Risk Sharing Mechanisms for Brownfields Redevelopment

Brownfield transactions entail special risks beyond those encountered in typical real estate transactions. Parties negotiate heavily over the allocation of these risks. Evidence from cases suggest that risks associated with prior activities of sellers are routinely assumed by sellers. Risks associated with future regulatory activities are assumed by buyers. Parties use thinly capitalized, special purpose, limited liability entities to avoid exposure to loss in excess of invested capital. A number of govemment programs successfully reduce uncertainty associated with remediation expenditures assumed by new investors. Conventional financing for brownfields remains elusive.