Caught within government bureaucracies that can't seem to define environmental liability, Canadian cities are missing out on millions of dollars in possible tax revenue from brownfield redevelopment.

Brownfields - as opposed to greenfields - are unused, often abandoned industrial or commercial sites. There are 30,000 in Canada. As many as two-thirds are urban and fully serviced, but dormancy means they add little or nothing to the tax register.

They also may or may not be environmentally contaminated and need physical remediation, and this creates the public'-sector dilemma of consigning liability.

"Determining the risk associated with future contamination issues is the biggest bottleneck, which is a pity because of the increasing necessity of economically viable urban land due to declining landstocks," says Jonathan Westeinde, managing partner of Windmill Ltd., the development arm of the Westeinde Group in Ottawa.

Mike Levin, Business Edge
Urban brownfields, such as this one, are a potential source of tax revenue with redevelopment.

"In Canada, we just don't seem to have an integrated approach to delegating risk, and that means we miss a lot of opportunities."

Windmill is one of the few Canadian companies willing to take on the challenge of brownfield redevelopment. It has just received environmental approval for a project in Victoria - Dockside - that could act as a countrywide template.

The $300-million development occupies an 11.6-acre parcel on Victoria's upper harbour, the docklands that for decades have been contaminated with everything from fuel oil to industrial waste. Once the ground has been remediated, construction at Dockside will include one million square feet of mixed-use buildings.

But projects don't have to be large. Windmill is also starting The Currents on Wellington Street in Ottawa. The site used to house a drycleaner and gas station, and when developed will include 78,000 sq. ft. of condominiums and a 22,000-sq.-ft. theatre, the new $9.5-million home of the Great Canadian Theatre Company.

Illustrations courtesy of Windmill Ltd.
The Current on Wellington Street in Ottawa, above, and Victoria's Dockside, below, are two planned Windmill Ltd. projects.

"There are huge issues, such as the levels of contamination and dealing with long-term risk, but that's the challenge. It just means there's a premium to it, and the margins are higher. We feel it's worth it because this is the last remaining field of growth," Westeinde explains.

Despite the limitations of liability, which remains within provincial jurisdiction, brownfield remediation and development is a growth industry. More and more projects get started every year through innovative financing and risk-abatement strategies.

Janet Bobechko, head of the environmental law group at Toronto's Goodman and Carr LLP and co-chair of the brownfields committee at the Ontario Environment Industry Association, says her research shows the industry is the fastest-growing sector in environmental management.

"I don't care whether it's about urban revitalization or the bottom line, the business case is provable, and the companies that do it are making good returns. But people are still leery because the process isn't cut and dried yet," she says.

Redeveloping brownfields is not just about reclaiming land. It creates investment opportunities for developers, environmental engineers and technology companies that produce remediation tools such as biochemical and soil vapour-extraction equipment.



A 2002 study by the government-funded National Roundtable on the Environment and the Economy states that one dollar's worth of brownfield development generates $3.80 in economic activity (the highest figure of any industry), and 22 cents in direct and indirect taxes. Also, one acre of brownfield generates the same economic benefit as 4.5 acres of greenfield.

There are also public funds available. The Federation of Canadian Municipalities offers grants up to 50 per cent of consulting and testing fees, and loans up to 25 per cent of a project's capital costs through its Green Municipal Funds.

But the funds are available only for joint projects with municipalities and require a labyrinthine process of paperwork, which many executives say just isn't worth it.

It's this kind of handicap that frustrates Bobechko, who explains that brownfield redevelopment is simply inexpensive infrastructure renewal.

At Toronto-based Terrasan Corp., partner Hugh Molyneux is also frustrated by what he calls a "very onerous" government approval process. But he thinks brownfields provide enough upside for things to soon change.

"It's a perfect business model; you buy, clean up and build, with the environmental side just another part of the overall development program. This land is just sitting idle, not generating revenues, so it would make a lot of sense if the various ministries streamlined the process," he says. "I think the ministry (of the environment) should have a policing rather than an approval role."

Terrasan is remediating a former chemical facility at the former Toronto Stockyard just west of downtown, and plans to build a residential component. The two-year-old company sees brownfield projects making up about half its business by fiscal yearend.

"I can see part of the problem centring around financing; banks don't like to give mortgages on contaminated sites. But new (government) regulations are minimizing third-party liability so brownfield decisions are increasingly becoming economic ones," says Wayne McPhee, manager of Canadian operations for Environmental Resources Management.

Insurance companies are also starting to pay attention to the industry's potential.

"It is definitely a specialty area, and there is a misconception that insurers will cover all liability. Things can change quickly when there's more to clean up than was originally thought, or when the government changes the rules in the middle of a project," says George Boire, VP of environmental solutions for the Marsh insurance brokerage in Toronto.

"This area of pollution liability coverage is growing, probably to about 30 per cent (of overall policy placements), even though the risk is usually higher than generic (development) forms."

It is a distinction that Westeinde knows well and accepts as part of earning higher returns. But even with definable benefits for both public and private sectors, the uptake is slow.

"Once you get by that extra hurdle of mitigating risk, then it becomes possible to proceed on something other than an ad hoc basis. There is a growing awareness of what is possible, but even with the liability issue being pushed aside, you still have to delegate it down to the municipal level with bonds or other incentives, as they do in the United States where it's working well for every level," he says.

(Mike Levin can be reached at levin@businessedge.ca)