The Brownfield Balancing Act: Part 1

In my last blog, I discussed whether developing a brownfield is worth the effort and risk. Ultimately, the answer is yes (as long as you do your homework prior to purchase). But how much homework is enough? How do you strike the balance between potential assessment costs and overall development costs (or potential liability associated with a property)? There are several tools and strategies that can be used to conduct thorough due diligence and to address identified environmental issues.

Due Diligence: Getting Started

The first step in the due diligence process is to find an experienced and trustworthy environmental consulting firm. There are many good companies to choose from, and most of you already have a company that you trust and are comfortable working with. If not, the best way to find one is to ask for referrals from your colleagues or your lender. But remember, your decision should not be based on cost alone—not all companies have the necessary experience.

Once you’ve chosen a consulting firm to work with, the next step in the due diligence process is to conduct a Phase I Environmental Site Assessment (ESA). A Phase I ESA is essential to identifying potential environmental issues associated with a property and provides highly desired liability protection. Almost all banks and lenders require a Phase I ESA be performed before providing financing. You should consult an environmental attorney to learn more about the liability protections a Phase I ESA provides, as this is a very important tool to address long-term liability when buying a brownfield.

So what is a Phase I Environmental Site Assessment, and how does it benefit me?

A Phase I ESA is basically a paper study to look at the past use of a site back to first development, conducted by your chosen environmental consultant. The consultant will research a wide variety of sources and databases to look for clues as to potential environmental concerns associated with the property. Many of my clients have tried to skip this step, as they believed they already knew the history of the site and didn’t want to spend the money. However, the cost of the Phase I ESA is insignificant compared to the value of the information obtained and the liability protection provided. Don’t skip it! In my experience, there have been many occasions a Phase I ESA identified that a property was historically a dry cleaner or gas station, and the potential buyer was completely unaware of the past use of the property. Because dry cleaners and gas stations are notorious for leaks and spills—and cleanup costs can be hundreds of thousands of dollars— you can see how important it is to know the history of your brownfield. This allows you to factor remediation into the potential development cost estimate prior to making a purchase decision.

The Phase I ESA research also goes beyond property boundaries. Your consultant will assess how potential chemical releases or spills on neighboring properties may affect you and your development costs prior to

purchase. One of the most common concerns regarding releases on nearby properties is vapor intrusion. For example, if there’s a release from a dry cleaner on a neighboring property, the vapors from that release can migrate onto your property through groundwater, soil, or utility corridors and enter the existing or future buildings, creating a health hazard for future occupants. Although you may not be responsible for the cleanup of the dry cleaner release, you still may incur significant development costs to protect against these vapors through construction of a vapor mitigation system.

So, how do you begin that balancing act of assessment costs vs. development costs? Start with an experienced consultant, and conduct a Phase I ESA. Then, if the findings of the Phase I ESA warrant further investigation, conduct a thorough Phase II ESA. The Phase II ESA process is how you confirm whether or not you actually have an environmental concern on a property and will assist you in identifying potential “deal-killers.” A Phase II ESA may involve the collection and chemical analysis of soil, groundwater, or soil vapor samples (or other media) to evaluate the concentrations of contaminants, if any. This will help you to determine if cleanup, abatement, or other types of protections are necessary prior to or during development – and what those costs may be.

Lon’s next installment will discuss the Phase II ESA process and how to use the Phase II ESA findings to evaluate development costs associated with environmental issues.

Article by: Lon Yandell, RG, LG, LHG