Just about every community has one of these: a large, distressed property that sits there, year after year, as an eyesore that everyone wants to get rid of. Often, these properties are acquired by local government through tax foreclosure and become the proverbial “white elephant,” a supposedly valuable asset of limited usefulness that is costly to maintain.  Not only is the property itself impaired, but it unfortunately also reduces the values of nearby properties, especially if real or perceived environmental contamination is at play.

This is a challenge that most communities face: how to transform the white elephant into “gold” – jobs, tax revenue and a virtuous cycle of private-sector-led investment.

Below, we lay out a number of steps that your community can take today to move forward on re-activating these sites. (While most of the steps are applicable to any such property, there are a few items that are specific to New York State).

Site Control

The first consideration I always think about with these white elephant sites is “who has control”? If the answer is “nobody,” then what you have is a zombie white elephant, which is the worst kind. This can occur if a community is hesitant to seize the property for liability or other reasons, if the nominal owner has vanished but may still attempt to exert his/her rights, or if the property is winding its way through tax foreclosure.

In any event, the first step is to achieve some degree of site control. For a variety of reasons, we recommend that you first form a Local Development Corporation (LDC, or equivalent) and use the LDC to acquire control over the property. This serves as a liability shield for your community and provides certain advantages to you when it is time to sell to a developer, namely a streamlined and much simplified divestiture process.

What if the owner is still around? Do we use eminent domain? We recognize that many communities are hesitant to invoke the power of eminent domain, and for good reason. But, when it comes to a white elephant, the community’s future is at stake, so we believe it is an option to at least explore. If the owner is truly capable of turning the site around, starting the eminent domain process is perhaps a good incentive to move the property. If the owner is not able to redevelop the property, you may have a willing seller that would otherwise sit indefinitely on the site.

Reuse Planning

Prior to, concurrent with, or even after acquiring site control,  another essential step is to do a comprehensive reuse plan for the site. There are many facets of a reuse plan, but the most important are:

Site characteristics – getting all the facts together about acreage, wetlands, topography, rights-of-way, easements, access, zoning, structures, soils, etc. One important aspect of this is to understand how much water/sewer/electric and natural gas capacity is available to serve the site.

Environmental constraints – just how contaminated is the site? Is there just soil contamination or is there groundwater contamination as well? Does the contamination extend beyond the site’s boundaries? If there are buildings, are there hazardous materials that will need to be dealt with? At a minimum, you would want a Phase I ESA (environmental site assessment), which is part of your initial due diligence and will look at the historic uses at the site and the potential sources of contamination. Later stages of due diligence may require a Phase II ESA with soil borings and other actual testing.

Market analysis – taking a comprehensive look at the economic, demographic, industry and real estate trends in the area will be critical to coming up with a feasible reuse plan. Here you look at vacancy rates, net absorption, pricing (both for-sale and for-rent), new construction and projects in the pipeline. Depending on the site, you may want to look at a large range of reuse options, including industrial, office, retail, institutional, residential and mixed-use. Hopefully, more than one use or a combination of uses will look promising and can feed into a later stage of feasibility testing.

Once you have completed the above investigations, the next step in the reuse planning process is to test your reuse scenarios against the political will of your community and constituents. What does your current zoning allow? What relief would have to be granted? How amenable will your planning board be to the reuse? What objections will your public raise? How will each reuse scenario advance or detract from the community vision?

The strongest possible position you can be in for the final steps of this process is being able to say that you have the full support of your boards and the public; and, critically, that you are able to clearly outline your vision for the site under the reuse plan. (“You, developer, tell us what you want to do and we will let you know if we agree…or not” is not a winning strategy for problem properties).

Pre-Development Work

The reuse planning phase is the beginning of the process and gets you to one or more reuse scenarios that appear to work. The next step is additional “pre-development” work, which can include:

Additional environmental investigations – As noted above, you may now need to move into a Phase II ESA for actual on-site testing as well as a hazardous building materials survey if there are structures involved. This can be quite costly, but there are some co-funding opportunities thought the EPA and sometimes local sources (see below).

Preliminary cost study – As a precursor to the financial analysis, you will need to know what the possible costs of remediation, demolition and construction will be. At this stage, we are just looking for a preliminary opinion that will have to be refined at a later stage. The preliminary opinion will likely have a wide range of costs figures to account for the unknowns (plus/minus 30% is quite common).

Financial analysis – Taking the market data and preliminary cost study, you can now run an initial financial analysis to see if the project is feasible on its own or if will require some kind of public subsidy.

Incentives – There are many incentives that can be brought to bear from local, state, and even federal sources. On the local level, you can do certain pre-development site work (discussed below), but you can also provide property tax incentives that can substantially improve the financial analysis findings without truly costing the taxpayer anything – without the redevelopment, the taxes generated by the site are likely to be minimal. At the state level, there are various grants (particularly for commercial/industrial reuse), but there are other sources in New York, such as the Brownfield Cleanup Program, which offers tremendous tax credits for cleaning up and rebuilding brownfields; the Restore NY Program; and the Downtown Revitalization Initiative. If there are structures that are at all historic in nature, the federal historic rehabilitation tax credits can provide up to 20% of the value of eligible costs, and New York State will match that for another 20% of eligible costs. On top of that, there are more exotic sources of incentives, such as the federal Opportunity Zones program as well as PILOT Increment Financing. Together, these incentives can work together to support the pro forma financial analysis.

Site work – Finally, at the pre-development stage, potential preliminary site improvements can help move a project along in certain circumstances. This can be quite expensive, depending on the work involved, but in some cases it is necessary to move a project from the red into the black for a private party. That may involve removal of structures or hazardous materials, infrastructure upgrades, roadway improvements, etc.

​Developer Relations

During and after the pre-development work stage, you can also devote time and energy towards cultivating your developer community. Initially, this will simply be communicating what you know about the site (constraints, opportunities, descriptors, preliminary findings).

​As the process matures, you want to check in regularly with developers and even conduct a “fam tour” of the subject property – invite a group to the site for a walking tour and to share the information collected to date. Keep in mind that this white elephant site may require you to step outside your community’s pool of developers to a wider, regional pool.

How do you do this?

Our suggestion is to work with your regional economic development agency (County IDA, state economic development team, etc.) to identify developers whose expertise and interests align with your preferred redevelopment plan. You can also do web research on projects of a similar nature done elsewhere and see if you can get developer contact information. As old fashioned as it sounds, even simply calling developers can at times lead to connections, especially if you can say you have site control, have done a bunch of work, and have a clear vision for what you want done.

Funding Pre-Development Work

One very special funding source in New York is the Brownfield Opportunity Area (BOA) program through the NY Department of State. Contrary to its name, this is not a brownfield cleanup program like the EPA funds that many communities have experience with. BOAs are, in fact, neighborhood development plans that involve one or more real or perceived brownfields.

The funding pays for most the various planning-level activities that are descried above: market analysis, site evaluation, inventorying, stakeholder engagement, urban planning, etc. Best of all, BOA money comes in at 90% state, 10% local, so the local cash contribution can actually be quite modest. There are certain things the BOA money will not pay for – like acquiring site control or conducting a Phase II ESA – but the planning activities themselves are definitely eligible.

For communities outside of New York, it can be more difficult to find non-local sources of funding, so the local burden may be a much higher share of the total cost. But one of the considerations at play is the future economic and fiscal benefits of the project – if the reuse in question will generate future tax revenue, your community may be able to use Tax Increment Financing as a means of self-funding the upfront costs. Likewise, the economic vibrancy boost of new jobs and redeveloped property may provide the future tax revenue that will help offset today’s investments.