is what private lenders and developers needed to make the
city's Riverpoint West project more viable. Des Moines received an EPA
Brownfields Assessment grant in August 1998 and started performing
environmental assessments on more than 100 properties throughout the Des
Moines area. With the objective to redevelop blighted and underutilized
industrial tracts of land, the city set out to leverage funding to complete
redevelopment on targeted properties.
South of downtown Des Moines, a former steel foundry, chemical
manufacturing facility, and rail yards scar approximately 300 acres along
the Raccoon River. A $200 million redevelopment project that will create
more than 750 housing units and 450,000 square feet of commercial and
retail space is expected to rejuvenate the 125-acre developable area, helping
to extend the diversity of services offered and support commercial uses for
downtown. Des Moines Brownfields Showcase Community Pilot Manager
Ellen Walkowiak explains, "A representative from the Federal Home Loan
Bank of Des Moines became familiar with the project and helped the FHLB
take an innovative approach to financing the project. The FHLB's use of
funds as an equity investment is the first of its kind in the nation." FHLB's
equity investment will make the financial breakdown more attractive to
lenders because the loan to value (LTV) ratio will be more favorable and
less risky.
continued ^
Brownfields redevelopment plans along the river
in Des Moines, Iowa.
JUST THE FACTS:
• The Cities of Des Moines, Iowa and
Wheeling, West Virginia each discovered
unique financing collaborations that
enabled their brownfields redevelopment
projects to move forward.
• In Des Moines, 125 acres that
encompass a former steel foundry,
chemical manufacturing facility, and rail
yards are being redeveloped into more
than 750 residential units and 450,000
square feet of commercial and retail
space through a financing arrangement
with the Federal Home Loan Bank.
• The Wheeling, West Virginia
Brownfields Pilot collaborated with
federal agencies and multiple local
organizations to obtain financing for the
transformation of three former
warehouses into anew, multi-million dollar
business plaza.
"A representative from the Federal
Home Loan Bank (FHLB) of Des
Moines became familiar with the [$200
million, mixed-use, brownfields
redevelopment] project and helped
the FHLB take an innovative approach
to financing the project. The [bank's]
use of funds as an equity investment
is the first of its kind in the nation." —
Ellen Walkowiak, Des Moines
Brownfields Showcase Community
Pilot Manager
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Brownfields properties often appraise at lower dollar amounts due to perceived or potential environmental
risks or the often deteriorated condition of nearby properties. It is not until the redevelopment area truly
starts to turn around that properties appraise for higher amounts and LTV ratios become more favorable
to lenders and borrowers. But as Walkowiak explains, in the case of Des Moines, "The equity investment
is already affecting perceptions of property values in the Riverpoint West arpQ Q"rl ic
expected to improve the LTV so that private banks will lend on the housir
commercial project." Other financing proposed to be used includes tax abatement,
tax increment financing, the EPA Brownfields Cleanup Revolving Loan Fun<
Enterprise Zone tax credits, and other sources.
This innovative financial approach by the FHLB is essential to the Des Moines
Brownfields Pilot, just as creative financing approaches have been to the
Wheeling, West Virginia Pilot. The city partnered with the Ohio Valley Industrial
and Business Development Corporation (OVIBDC) to assemble a uniqut
brownfields financing package for the Wheeling Stamping Building project.
In May 1998, the City of Wheeling was awarded a $200,000 EPA Brownfiela^
Assessment Pilot to assist the city in assessing brownfields for potential
redevelopment opportunities. South of Wheeling's central business district, the Wheeling
Pilot has focused its redevelopment efforts on an industrial and warehouse-laden area that has blighted
the banks of the Ohio River for decades. Though many structures have deteriorated beyond repair, the
Wheeling Stamping Building, a series of three warehouses constructed between 1890 and 1905, has
retained its architectural integrity. Local leaders believed that the 88,000 square-foot structure and
surrounding area could be renovated and once again be an economic engine and community cornerstone.
Obtaining financing for the estimated $7 million renovation would have been extremely difficult for the
city and OVIBDC without at least a portion of the building being leased.
The city and a number of non-profit groups assembled a financing assistance package that included a
$1 million Brownfields Economic Development Initiative (BEDI) grant and a $2.25 million Section 108
loan guarantee from the U.S. Department of Housing and Urban Development (HUD); $2 million from
the Wheeling National Heritage Area Corporation; and a $3 million loan secured by the OVIBDC.
Stakeholders realized that in addition to public improvements and historic preservation activities, specific
improvements necessary to attract a tenant (e.g., interior building and telecommunications upgrades)
would need to be made. The flexibility of HUD's Section 108 loan program helped to overcome this
barrier. The 108 loan was used for interim financing until a private tenant was recruited.
Despite this successful financing approach, a funding gap still remained as a result of parameters on
how some of the funding could be used. A consortium of faith-based organizations in the Wheeling area
saw value in the project and decided to pool resources to provide the necessary gap financing. The
consortium loaned $1 million to the project at a below-market rate. If after 10 years the tenant is still in
the facility, the loan converts to a market rate. This arrangement allows sufficient time for the proj ect
to put itself on stable financial footing. Melissa Thompson, Wheeling Brownfields Pilot Manager explains,
"The success of the Celeron Plaza/Wheeling Stamping redevelopment project was due to the collaboration
of many partners, each of whom stepped forward to fund various significant portions of the project.
ii 'heeling, West Virginia s new Celeron Plaza,
built on a former brownfield.
Brownfields Success Story
Brownfields Lending
Solid Waste
and Emergency
Response (5105T)
EPA-560-F-04-265
September 2004
www. epa. gov/brownfields/
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The $1 million loan from the local coalition of churches was an innovative approach for funding a
brownfields project and a unique opportunity for an economic development venture in Wheeling."
Once financing was in place, the Office of the Governor and the West Virginia Development
Office increased their tenant recruitment efforts and secured Orrick, Herrington &
Sutcliffe, a San Francisco-based international law firm. Orrick located their Global
Operations Center in Wheeling's new Celeron Plaza in April 2002 and has leveraged
half of the committed 250 financial and technology-related jobs, with average
annual salaries of more than $37,000.
CONTACTS:
The resourcefulness of the Wheeling Brownfields Pilot and its public and private
partners assured that the redevelopment of the Stamping Building was successful.
Across the country, brownfields projects are finding creative financing options to
back their redevelopment efforts. These projects allow the financial services
community to see new opportunities associated with brownfields financing. In
recent years, many major banks have created environmental lending products and
insurance companies have developed secured creditor policies to protect brownfields
lenders. Together, communities and private interests are realizing the value in lending on
brownfields.
More information on brownfields financing can be obtained at http://www.epa.gov/brownfields
or by contacting the EPA Office of Brownfields Cleanup and Redevelopment (OBCR) at
(202)566-2777.
U.S. EPA Region 3 (WV):
(215)814-3129
U.S. EPA Region 7 (IA):
(913) 551-7003
Visit the EPA Brownfields web site at:
http://www.epa.gov/brownfields/
Brownfields Success Story
Brownfields Lending
Solid Waste
and Emergency
Response (5105T)
EPA-560-F-04-265
September 2004
www. epa. gov/brownfields/
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