Nowadays, real estate development generally goes in two directions. The first direction is toward city outskirts and often to the detriment of cultivable land. Respecting modern norms of regulation of space and quality of life, modern city planning offers more comfortable and wealthier living on the way to the city outskirts and in the city suburbs. The second direction of development leads to the old, deserted or insufficiently used areas in the very cities. These are, very often, old or vacant industrial units that are settled in the vicinity or in the very centre of the cities.
During the past twenty years or so, a special model for carrying out investments has been developed. Large industrial complexes have become the subjects of great interest of investors, not because of their production programs, but for their valuable and unused locations and significant real estates.
In foreign literature, such locations are known as “brownfield“ or “greyfield“ since recently, and the investments placed in them or on them are called “brownfield“ or “greyfield“ investments, depending on the level of deterioration, that is, use of particular space. Usage of these and such areas experiences genuine bloom in the world in the past few years, so that that trend is slowly and inevitably overtaking Serbia.
State of Affairs
As it is well known, large number of cities in Serbia have a problem with the number of old factories and other industrial facilities and sites that are either deserted or poorly used. Usually these are the parts of former combines, industrial zones, ruined building, metal-processing and other complexes, which are the property of mainly public companies that are already settled on highly convenient locations in the suburbs and city centres. There are so many examples and nearly every town or borough in Serbia has several locations of that kind.
From the beginning of privatization process in 2001, the most of the socially owned companies have been privatized and production had started in them. On the other hand, large number of companies remained unsold and they are either in restructuring process or in bankruptcy, waiting for their assets to be sold.
In most of the cases, such companies have no economic or other justification to continue with their activities, while, on the other hand, there is great potential for investments in the land or facilities owned by these companies, which creates space for brownfield or greyfield investments.
This field demands multidisciplinary approach from the aspects of architecture, city planning, economy, finance, law and, quite often, environment protection.
Definitions and Explanations
In order to distinguish these two forms, we will try to give definitions for both types of investments. “Brownfield“ investments usually relate to once developed locations in the city, industrial, suburban or rural areas, with the facilities that are now either deserted or minimally used, and they often cause pollutions to the environment. The examples are: recently sold BIP’s breweries in Belgrade’s famous bohemian quarter Skadarlija, old fairgrounds in New Belgrade, old airport field in New Belgrade (now known as the “Airport city”, FOB, IKL, Zmaj, Dorćol’s marina, etc.
As far as “brownfield“ locations are concerned, the task of the investor upon acquisition usually consists of two phases. The first phase is complete removal, depopulation and cleaning of the existing facilities and land, followed by preparation of that location for further construction and development. It is necessary for the investor to have suitable projects elaborated in this phase, as well as to obtain relevant licenses and/or permissions. That phase is followed by the second phase in which the implementation of “greenfield“ project, that is, construction of completely new modern facilities, practically commences. This phase requires that the projects are based upon the appropriate land-utilization plans. Also, all required permits and licenses for building and construction and use have to be obtained.
“Greyfield“ investments are related to economically and technically “out-of-date“ locations, that is, the facilities that are not so much ruined, but they are “beaten“ by the newer, larger, modern and better designed areas. The examples for such facilities are “old“ Mercator shopping centre in New Belgrade, Centrotekstil’s shopping centre opposite the “old“ Mercator in New Belgrade, the building of BIGZ in Belgrade, etc. Also, one of the interesting examples is the building of former Central Committee of Yugoslav Communist Party in New Belgrade, which was bombed by the NATO pact in 1999. That building has been reconstructed and today it represents the headquarters of MPC Holding corporation. A brand new shopping mall is currently under construction adjacent to rehabilitated building, as well as the twin business building. Once completed, this will very soon become completely new commercial complex.
Thus, “greyfield“ areas can have very good function, which requires additional investments in their adaptation. Additional value and advantage of these locations and facilities lies in the fact that they are usually structurally developed enough, they own appropriate licenses, the property is registered, and they have water, sewerage, electricity and heating connections. They often have their own parking lots and traffic infrastructure. In one word, the infrastructure is developed to a great extent.
Therefore, in above cases, investors are buying remaining public companies and their property in order to develop other projects – construction of housing projects, business or trade centres - and not to resume activities of the companies they bought.
Recommendations and Conclusion
In this process, from the legal point of view, it is important that such change in ownership is possible and allowed from the standpoint of positive regulations, as well as that appropriate licenses, approvals or permits are issued for these and such facilities, depending on their importance, position or activity. The most important parameters are often defined in the appropriate land-utilization plan, but the problems are bigger when such plan doesn’t exist or is not final.
In our opinion the solution to this issue is of exceptional importance to the state and whole economy, since “brownfield“ and “greyfield“ investments practically create new areas and jobs, by resolving old and inherited problems. In this way we want to make an appeal to the legislator, as well as to all levels of city and municipal administration in the country, that this problem must be seriously dealt with, because the pace of development of our economy and society depends on the rapidness of these investments.
author : Vladimir M. Đelić
Attorney at Law and Partner