Long before it became fashionable to develop brownfield sites, K. Hovnanian Cos. was partnering with its home state of New Jersey to reclaim abandoned, contaminated, and underused land. Indeed, if there was ever a big builder that has made infill and brownfields a major part of its business strategy, the Red Bank, N.J., builder, while not alone, certainly has been a pioneer. "We were developing on these sites before anyone even coined the term," says Steve Dahl, vice president and chief counsel in Hovnanian's northeast region of what is now Hovnanian Enterprises.

Since Hovnanian first started turning brown into gold in the mid-1980s, when it worked with the city of Newark to reclaim an area destroyed by the 1967 riots, the state's largest home builder has worked with several other Jersey municipalities to reclaim and redevelop so-called dirty properties.

* In Jersey City, Hovnanian remediated the area surrounding the abandoned Roosevelt Stadium, building more than 1,000 townhouses in its place.

* In Hudson County, the company took down an old factory, dismantled an abandoned railroad siding, and cleaned up solvents and other hazardous materials in the ground, replacing them with 180 townhouses, 40 active-adult homes, and a major traffic intersection.

* In Clifton, a broken-down brick factory, which also had been used as a dry cleaning facility, gave way to more than 200 townhouses, a clubhouse, and a recreation center.

"No responsible builder can afford to ignore the opportunities afforded by rebuilding our cities and helping them return to their positions as important residential business centers," says Hovnanian's area president Joe Riggs.

Branching out

Of course, builders don't have much choice. The Garden State has taken an almost radical approach to housing development policy, focusing on urban redevelopment and municipal revitalization. As perhaps the nation's most densely populated state, and one with more than its share of brownfields, New Jersey is a state on a mission.

Hovnanian's City Place at Edgewater is an example of how infill projects aren't limited to low-rent areas. Prices topped $1M. Courtesy K. Hovnanian Cos. That mission gained traction in 1998, when New Jersey enacted the Brownfield and Contaminated Site Remediation Act, which provides incentives to develop vacant or underused properties in New Jersey. The Act provides reimbursements of up to 75 percent of the cost borne by owners who remediate environmental contamination. It also provides liability protections for developers, end users, and lenders considered "innocent parties" that did not cause or contribute to the contamination on the property and that acquired or occupied the property subsequent to the environmental discharge occurring.

As a result, infill and brownfield redevelopment, though not simple, looks positively attractive compared to the difficulties of winning approval for traditional housing developments. And the lessons learned by Hovnanian are paying off, as it begins to tackle projects in other cities, towns, and even states--where even more underused sites await and it can reach the same level of comfort it has found in New Jersey.

One of the keys to Hovnanian's success in redeveloping brownfields is its ability to lock in the cost of cleaning up properties. Another key is gaining a promise from government officials that once a site meets their standards, it will be certified as clean and the company will have no further legal exposure at that site.

"Before we commit to buying any property, before we ever put a shovel in the ground, we quantify as best we can what the cost will be to remediate it," says Legal Counsel Fran Chesler. "And typically, our contracts are contingent on obtaining all the necessary government approvals."

Since remediating brownfields is a lot like remodeling in that you never really know what you're getting into until you get started, the company also hedges its risk by purchasing cost cap insurance. With cost cap coverage, if cleanup costs are more than expected, the insurer agrees to pay a percentage of the overage. Such policies are available from AIG and several other carriers, according to attorney Chesler.

Policies also are available that protect the builder against personal injury claims, property damage, and unexpected cleanup costs should further contamination be discovered after the project is complete.

No mercy

Though builders who want to turn boarded-up buildings and overgrown lots into homes would seemingly be welcomed with open arms, especially when offering usable open space and jobs to communities, they still have to go through the normal--and still contentious--approval processes. Often, localities looking to reclaim abandoned sites and return them to useful tax-producing properties promise to expedite their permitting processes. But as project managers at Hovnanian have found, such pledges often fail to materialize.

"They promise to move approvals along more quickly, but so far it's been just that, a promise. I'm not sure we've actually seen it happen," says Chesler.

Not every local resident is enamored with new development. "Just because it's a brownfield doesn't always mean there will be no opposition," adds Chief Counsel Dahl. "There are NIMBYs everywhere you go."

Still, there are often enough "clear signals that this is where they would like us to focus our attention; that moving ahead is the right choice," says Chesler. "After all, there is certainly a market for the right site."

Million-dollar plus

The opportunities for infill aren't confined to low-rent districts. Two of Hovnanian's latest projects--the 296-unit Grandview at Riverwalk and the 130-unit City Place--are located in West New York, a prestigious area along the Hudson River on New Jersey's Gold Coast, where the company has worked before and where prices topped the million-dollar mark. The site contained railroad sidings and piers dating back to Colonial days, according to Douglas Fenichel, the builder's director of communications. Now the once-abandoned area has come back to life, with ferry service, trains service, and, of course, an unencumbered view of the fabulous New York skyline.

Hovnanian is not alone. Last October, Toll Brothers acquired Manhattan Building Co., renaming it City Living by Toll Brothers, with new projects also in the works along the river front (see "Urban Uprising").

Further south, meanwhile, Hovnanian is restoring a 30-acre landfill on a sparsely populated peninsula in North Wildwood. By this summer, it will build 96 garden homes, priced from the $400,000s, and construct a 3.6-acre avian preserve for nesting Herons, all while leaving more than three-quarters of the property as open space. Rehabilitating old garbage heaps is considered particularly tricky. But with almost 20 years of experience cleaning up dirty sites, Hovnanian was not afraid to tackle it.

Though practically anything can be found in a dump, soil borings, methane gas probes, and groundwater wells turned up very little in the way of contamination at the site, which served as a landfill for a decade before it became full in the 1960s. And all that's been found so far is household trash and construction debris, so nothing dangerous has had to be removed.

The company has now capped the site with a plastic liner to prevent water and air contamination. As part of the effort, it is placing a two- to three-foot layer of clean fill clay beneath where the landscaped areas will be. And the buildings at the Tides at Seaboard Point, as well as driveways, sidewalks, roads, and other improvements, also will serve as caps. Street-level parking under the four-story buildings will allow any gases that escape from the ground to vent harmlessly into the air.

"This is a great example of a private entrepreneur having the foresight to see a great future for a piece of underused land; a city cooperating and encouraging the use; and a team of engineers, designers, and builders finding a way to breathe new life into this section of town," says Riggs.

"Whatever you want to call it, this is creating homes for our state's growing population in a smart way."

Learn more about markets featured in this article: New York, NY.