As Melbourne’s population swells at the seemingly unstoppable rate of 100,000 new residents per annum, developers are finding opportunities across the most interesting if unlikely sites. Abandoned factory sites, disused quarries, derelict warehouses, and former abattoirs present viable challenges for astute developers seeking projects with a marketing edge. The Environmental Protection Agency (EPA) defines brownfield as “real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.”
We interview Andrew Barbone, Senior Development Manager, Pomeroy Pacific and Grant Holman, Director, Wood & Grieve Engineers, to find out the reasons why brownfield sites can be potential goldfields in the hands of smart developers.
TAE: What is the “big picture” in relation to brownfield sites and their attractiveness to developers?
Grant: What we have seen happening across metropolitan Melbourne is a relentless upward pressure on housing prices, particularly across the inner and middle ring suburbs where people generally desire to live. Many people don’t necessarily need large living areas but place a higher value on convenience, amenity and closeness to family, friends and childhood memories. When I first came to Melbourne 15 years ago, the demand for apartments and small lot living was nowhere near as strong as it is today. People are freely choosing this style of living and not necessarily just because of the price point.
Brownfield sites also become attractive due to population growth and the need to provide a range of housing products that greenfield developments typically don’t deliver (i.e. townhouses and apartment type). These sites can usually support higher densities due to their locations and are supported by established suburbs with public transport, parks, schools etc. We have also seen changes in manufacturing and industrial practices and those sites with previous industrial uses are now becoming vacant and provide the opportunity for sites to be re-imagined and redeveloped
TAE: Perhaps we should differentiate between a brownfield and a greenfield site. Currently, many purchasers will choose their first or second home in a brownfield over a greenfield site given the current market conditions
Andrew: A greenfield site is land that has a history of agricultural use but its highest and best use over time is for urban development. Melbourne has many of these sites throughout the growth corridors and can be found approximately an hour’s drive outside of Melbourne’s CBD.
The main virtue that brownfield sites enjoy is their convenience to the CBD and inner middle ring of Melbourne and they are generally in close proximity to the key employment precincts and well-established community services such as schools and public transport. Furthermore, these sites usually have the luxury of being located nearby established shopping precincts as well as entertainment and dining districts. Greenfield sites, on the other hand, can take many years to achieve these similar locational and infrastructure advantages.
TAE: How much importance is placed on public transport infrastructure for a brownfield site?
Andrew: There is an enormous weighting in a purchaser’s decision surrounding buying a dwelling close to public transportation. With a train station, tram line and bus routes nearby, the minor inconvenience of smaller lot living in a brownfield site is outweighed by the time saved, commuting to and from destinations.
TAE: Please explain how important it is to undertake a valid feasibility study to establish costs and how this quite often differentiates a brownfield from a greenfield site.
Andrew: It is incredibly important that a developer undertakes adequate due diligence when drafting their feasibility study, whether that is for a greenfield or brownfield development. There are certainly differences in infrastructure costs between the two due to the fact that brownfield sites have an advantage of already being serviced via existing servicing and roads. Whereas a greenfield site will require all new infrastructure to be brought online to the site for the first time.
TAE: But much of that cost is borne by the local authorities and state government?
Grant: Generally, no costs are borne by the local government or relevant authorities. Councils and authorities generally take the stance that the developer receives the benefit from the development, therefore they wear the costs of servicing the development. This can be one of the key costs with developing a brownfield site. If service upgrades or extensions and/or road upgrades or intersections are required to service the development, the developer generally wears all these costs. These costs can be higher than a greenfield development due to the established nature of the roads and surrounds, but they also can be much lower if the existing infrastructure is capable of servicing the new development. Understanding the serviceability of a site in the due diligence phase is critical in identifying and understanding these key costs.
Andrew: There are various costs and contributions that a developer will need to be aware of whether the development is on a greenfield or brownfield site. Many of these costs are not apparent from the outset and for any developer whether experienced or first-time, it is imperative that they liaise with seasoned consultants who have a strong understanding of costs through years of infill and greenfield experience.
TAE: What is your role and the attitude you bring in assisting investor/developers facilitate the development of a brownfield site?
Andrew: Let me answer that by way of example. Last year, we assisted one of our valued clients purchase two infill sites, one in Maidstone (west of Melbourne) and the other in Clayton (south-east of Melbourne). Both sites are existing industrial operations and we are working with the developer, local authorities, and the MPA to facilitate the change of use process for these developments. These sites will eventually have a variety of housing stock ranging from small homes, townhouses and apartments. Supporting these developments will be a variety of ancillary community spaces including retail precincts, parks and communal meeting spaces. In regards to how we approach Council, we always look to work collaboratively to ensure we find balanced outcomes. We need to ensure that the developer’s feasibility metrics are achieved and in many cases, exceeded. Simultaneously, we need to provide for strong place-making initiatives that will ensure that the communities who reside in these spaces will thrive and prosper in the long-term.
Grant: To reinforce Andrew’s point, we consistently adopt a proactive and positive manner with the responsible authorities and local communities from a very early stage. This, rather than an adversarial approach, generally generates a better outcome in terms of reducing time and cost associated with the planning process. Our strong working relationships with the authorities enables this process to be as smooth as possible. We also have the capability to advise on the whole of the development cycle, from land and infrastructure to the built form, so that expertise can be embedded from the start, maximising the development value.
TAE: What is your notion of liveability, in the context of a brownfield site?
Grant: The projects we undertake need to create from the outset a sense of community, place and amenity. The long-term consequence of not getting this formula right is its potential impact on community cohesion, mental health and crime. Developers, Councils and Government all have a responsibility to contribute positively towards building healthy communities. Brownfield sites have the advantage of pre-existing amenities in most cases and relative proximity to activities and a ready-made community – the task to build a positive environment for people to live is far easier.
TAE: Inevitably, we have to touch on the subject of site contamination. A brownfield site that was once a factory may have a reputation that may dissuade prospective purchasers from considering the site for a future home. What is your experience in terms of re-branding and repositioning a site to make it appealing to the market?
Grant: Our role is to help the general public appreciate and respect the story behind a site. In many cases, the sites history adds additional appeal to a site, especially to locals who may have grown up in the area and remember it for certain reasons. History adds character to a project which generally adds to the commercial value of the site. In terms of contamination, it is something that is heavily regulated and managed. A site that is changed from an industrial use to a more sensitive residential use typically has to be remediated to an extent suitable for the intended use.
Andrew: Drawing on genuine nostalgia is a legitimate marketing tool so long as the end product is tastefully and thoughtfully designed. From my experience, a site with a history of contamination does not faze purchasers in a way that it might have a generation ago. People are now motivated to live in the right suburb with good amenities at an affordable price and are prepared to look past any historical uses of the site.
TAE: To what extent does a developer need to commence construction on site early on so that prospective purchasers will feel confident to sign the sales contract and hand over a deposit?
Grant: Most prospective purchasers we come across are sufficiently educated through various media channels to read plans and know locations very well. The emergence of the role of technology has created a new advantage for developers. They are easily able to communicate their vision and story for a site to the general public like never before. Virtual reality now allows people to walk through the site as if it were in a finished form. This immersive experience takes a relatively dull, lifeless site and brings future excitement into the present.
TAE: It appears that there is an exodus of young couples and young families moving away from the city and inner fringes into the middle and outer ring suburbs. Can you elaborate on this dynamic?
Andrew: It comes down to affordability. Wage growth is not keeping up with the increase in house prices. Firsttime buyers are being priced out of the inner ring suburbs and brownfield and greenfield opportunities are amongst their most viable choices. Similar to the large cities in Europe and Asia, we are experiencing high growth in brownfield developments which is creating numerous communities who are flourishing despite living in traditionally smaller lot townhouses and apartments.
Grant: As Andrew suggests, it is driven mainly by affordability. Our job as developers, architects, planners, engineers and project managers is to facilitate as much choice built around affordability and livability as much as possible, no matter where the project is located.
TAE: Let’s focus on your Maidstone and Clayton project as an exemplar of brownfield site development projects.
Andrew: Maidstone is located in Melbourne’s inner west and is approximately eight kilometres from Melbourne’s CBD. The existing industrial precinct is a four hectare site near the High Point Shopping Centre and it is currently a series of disused factory shells and sheds. We are currently working to rezone the site to allow for residential use which will eventually comprise of approximately 150 townhouses and several apartment buildings. We are excited about Maidstone because we have already seen substantial price growth and demand across other inner western suburbs such as Footscray, Seddon and Yarraville. Our client saw the enormous potential to add something of value to the wider community with quality housing stock and quality amenity. The project will be released to the market this year and the responsible authority – the City of Maribyrnong, has been cooperative during the planning discussions.
Clayton is located in Melbourne’s south and is considered a middle ring suburb approximately 20 kilometres from the city centre. Clayton is experiencing considerable growth – attributed by its proximity to Monash University and easy access to Melbourne’s key road networks. The median house price in Clayton is circa $900,000 to $1,000,000 and our intention is to build around 200 townhouses plus apartments. We are currently going through a planning process with the City of Monash who are a very progressive Council.
TAE: The issue of site contamination can be underestimated or even dismissed by less experienced developers. What is your word of advice to developers generally?
Andrew: No doubt, the potential extent of site contamination can be underestimated. At the same time, the issue of site contamination can be manageable through an experienced project team and innovative architectural design and smart disposal methods. Contamination can be quantifiable and it can be managed. What is important for us is that we properly inform and advise our clients. Furthermore, it is important to establish the extent of site contamination in terms of dollar value as the cost to remediate the site is factored into the offer price to a vendor. Two sites in similar locations with similar attributes may be valued quite differently because of the amount of risk attributed towards contamination in the feasibility. Any increase or decrease in the contamination risk matrix will impact the residual land value calculation. A miscalculation can have a material impact on the viability of a project and hence, why proper investigations and advice is required at the outset, prior to acquisition.
TAE: Final question. Investors all have different risk profiles. How do you advise your clients about brownfield sites?
Grant: Our role is to provide solid, well-researched advice to properly inform any decision taken in respect of risk. Every project has its different levels of risk and our expertise is in helping clients minimise that risk as best we can. This ensures sensible, well-informed decisions are made and that our clients have the complete picture and peace of mind that their projects are in safe hands.