For over a decade, many corporations have elected to simply "warehouse" old industrial properties at which operations have been terminated or considerably reduced. Concern as to the apparently unquantifiable costs of environmental remediation and liability have caused these entities to keep their properties, carrying them on the books as liabilities, rather than selling them. A number of programs, particularly on the state level, have now converged to ease concerns and encourage corporations that have been holding on to old facilities to consider selling them. Thanks to these so-called Brownfields initiatives, what had long been assumed to be environmental and economic liabilities are now potential environmental and economic assets. In short, "thar's gold in dem durn hills" and now is the time to mine for that gold! This article will explore the issue of the growing inventory of contaminated, abandoned sites (i.e. Brownfields) and how to solve the problem by effectively bringing them to market, converting environmental and economic liabilities into environmental and economic assets.
Lately, large industrial concerns with numerous facilities located across individual states or across a region of the country have been facing the issue of what to do with them as they are closing or approaching closure. Typically, they are manufacturing facilities at which it is assumed there has been some related environmental contamination. Rather than selling the properties, as other economic sectors would do, corporations with these industrial facilities have largely been retaining them, in many instances allowing them to lie fallow, further decaying and losing value. The concerns most often cited by corporate executives tasked with determining the fate of the properties include:
1. The actual and perceived lack of regulatory certainty and finality.
2. Risk of third party liability.
3. The inadequacy of liability release mechanisms and reopeners.
4. The challenge of accurately estimating environmental liability and remedial costs.
5. The inability to cover or insure these uncertain costs.
6. The very real concern that pre-sale due diligence will trigger reporting and remedial obligations.
7. The lack of awareness of evolving risk management tools and changing market conditions.
This state of affairs has resulted in a situation in which up to 50% of the $1 to 2 trillion worth of commercial and industrial properties held by corporate America may be devalued due to environmental impacts. Unfortunately, for the corporations owning such properties, they represent non-strategic, surplus assets that often exert a negative influence on company profits, particularly in those instances in which the facilities produce no profits but continue to incur charges such as taxes and maintenance fees.
Nationally, not only the federal government, but nearly all industrial states have perceived and reacted to the need to remove obstacles to economic revitalization. This understanding has given rise to the birth and burgeoning of Brownfields development which many entrepreneurial companies are beginning to embrace as the solution to "warehoused" sites.
The mechanisms which states have been using to encourage the environmental remediation and development of contaminated sites include:
1. The creation of voluntary clean-up programs which establish relatively streamlined, use-based processes by which a property can be investigated, remediated to acceptable levels, (determined in large part by present or anticipated use) and placed back into the development/redevelopment chain.
2. Liability protection statutes intended to shield developers who purchase contaminated properties from further remedial liability to the state (and in some instances third parties), provided they comply with applicable clean-up guidelines.
3. Protections against the specter of Natural Resource Damages for developers under certain circumstances.
4. Financial incentives for developers who agree to remediate contaminated sites.
New Jersey, as a case in point, has created a program that can result in the reimbursement of up to 75% of qualified remedial expenses to developers who enter into Redevelopment Agreements with the state. There are, of course, certain prerequisites that must be satisfied, but this program has been very successful in encouraging redevelopers to take to market properties contaminated by others. Indeed, New Jersey has been so successful in this and similar initiatives, such as liability protections against natural resource damage claims and remedial claims by the state, that market demand for so-called Brownfields is up and developers and redevelopers are vying for a shrinking inventory of available Brownfields.
For the corporate owners of such properties, these programs create a ready pool of buyers - developers and redevelopers - for whom the environmental and liability risks have been narrowed.
In view of the above, corporate real estate and environmental departments are well advised to:
1. Evaluate currently operational properties that may only be marginally functional and determine if now is the time to close the facility and take advantage of the development opportunities.
2. Review the list of closed facilities, determine their status and put them onto a schedule consistent with the company's plan to sell, rehabilitate or partner with a developer or redeveloper.
3. Determine whether there are any facilities which are scheduled to be closed over the next five years and build the remediation and redevelopment strategy into the closure process from the start.
It is critical that corporations with eligible contaminated properties assemble teams of professionals to navigate the regulatory issues and the relevant market. These teams should include transactional, real estate, land use and environmental lawyers with expertise in Brownfields redevelopment. Other necessary disciplines include qualified developers, governmental affairs experts for assistance with the local issues that will affect redevelopment, experienced local commercial realtors with developer relationships, financial advisors or investors and engineering and environmental consultants.
The gold rush is on and now is the time to strike!
Lisa M. Bromberg and Thomas Spiesman are Principals in Porzio, Bromberg & Newman, P.C. They may be reached at (973) 538-4006.