• 8/22/2018

What is the difference between Greenfield and Brownfield?

What bottlenecks exist when arranging production facilities in a constructed building in the industrial zone? What shall be paid attention to when choosing a site for industrial construction? The above issues will be covered by Vladislav Talanin, Director for Industrial Real Estate Sales at YIT Saint Petersburg JSC.

When arranging new production facilities, the owner faces a difficult choice, i.e. whether to try to arrange production facilities in an already constructed building with utility resources (Brownfield), or to buy a land plot and build exactly what he needs (Greenfield)?

Each of the above options has its advantages and disadvantages.

At first glance, it might seem that if an investor chooses leasing a building or acquiring a completed constructed industrial building provided with utility resources, it can significantly save time and money, in contrast to buying a land plot in an industrial park and the subsequent construction of a facility from scratch.

However, there are a number of significant reasons why investors, in the end, arrange their industrial facilities in a modern industrial park, and not in the old industrial zone:

🍀 The amount of investment in the re-equipment and repair of an industrial building often exceeds the cost of implementing a project at a new site in an industrial park. Old industrial sites are mainly Soviet buildings, which was developed in the 50–80s of the last century and in order to bring these buildings to modern technical regulations and rules, for example, energy safety requirements, sanitary conditions, lighting conditions, microclimate, and environmental and aesthetic requirements of the customer, it is necessary to plan serious financial expenses, which in the end, can be comparable with the cost of building a facility from scratch, but already on a new site, in a beautiful and modern building. Moreover, if you plan to reconstruct the acquired building, then the cost and time of the technical and environmental surveys must be included in the budget and schedule of the project. An environmental survey of the building is necessary because the requirements for materials have become more stringent (for example, asbestos was actively used in construction before, while it is classified as a first category carcinogen nowadays). It is likely that the previous owner could, for example, drain used transformer oil in the basement, which also leads to additional reclamation costs. If the building is pre-revolutionary (or built during the first years of Soviet Russia), it can turn out to be an object of cultural heritage, which makes it more expensive, if not impossible, to reconstruct.

🍀 Often it is not easy for a customer to find a suitable industrial site that would be provided with the necessary modern utility systems and would suit the technological needs for arrangement of its production facilities. In the industrial park there is no need to “adapt” to the prevailing conditions – one can build what it needs based on individual requirements. The time spent for searching and evaluating options for existing (mostly obsolete) buildings can take several months, or even more than a year. During a period of one year one can build a new building meeting all the requirements of the stakeholders.

🍀 Good title transaction. During the formation of a market economy, entrepreneurs tried by all means possible to gain control over the assets of Soviet factories, and there is no guarantee that such transactions may not be challenged in court. It is necessary to conduct a thorough legal due diligence of all previous transactions up to the privatization plan.

If a building is bought from an unknown third party, you assume all risks. It is doubtful that you will be able to receive a compensation in case of termination of a transaction, if you buy the property from an unknown entity. It might be the case that your counterparty will go bankrupt.

🍀 Possible risks associated with production downtime due to problems with monopolistic networks. Old industrial zones were developed over the decades in Soviet times, therefore, as a rule, they do not have a single owner who is responsible for the technical condition of the site as a whole. When problems occur with the monopolist’s networks, it takes a lot of time to find out who is responsible for a particular site and who should eliminate the problem. There is no such problem in the industrial park, as the management company monitors the technical condition and maintenance of shared public facilities.

The process of choosing an industrial site is time-consuming and thorough, it takes a lot of time and effort. Choosing a land plot to arrange production facilities at the industrial park helps the investor to greatly simplify the decision-making process, reduce risks and significantly reduce the period of implementation of the project.

You can view all offers for land plots on the page: https://www.yit-greenstate.com/en/special-offers