According to the U.S. Environmental Protection Agency (EPA), there are 450,000 underused, contaminated properties in the United States. As a result of our industrial history, many of those “brownfields” are in prime locations, close to urban centers and waterways. Redevelopment of the sites frequently involves a change in use because the new “best use” often is different than it was when the site was originally developed. Such changes in use, and business decisions related to corporate image, can alter the environmental cleanup goals and require careful consideration during the planning process. While focused on cleanup and redevelopment of historically contaminated property, the concepts presented here can also be readily applied to new releases of contamination.
Location, Location, Location
Not all contaminated sites are the same. Some will be particularly well-suited for redevelopment because the type and location of the contamination makes them more manageable.
Including a knowledgeable environmental consultant in the very early stages of site identification can help focus the site-selection process on the strongest candidate properties. This does not mean that the owner-developer of the property must spend tens of thousands of dollars on environmental investigations during site selection and initial negotiations. But it is important that the owner-developer makes a well-informed decision based on the planned use of the property, business model and budget.
A second reason to partner with an environmental consultant early is cost. There is a direct relationship between the physical redevelopment plan and the cost of remediation. For a large mixed-use redevelopment of a former industrial property, modest changes in the physical layout of the property can have a big effect on environmental remediation cost, and the impacts can be evaluated as part of site selection.
Cleanups may be driven by issues other than the use of the property. Some examples include contamination that is reaching the drinking water sources of other properties; migration of contaminants from groundwater into the indoor air of buildings on surrounding properties; and contaminated sediment or surface water in an adjacent river or lake. These types of issues are unlikely to be affected by changes in redevelopment plans and often are the most costly and complicated to resolve. By involving the environmental consultant early, cleanup issues can be identified, separated from the real estate deal and left to the original owner to resolve – and pay for.
Cleanup Goals
How much cleanup is required or warranted? There is no fixed answer to that question because there is no fixed standard. The level of cleanup usually is a function of the intended use of the property and, for a large piece of property with mixed uses, can change from area to area. The implementation of land-use controls (LUCs) often allows higher levels of contamination to be left behind by restricting access to the contamination. LUCs have allowed for the redevelopment of many properties that might otherwise have remained fallow. Conversely, when there are motivating factors such as a business advantage or a specific corporate philosophy, environmental cleanups may involve removing more contamination than required by environmental laws and regulations.
Business Decisions
The impact of environmental stigma on a property can be very difficult to quantify. However, the potential for it to affect the success of a redevelopment may be changing. For many years, it has been assumed that neighbors would resist efforts to redevelop contaminated properties when the redevelopment plan includes leaving some contamination behind. But significant outreach and education efforts by regulators, consultants and developers have been increasing the receptiveness and knowledge base of these stakeholders.
As a result, people in communities where redevelopment of a contaminated property is planned are in a better position to understand the real risks posed by the contamination and can evaluate the value of the development on its merits. For example, at a former industrial property in a struggling section of Boston, the neighbors have all been informed about and accepted that there are heavy metals and chlorinated solvents in soil and groundwater beneath the property. Over time, the residents have come to see the redevelopment as a way to control potential exposure to the contaminants and bring jobs and economic growth to the neighborhood. The neighbors are now some of the project’s biggest advocates.
Beyond concerns about the environmental stigma that may be associated with a specific property and the cleanup costs, the potential effects of environmental conditions on corporate image should be considered. There have been several recent projects where corporate decision-makers have been particularly sensitive to the attitudes of the workers who will inhabit the building. There was a worry that any attempt to leave contamination in place, regardless of the lack of risk opined by the environmental experts, would be seen by the employees as management getting a good deal on a contaminated property at the expense of worker safety.
In each case, the employees have been highly skilled and educated engineers and scientists who were in an excellent position to understand and accept a decision to leave contamination in place. However, the corporate managers chose to meet a higher cleanup level to show their commitment to providing the best workplace possible.
Obviously, the cost of environmental cleanup can be a big variable, affecting the viability of a redevelopment project. The first question from a developer, usually well before purchasing the property, is: how much will it cost to clean up the site? A developer negotiating a real estate deal usually doesn’t want to hear about the complexities of the issue – they just want an answer. This is when scale and cost-sensitivity are important. A cost difference of $200,000 may be a big issue for a manufacturing facility that is managing a fuel oil contamination beneath the building as part of a yearly operating budget; but that same cost difference may be insignificant when part of a $100 million redevelopment of the same property.
Cost estimates evolve throughout the planning process. The goals and limitations of a cost estimate require careful communication between the environmental consultant and the client. To evaluate a specific project, an accurate cost estimate with a high degree of precision may be needed, and a detailed subsurface investigation of the property, costing $50,000 or more, may be required to support the cost estimate. But for a project where less precision is needed, simply reviewing regulatory files to establish that there is contamination and that it will cost $1 million to remedy may be enough information for the developer to make a “go or no go” decision.
Developing cost estimates that are less precise but still support the decision-making process will cost much less than developing more refined cost estimates. Selecting the right approach for any given site or situation requires an in-depth understanding of the owner/developer’s business decision process, cost sensitivity, and corporate attitudes toward environmental-related issues. By working with a consultant who understands this, you can reduce upfront costs while getting the information you need to select the site and cleanup level that best fits your plans and corporate goals.
Reprinted from Area Development magazine, December 2006/January 2007 issue.
