Turning Brownfields Into Data Centers

Demand for data centers has reached a fever pitch as explosive investment in and demand for artificial intelligence and cloud computing continue to intensify. As the race for AI dominance heats up, demand for data centers shows no signs of slowing. Yet as this race intensifies, challenges such as entitlement delays, community resistance and infrastructure shortfalls are becoming significant obstacles to bringing new data centers online in traditional “greenfield” rural and suburban areas. These challenges are prompting developers to rethink the traditional development playbook and look to alternative sites.

One promising alternative is the reuse of former industrial sites with potential environmental concerns, known as “brownfield” sites. Since brownfield sites are often legacy industrial and manufacturing sites, they can offer built-in infrastructure, existing industrial zoning frameworks, access to water, attractive financial incentives and less community pushback. Government officials have begun to recognize these benefits. Earlier this year, following Executive Order 14138, which directed the federal EPA to identify brownfield sites and accelerate federal permitting for their redevelopment, the federal EPA published “Guidance on the Redevelopment of Superfund and Sites as AI Data Centers” to provide a framework and insights into these strategic opportunities.

Rising challenges for projects

Community pushback to conventional data center projects in rural and suburban communities has evolved from a manageable issue to a potentially project-killing problem. In suburban and rural communities across the U.S., opposition to new data center construction continues to intensify as NIMBY messaging takes hold. Rural and suburban residents often cite concerns, whether or not grounded in fact, about the loss of open land, water consumption, noise and power availability. Even the most well-capitalized data center developers now face community opposition that can significantly delay or even kill a project.

Even those projects that can manage community pressures and concerns must also address power availability and transmission challenges, as well as water access issues. Typical rural and suburban data center sites often face significant power transmission challenges, as these communities are often built with dispersed power systems and limited, low-volume transmission lines. Likewise, rural and suburban local water systems were never built to serve industrial‑scale users. Upgrading this infrastructure to meet data center needs often requires lengthy, expensive buildouts, creating substantial bottlenecks in project delivery and stretching community budgets.

Brownfield sites help solve many challenges

Brownfield sites, previously developed industrial or commercial properties that have environmental concerns, are often better positioned to address the challenges currently facing rural and suburban data center projects. Examples of brownfield sites include shuttered factories, mills, railroad yards and power plants. Because these types of properties are already developed, zoned for industrial use and connected to high-capacity transmission corridors and substations, they often represent ideal data center sites.  

The entitlement process for most greenfield data center projects typically takes years, often involving hard-fought rezoning battles. However, the entitlement timeline on brownfield sites can be compressed considerably. Unlike rural and suburban projects that may involve developing raw land or occur near existing neighborhoods, brownfield sites are typically already zoned industrial or commercial, sit in or near economically distressed areas, and have often been community eyesores for years. Local officials and communities are typically more aligned in welcoming developers to clean up these idle sites. For many communities, brownfield data center projects can also fill a significant gap left by former industries. 

Access to power and water is critical for any data center project. Former industrial sites, particularly retired power plants and heavy manufacturing facilities, often have existing transmission lines, substations, water connections, sewer access and fiber conduits from legacy industrial operations. Upgrading existing infrastructure is typically much more straightforward and quicker than securing new interconnection rights, which can take years.

Finally, brownfield sites are often discounted due to their environmental challenges, with local governments sometimes contributing to demolition and remediation costs just to shed a blighted property or offering grants and other incentives. Federal and state incentive programs can also provide additional financial benefits. Federal Opportunity Zone designations, which often overlap with historic brownfield properties, can provide additional capital gains deferrals and exemptions. Many state brownfield programs, such as those in Georgia and North Carolina, also offer significant tax credits or abatement benefits to offset the added costs of addressing environmental impacts associated with development.

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Overcoming the challenges

While brownfield sites offer significant advantages to data center developers, they also carry distinct risks that must be understood and proactively managed. Developers must understand potential federal, state, and common law liabilities arising from any impacts caused by legacy industrial activity and how those impacts may alter project cost, schedule, and design decisions. Thorough environmental due diligence, often including detailed regulatory file reviews and environmental sampling and testing, is essential for characterizing conditions, evaluating the magnitude of risk, and informing the deal structure. Qualifying for available federal liability defenses, such as the bona fide prospective purchaser defense, can help manage potential federal liability, and participating in a state voluntary cleanup program can offer developers a framework to obtain regulatory closure under state law and, in some states, broader liability protections.  Carefully crafted purchase and sale agreements, including risk-allocation provisions such as indemnities and environmental insurance, can further mitigate environmental exposure.

Despite challenges unique to brownfield sites, the urgent demand for suitable infrastructure, growing community resistance to large “greenfield” projects, and intensifying competition for clean sites have created a significant opportunity for brownfield data center development. As the market becomes more defined by scarcity and rising siting constraints, developers can no longer afford to ignore brownfield sites and the significant advantages that they may offer.

Wyatt Kendall is co-partner-in charge of the environmental and brownfield redevelopment practice at Taft Stettinius & Hollister LLP.