Can Brownfield Sites Support Data Centers?

Brownfield sites are defined as underused or abandoned land affected by environmental issues. This, in turn, limits the potential for redevelopment or expansion due to “real or perceived environmental contamination.”

However, these abandoned, environmentally questionable sites could also have a future use for data centers. An article in NAIOP’s Development magazine indicated that such sites could offer advantages, including power-grid adjacency, zoning and access to water and infrastructure.

At the same time, “legacy environmental issues at brownfield sites range from minor to significant,” said the article’s authors, Jason B. Hutt and Daniel J. Pope with Bracewell LLP.

It’s up to developers to evaluate risks before embarking on brownfield site development.

By the Numbers

The United States Environmental Protection Agency reported in 2016 that there are over 450,000 brownfields in the U.S. However, there’s no central repository for such data; some estimates put the total at 1 million.

At the same time, the American Edge Project said that by 2030, companies are expected to invest $3 trillion in AI infrastructure, including data centers.

Can the abundant brownfield sites provide a solution to data center demand?

Kind of.

Hutt and Pope explain the risks of brownfield sites, while providing some advice on how to work with this type of land:

Perform in-depth due diligence. Most developers will do their research. But more is required when examining an environmentally contaminated site. The authors said that questions to ask should include how the sites’ historical use impacted soil and groundwater conditions, and whether legacy permits might pose challenges.

Understand contract liability and risk allocation. Brownfield redevelopment is typically structured as an asset sale. And in many cases, the question becomes whether the buyer or the seller will be responsible for environmental liabilities. Hutt and Pope suggested that representations and warranties, post-closing covenants and parent guarantees be well thought out so that buyer and seller understand their risks, obligations and responsibilities.

Consider voluntary clean-up programs. The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or Superfund) has the 2002 Brownfield Amendment. Additionally, memorandums of agreement with the EPA have led states to establish voluntary programs to work with owners and developers on cleaning up contaminated sites. At the same time, involvement in such a program might prompt greater involvement from state agencies, resulting in development timeline extensions.

Politics, Cleanup and Development

Hutt and Pope said that President Donald Trump’s executive orders helped remove barriers to American leadership in artificial intelligence. The outgrowth was the AI Action Plan, which recommends that environmental permits and requirements applying to data center developments be streamlined, including those under the Clean Water Act, the Clean Air Act and CERCLA.

The authors also acknowledged that it’s uncertain if Congress, the EPA or states will provide additional incentives to develop data centers on brownfields.

“Real estate owners, investors and data center developers should stay up to date on new policies that make brownfields redevelopment even more attractive, while also recognizing that many strategies, contracting tools and programs are already available to bring data centers to brownfields,” the authors added.