Redevelopment of contaminated property is one of the most challenging endeavors that any person or entity can choose to undertake in the world of real estate. Whether you’re a professional real estate developer, private land-holder, or work for an extension of the government, the obstacles to brownfield redevelopment become abundantly clear almost immediately. The primary issues, of course, surround the liabilities that are associated with environmental contamination. Not only are there risks and liabilities associated with the contamination affecting people on the site/property, but also with those people potentially adversely affected through offsite migration of contamination. To be clear, I’m talking not just about physical impacts, but also financial impacts – especially with regards to the offsite impact of diminished property value(s), real or perceived.
To that end, financing for brownfield redevelopment projects is nearly impossible to secure if the site/property hasn’t already been issued a No Further Action (NFA) declaration (or the equivalent) by the relevant state environmental regulator. This, of course, is all tied to the underlying fundamental value of the real estate asset (the land and any improvements) – all of which provides security for a lender in the case of borrower default. Under the Environmental Protection Agency’s 1980 Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the subsequent and accompanying Superfund Amendments and Reauthorization Act (SARA) passed in 1986, landowners are held strictly liable for hazardous substances on their property. What’s more, this liability is transferable, making any person or entity that acquires title to a contaminated property liable for cleanup costs simply by virtue of their status as current landowner.
This underlying law creates an almost insurmountable stalemate when it comes to returning a dilapidated and under-utilized property back to productivity. If a property owner, whether initially responsible for the contamination or not, doesn’t have the financial means to cover costs associated with environmental investigation and remediation AND can’t secure financing to assist in cleanup and redevelopment before the site/property is already cleaned up, then the property is likely to sit for decades in a state of abandonment – underutilized and falling apart – while at the same time very likely negatively impacting the values of surrounding properties. Many have, sometimes successfully, attempted to solve this stalemate in a number of creative ways. For example, environmental insurance and gap financing through established community development funds have both been utilized and have allowed for some risk management and/or reallocation. Also, some environmental consulting companies have found ways to leverage their expertise in a manner that makes them comfortable with taking temporary title to a property, securing an NFA (or equivalent), and returning title of the property back to the owner – taking their profit for the project on the back-end (during or after redevelopment).
For decades now, many in the regulatory realm have considered the role they play as that of enforcer, wielding the proverbial “stick” – their whole purpose to chase down the bad guy and make him pay for the bad things he’s done. While it seems that this may have been a necessary approach in the past, and in some circumstances, it’s become clear that this approach is wholly unwarranted and unnecessary when dealing with promising redevelopment opportunities that have engaged and interested land owners, along with significant upside for a neighborhood or a community at large. I believe that the environmental regulatory community needs more tools at their disposal to assist these engaged and committed property owners with the financing and redevelopment of their properties, but I also believe that more of these tools will be borne out of a fundamental shift in how the environmental regulatory community views themselves and their role in the process – as well as the way they view land owners and their role in the process.
Some on the regulatory side of the equation are beginning to realize the benefit of working toward building and nurturing these more sustainable relationships with private landowners. They’re beginning to understand the benefits associated with redeveloping and repurposing blighted properties to increase land values and, subsequently, tax revenues, as well as reducing crime and creating a stronger sense of pride and community. As those leaders inside the regulatory realm continue to learn and understand the challenges associated with brownfield redevelopment projects, I believe the tools they push to develop and implement (in conjunction with land owners) will come from the experience and desire to assist in building true and lasting partnerships – helping to create those tools and methods that have the best chances of resulting in wins for all parties involved, including the broader neighborhood and community.
We should all take the opportunity to carry this discussion forward. We should all be open to creating a dialogue with environmental regulators to help them understand the roadblocks we (or others) encounter through the process of real estate development, financing, and project feasibility. Only when we’re all on the same page and understand the fundamental underlying issues can we collectively work toward building and implementing the tools necessary to destroy these barriers.