Brown Field Investment

What is 'Brown Field Investment'

Brown field investment, also referred to as "brownfield" 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.

BREAKING DOWN 'Brown Field Investment'

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, it can also avoid certain steps that are required in order 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 and Foreign Direct Investment

Brown field investing is common when a company looks toward a foreign-direct investment 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.

Brown Field and 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, prior to 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.