Big-Box Construction: Ins and Outs of Developing Brownfield Sites
The big-box construction workshop track at SPECS/2009 covered a wide range of topics, from green building to storm-water pollution prevention to contract delivery methods.
One big area of interest—brownfields—was covered in the session, “Brownfield Development: New Life for Old Dirt.” Speakers said the biggest challenge served up by brownfield sites isn’t the environmental disposal requirements or even the tangle of state and federal rules and laws. Rather, it is the murkiness of the unknown.
“Simply put, a brownfield is property that has an environmental challenge associated with it, but what that does is create uncertainty for both a seller and a potential buyer,” explained Andrew Perellis, partner, Seyfarth Shaw, Chicago.
The uncertainty centers around potential liability for either party, the costs of development, the development time frame and the needed approvals.
“For the seller, it may be the uncertainty of whether the ‘truth’ about the site will be unearthed during the due-diligence process,” Perellis added.
If the investigative process were to reveal new knowledge about the environmental condition of the site, and the buyer walked away, the seller would be armed with new information and therefore might be required to clean up the site.
Brownfield development is far more mainstream today than it has ever been, due mostly to scarcity of greenfield sites and also to the occasional inadvertent purchase of a contaminated site without prior knowledge.
“That is happening less and less, however,” Perellis noted. “More, it’s a deliberate choice to buy and develop a brownfield site.”
When buying and developing an environmentally challenged site, it is imperative to research the laws that govern its cleanup.
“It used to be that if you bought a contaminated property but didn’t cause the problem, you weren’t responsible for the cleanup,” Perellis said. A change in the law deemed everyone liable and responsible for the cleanup, but that caused an unwanted freeze in transactions.
“So ‘superfund’ exemptions came into play,” Perellis said. “The purchaser who searched for a problem and didn’t find one became an ‘innocent purchaser’ who didn’t cause the problem and didn’t know about the problem despite searching high and low.”
Superfunds came with a catch. If, during the search—called “all appropriate inquiry,” or AAI—the purchaser found contamination, he was then held responsible. Or, if no contamination was found, the purchaser could be found to have not searched thoroughly enough.
To rectify the “innocent purchaser” flaws, an amendment defined AAI. “After the amendment, you could buy contaminated property, but you would have to investigate and be non-affiliated with the original owner before you have a liability defense,” Perellis said.
Environmental cleanup process and cost: A purchaser must hire an engineer to review a site for contamination. This is done through surveys, interviews with previous owners of the site and historic reviews of prior site uses.
“Watch for data gaps,” Perellis advised, “such as ‘I couldn’t walk the site because it had snow on it,’ or “I couldn’t review 10 years of site history because the previous owner declared bankruptcy, and those records no longer exist.’” Missing records or gaps in data are not acceptable.
Site cleanup entails cleaning a site up to a level where it’s not causing harm to anyone, Perellis explained, or to where liability can be managed, “rather than expecting it to be pristine.”
Costs involved in developing a brownfield site include, besides the price of the land: rehabilitation and construction costs; demolition and site work; interior demolition; remediation/waste disposal costs; legal work; environmental consultation; site security; and carrying costs.
“The major interior-demolition costs include asbestos and lead testing, as well as the plumbing, electrical and lighting expense,” Perellis said.
Major remediation costs could be vapor extraction and bioventing, groundwater treatment and monitoring, and wetlands mitigation.
If, despite the risks and costs associated with brownfield development, a developer decides to move forward and make a deal, Perellis advised the following five issues be considered: the time needed to bring the property to market; the required level of cleanup; whether a ‘no further remediation’ letter is required; how manageable the risk is; and whether the right team is in place.
“You have to know when to walk away,” Perellis said. “You walk away when the risk cannot be managed, perhaps from some kind of open-ended liability exposure, or the site is already embroiled in litigation, or if the remediation technology has a high cost uncertainty.”