Brown Field Investment

Brown field investment (sometimes hyphenated) is when a company or government entity purchases or leases existing production facilities to launch a new production activity. This is one strategy used in foreign-direct investment. The alternative to this is a green field investment, in which a new plant is constructed. The clear advantage of a brown field investment strategy is that the buildings are already constructed. The costs and time of starting up, therefore, may be greatly reduced and the buildings already up to code.

Brown field land, however, may have been abandoned or left unused for good cause, such as pollution, soil contamination, or the presence of hazardous materials.

[Important: Brown field sites are sometimes located in unattractive geographies that are harder to develop for the public or for the employees. If investors can’t be attracted to the business it won’t be able to sustain itself.]

Brown field investing covers both the purchase and the lease of existing facilities. At times, this approach may be preferable, as the structure already stands. Not only can it result in cost savings for the investing business, but it can also avoid certain steps that are required to build new facilities on empty lots, such as building permits and connecting utilities.

The term brown field refers to the fact that the land itself may be contaminated by the prior activities that have taken place on the site, a side effect of which may be the lack of vegetation on the property. When a property owner has no intention of allowing further use of vacant brown field property, it is referred to as a mothballed brownfield. Sites that are significantly contaminated, such as by hazardous waste, are not considered to be brown field properties.

• Brown field investment is when a company or government entity purchases or leases existing production facilities to launch a new production activity.
• Brown field investing covers both the purchase and the lease of existing facilities.
• This is opposed to green field investments which undertake new construction of property, plant & equipment.
• Brown field investment is a common form of foreign direct investment (FDI),

Brown field investing is common when a company looks toward a foreign-direct investment (FDI) option. Often, a company considers facilities that are either no longer in use or are not running at full capacity as options for new or additional production.

While additional equipment may be required, or existing equipment may need to be modified, this can often be more cost-effective than building a new facility from the ground up. This is especially true in cases where the previous use is similar in nature to the new intended use. The addition of new equipment is still considered part of a brown field investment, while the addition of any new facilities to complete production do not qualify as brown field. Instead, new facilities are considered green field investing.

While brown field investing involves the use of previously constructed facilities that were once in use for another purpose, green field investing covers any situation in which new facilities are added to previously vacant land. The term green field relates to the idea that, before the construction of a new facility, the land may have literally been a green field, such as an empty pasture, covered in green foliage prior to use.

Brown-field investments can run the risk of leading to buyer's remorse. Even if the premises had been previously used for a similar operation, it is rare that a company looking finds a facility with the type of capital equipment and technology to suit its purposes completely. If the property is leased, there may be limitations on what kinds of improvements can be made.

[Fast Fact: In the U.S., the EPA has designated brown field as a potential improvement site which has been previously improved, as well as one that has potential impediments to improvement, such as "the presence or potential presence of a hazardous substance, pollutant, or contaminant."]