Brown is the new green
"This country used to be the industrial heart of Europe, but after the industry restructuring period of the 1990s, many industrial sites remain abandoned and some of them are heavily contaminated. These are perfect potential projects for us," says Joris Goossens, managing director of Belgium-based brownfield developer PSR.
With opportunities for greenfield development becoming scarce, Czech authorities are increasingly switching focus to the regeneration of vacant brownfield sites. State business-development and investment agency Czechinvest has just completed its national brownfield regeneration strategy, which aims to restore swathes of brownfield sites - classified as plots of land, buildings or combinations of both that are either abandoned or not used effectively and which may be contaminated - up and down the country.
Entering Czech brownfields
Property-development companies typically find it quite challenging to enter a competitive local market at this point unless they acquire a smaller rival or purchase a project, but PSR, an enterprise that specializes exclusively in brownfield development, has taken the plunge in anticipation of promising opportunities. This month has seen PSR open a Czech office that is simultaneously the company's first international branch. PSR initially considered opening an office in Sweden at the same time, but has decided to focus on the Czech Republic for now.
PSR has been monitoring the Czech market for some time without much success. In January, it lost an auction for the brownfield of failed arms maker Zbrojovka Brno in South Moravia to Czech and Slovak investment group J&T, which outbid PSR by CZK 5 (zł.0.66) million with a CZK 707 (zł.94) million offer. The Zbrojovka site, covering 22 ha, has an attractive location close to the city center and the competition generated by the auction exceeded expectations.
PSR's Czech office is headed by Silvana Jiříčková, until recently the director of the department of regional infrastructure at Czechinvest. She will shortly be joined by two of her colleagues from the state agency. While at Czechinvest, Jiříčková worked with the two colleagues on a brownfield regeneration strategy that includes a database of brownfield investment opportunities and related statistics.
Two sets of stats
Czechinvest initially identified 3,096 brownfield sites in the Czech Republic, covering an area of 11,060 ha. However, in its latest statistics, it only lists around 1,800 sites because it didn't have enough detailed statistical data on certain locations. One key insight is that more than half of the brownfield sites don't pose an environmental risk and more than 70 percent are in private hands, according to Czechinvest.
For the purpose of the Czechinvest research study, a brownfield site covers more than two hectares of land or is a building with a built-on area of more than 500 sqm. Such sites are the remainders of former industrial, agricultural, military, residential and other activities. Czechinvest suggests that the largest overall area created from existing brownfield sites will be suitable for mixed urban use and mixed industrial use.
Financial muscle
Regeneration of the country's brownfields will cost an estimated CZK 100 (zł.13.3) billion, with this figure based on studies and experiences of sites that have already been regenerated, said Kateřina Lorencová, project manager at Czechinvest. The Czech state financially supported about 530 ha of brownfield sites between 1998 and 2006, spending CZK 580 (zł.77) million. Brownfield regeneration projects implemented with aid channeled through Czechinvest included the transformation of a 360-ha former military airport in atec Triangle, North Bohemia, into the atec Triangle Industrial Zone.
Of the CZK 100 (zł.13.3) billion needed for brownfield regeneration, the country should benefit from about CZK 40 (zł.5.3) billion sourced via EU structural funds and through various programs of the Ministries of Industry Trade, Regional Development, Environment, and Agriculture, which all have the regeneration of brownfields on their agenda, Lorencová commented. The remaining sum should be covered by the private sector.
Goossens mentioned that PSR's budget for Czech Republic projects is not limited at the moment. "Of course we will invest the money wisely, and we will choose only financially viable projects," he said.
What's next?
The aim of the national strategy is to regenerate 25 percent of the country's brownfields by 2013, with the majority of regenerations to be realized by 2025. But now, after the recent management shake-up at Czechinvest, some observers are expressing concerns over the fate of the brownfield strategy.
At least a third of the agency's employees either quit or were dismissed following the removal of former Czechinvest CEO Tomá Hruda in early April. Only one member of the team working on the brownfield strategy will remain at the agency by July. "The database is of great value now, but unless the state pursues the strategy, it will become a dead document in a year," said Pavel Vorlíček, director of BIRT Consulting, a Czech company that provides consulting services on brownfield redevelopment. However, Michal Koryčánek, director of the business properties and infrastructure division at Czechinvest, affirmed that the agency is committed to continuing with the brownfield strategy and is currently looking for personnel to fill the vacant positions.
City attraction
PSR is seeking brownfield sites in the environs of regional cities, with preference being given to those located near city centers. Local developer Sekyra Group is also focusing on the regeneration and development of larger urban areas, particularly Prague and the larger cities. "We consider [going for] land with an environmental burden only in the event of a limited number of locations," said company spokesman Radek Polák. "The potential of greenfields is running dry and companies want to go to the city centers," Vorlíček said.
Still, more than half of the brownfield sites are located in towns with up to 2,000 inhabitants, while cities with more than 50,000 inhabitants can only accout for 8.6 percent, or 154, of the brownfield sites, said Czechinvest. As a result, not all the opportunities are in attractive areas. Among sites that won't be easy to market are those that have bad transportation access, unresolved property-rights relationships or maximized built-on areas, Lorencová pointed out. Investors can also be put off by demolition and ecological cleanup costs.
Military sites, meanwhile, can appear to be attractive because they are in good condition with no ecological burdens. But, Lorencová noted, the regeneration of such sites is often hindered by an inability to come up with a future site use. The sites are either still in the hands of the Ministry of Defense or they have already been either transferred or earmarked for transfer to municipalities. "Large sites are problematic as no one knows what their future use should be in order to bring a contribution to the municipality or a profit to the developers," Lorencová said.
PSR said it is aware such challenges lie ahead. "The most difficult thing is to deal with the site ownership, especially if one wants to redevelop a large area. In Belgium, we deal with city-quarter redevelopments and in such projects it's always [difficult] to assemble the site," Goossens said.
Martina Marecˇková
This is an edited version of an article which originally appeared in Czech Business Weekly
