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Monday, February 11, 2019

Mission impossible: Selling a contaminated site for future use

By Janko Pahlitzsch (Berlin, Germany) 

For the past 15 years, I have been advising owners, banks and insolvency trustees on the sale of land and other real estate throughout Germany.

Often, the properties are no longer in demand and, therefore, new usage ideas have to be developed and implemented. Consequently, changes in use have to be approved by local authorities.

The process of seeking the approval of a new use for a former industrial site is particularly challenging and demanding. Often, sites are contaminated and disproportionately high disposal costs are added to the sale price, making the site’s sale and conversion even more difficult.

The future allowable use is usually unclear, and that raises the question for investors of whether the purchase and demolition are economically viable.

The above factors make the broker’s work significantly more difficult and force the seller and the buyer to spend a considerable amount of time reviewing a potential transaction that faces an uncertain outcome and risk of cancellation.

The solution to completing this type of difficult deal lies in getting a real estate broker and the local authorities involved early in the negotiation process. Without clear confirmation from the authorities on what is allowed and what is not, the seller and the buyer will have difficulty converting the site to a new use.

By dealing with authorities on a daily basis, the broker has knowledge and expertise that the seller and buyer often lack. Early advice and contact with the authories will make the everything proceed much more smoothly.

For example: Avison Young is currently representing a U.S.-based chemical company in the sale of a 700,000-square-foot site in Pirmasens, Germany. Chemical production at this location is no longer economically viable. Preliminary talks with local authorities revealed an attractive – and allowable – use of the property as a 24/7 logistics operation. The use of retail was categorically rejected. 

The authorities’ clear statements on the property’s allowable and unallowable uses enabled us to approach logistics real estate developers in a targeted manner and to enthuse about the location. The property’s sale is scheduled to close in May 2019. 

(Janko Pahlitzsch is an Associate Director in Avison Young’s Berlin office with 15 years of commercial real estate investment sales experience. He specializes in advising owners, banks and insolvency trustees on foreclosure/forced property sales throughout Germany.)

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