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To hear some tell it, abandoned industrial sites in the United States are contaminated...with gold. Environmental remediation businesses, facing tough competition in a mature market, are leaping at the prospect of thousands of contaminated "brownfield" sites coming into the cleanup market as a result of dozens of new state voluntary cleanup programs. However, even as remediation companies work to get in on the action, actual cleanups remain more of a promise than a reality.
Cities suffering from declining tax bases and urban blight have long wished to turn unused contaminated lots into new business sites. Now a still-spreading wave of state-level regulatory changes is promising to do just that by removing some of the disincentives that have kept developers away from environmentally risky sites. More than 30 states have changed cleanup standards and liability rules as part of new voluntary cleanup programs.
Although the states' measures vary widely, most of them set
risk-based cleanup standards that take into account the future use of a
site and establish some mechanisms for limiting future liability. At
the federal level, EPA is expanding its program of pilot projects that
test models for redeveloping sites. The projects include
Environmental remediation firms and real estate developers see these actions as a boon in the making. Some remediation firms are forming partnerships with city governments to help them convert abandoned properties into productive new sources of jobs and tax revenue. Some are tracking the progress of EPA-funded pilot projects. Others are eschewing government involvement altogether and forging innovative new business partnerships with financial, insurance, and real estate interests. Few of these firms have successfully converted many sites, but they are laying the foundation for what they believe will be a major new category of environmental business.
Among the most recent state voluntary cleanup programs, the Ohio EPA last December set generic cleanup guidelines with allowable contaminant levels that are based on future land use and that vary for industrial, commercial, and residential redevelopment. Property-specific risk assessments may be used when generic standards are unavailable or are not being used. The Ohio EPA encourages using property-specific risk assessments for sites for which a lot of site-specific data about exposure are available. Once a site is cleaned up satisfactorily, the state issues the property owner a "covenant not to sue" for any future cleanup costs. Like many state programs, Ohio's includes financial incentives for developers.
The state's latest guidelines include sites with groundwater contamination. They classify groundwater according to its natural quality and quantity and describe circumstances in which it must be cleaned up. The rule allows the agency to designate an area as an "urban setting" if the groundwater is not being used for drinking water and is considered unlikely to be used for that purpose in the future. Under this designation, groundwater cleanup standards use a risk-based exposure approach to establish when it is necessary to restore groundwater to potable quality. In the past, regulations required all groundwater cleanup to meet drinking water standards.
In addition, a memorandum of agreement with EPA says that for sites in the Texas program, EPA will not take any federal action under the Superfund or Resource Conservation and Recovery Act laws. Epperson says that 85% of the program's applicants are sellers with prospective purchasers lined up and the assessments already done. He is seeing more tried-and-true than innovative remediation technologies. "People are definitely not experimenting with remedies," he said.
Some states seem to encourage a conservative technology approach, although not intentionally. The Ohio EPA, for instance, spells out remediation approaches that can be used to conform to its regulations, including some decidedly low-tech options. The agency states that it "allows engineering controls such as fences and institutional controls such as deed restrictions to meet cleanup standards" - no bonanza for innovative new technologies. Some sites may require soil excavation, concrete caps, or "passive remediation" such as allowing chemical concentrations to decrease through natural processes.
Anthony Buonicore, CEO of the information services firm Environmental Data Resources (Southport, Conn.), says that although risk-based cleanup standards improve a site's chances of being reused, they also may mean less cleanup business for remediation companies. "It's not like the 1980s, when cleaning up to stringent standards meant big bucks," he commented.
"This is definitely not a one-size-fits-all problem with one right response," said Charles Bartsch, senior policy analyst with the Northeast-Midwest Institute, a Washington, D.C., public policy research group. "Site location and the nature and the level of contamination vary, and each variation can require a different type of response." He says that a range of technologies is being applied, from pump-and-treat and on-site burning to containment.
Although some environmental remediation firms expect these state programs to put thousands of sites on the remediation market, others are waiting to see it happen. "The environmental industry sees this as a ray of light, but there's been a lot more talk than action," said Buonicore. Brownfields remediation is a business area worth following but is something that hasn't yet really arrived, he notes.
Cotton Swindell, vice president of Alex. Brown and Sons, an investment banking firm in Baltimore, Md., is waiting to see evidence that the brownfields opportunity is as great as promised. "I won't tell you there won't be an impact in 1999, but hopefully by the end of 1997 there will be some evidence to clearly define what this opportunity is," he said.
A major reason for the paucity of action is that, despite all the changes at the state level, federal liability remains a concern. EPA is pushing brownfields redevelopment, but the Superfund law still leaves the door open for future cleanup liability. States are changing their zero-risk environmental standards to encourage cleanups, but many developers and investors are insisting on zero financial risk: no possibility of future liability. Buonicore, pessimistic about a booming brownfield redevelopment market, said, "Until there's a release from all liability and there is zero risk for anyone on the development side, it's not going to happen."
Last year Clinton proposed a $2 billion tax incentive for developers of brownfield sites. It would allow cleanup expenses to be fully deductible in the year in which they are incurred, thereby reducing capital costs. The measure did not pass but was recently reintroduced in Congress.
With an emphasis on creating partnerships among public and private parties, EPA's brownfield program has funded 76 pilot redevelopment project grants of as much as $200,000 each for communities to inventory, prioritize, and assess sites and develop cleanup strategies. Federal law prohibits using the money for actual cleanup work.
EPA says it plans more pilots and intends to spend millions more to help state voluntary cleanup programs and to fund business loans. Tom Stolle, brownfields coordinator for EPA Region III, says the goal of the agency's brownfields program is to develop new strategies for cleaning up sites. "We're looking not just for `success stories' of cleaned up sites but for the process of success. If you had a problem with financing, how did you overcome it? If you have a solution, I can take it around the country and show others."
In Richmond, Va., for instance, EPA is aiding existing city efforts to reclaim vacant business sites and restore them to productive use. Planned and current activities of the pilot project are mostly process oriented. They include developing a systematic and cost-effective means to inventory and market sites and to identify and mitigate financial barriers to redevelopment. Other activities include developing site-specific property recycling strategies in partnership with current or future site owners, regulators, and city developers.
Businesses and government agencies that want to develop brownfield sites say they must address the fact that real estate developers are interested in making wise investments, not in cleaning up contamination just for cleanup's sake. Because of this, remediation firms must become sophisticated in the realms of real estate and insurance or form a partnership with a business that is. Versar, a Springfield, Va., remediation firm, plans to set up subsidiary companies to take ownership of contaminated properties. "We'll do the sweat equity of assessment and so forth. That could be our contribution," said William Richkus, vice president and general manager of the company's Columbia, Md., office.
He acknowledges that going into the uncharted waters of brownfields real estate is "a little scary," but it is necessary given the maturity of the remediation market. "The pie is not growing, and companies are cannibalizing each other - making money by going after each other's business."
Environmental consulting firm Eco-Terra (Chadds Ford, Pa.) evaluates and purchases contaminated properties, remediates them, and then redevelops them, sells them to a developer, or leases them back to the previous owner. Company president Jon Cuizon says owning a piece of brownfields real estate brings a different perspective for remediators. "It means there's an incentive to clean it up as efficiently as possible, versus spending someone else's money on a never-ending, no-closure project. Most clients don't know the difference. That's why there are so few cleaned up sites," he explained.
In March, Dames & Moore/Brookhill, LLC acquired 24 contaminated properties and mortgages for $72 million. Dames & Moore will remediate the contamination, and The Brookhill Group of New York will manage and "reposition" the properties, according to the company. Arthur C. Darrow, president and CEO of the Dames & Moore Group (Los Angeles), said Dames & Moore/Brookhill is now in a "leadership position in the U.S. brownfields redevelopment market."
One of the most prominent brownfields partnerships is IT Brownfields Services Corp. (IT/BSC, Irvine, Calif.), a part of International Technology, one of the country's largest hazardous waste design firms. Formed last year, IT/BSC formed a strategic alliance with LandBank, which adds real estate, financial, and insurance services to IT's technological expertise.
IT/BSC buys a contaminated property and then lines up a buyer and assesses and remediates the contamination. It goes through whatever regulatory process is required in the cleanup and gets the property rezoned for subsequent use.
The company closed on its first property in January. The details are still confidential, but by this fall it is expected to be clean and ready for the developer to begin construction of a new research and development office complex. Thus far, IT/BSC has a controlling interest in six sites, most of them 10-50 acres and contaminated with fuel oils, plating wastes, or solvents.
Beattie says that the effects of state voluntary cleanup programs "have really sunk in in the last 12 months." He points to programs in California, Texas, Illinois, Michigan, New York, New Jersey, and Pennsylvania, with promising legislation in Florida. In February the Maryland legislature passed a bill that offers liability protection as well as loans, grants, and tax credits to companies that clean up and remediate brownfield sites.
CH2M Hill in Denver takes a different tack. It has not formed partnerships like those of IT, but it is actively involved in private industry and municipal brownfield work. For municipal sites, tasks include identifying stakeholders, evaluating the size of the local brownfields problem, evaluating the consequences of failure to remediate, and identifying the steps the city and company must take to move forward, such as buying a property or demolishing existing structures. C. George Lynn, a company vice president, said, "Working with communities is part of our unique approach. Community involvement is very important. They're very anxious to get assistance."
CH2M Hill has helped an industrial client redevelop a contaminated riverfront brownfield property in Portland, Ore., during the past two years. The 19-acre former industrial site was contaminated with polycyclic aromatic hydrocarbons, lead, polychlorinated biphenyls, DDT, and other hazardous wastes. Aside from some hot spots, however, the site had mostly low-toxicity soil contaminants.
The work required several phases of regulatory activity, including formal remedial investigation and feasibility studies, regulatory Records of Decision, and negotiation of multiple remedial cleanup consent decrees with covenants not to sue, as well as the cleanup itself. The client, Schnitzer Investment Corp., won approval to conduct the cleanup concurrently with development. That allowed the company to use parts of the redevelopment work as components of the cleanup.
But Versar's Richkus questions whether real estate developers will go
for innovative techniques. "Given that you still have potential
risks and liability, you'd add to it by trying out some new
technology. I think people will be conservative in their remediation
CH2M Hill's Lynn joins the chorus of those calling for federal liability reform. EPA tried to ease liability concerns through a series of policy statements in 1995, such as one that outlined situations in which EPA may agree not to sue purchasers of contaminated property. However, Lynn said, "It has all been guidance documents. It's yet to be law. Until that changes, there will still be lenders and developers unwilling to take the risk." He also said that, without federal liability relief, "It's wrong to call brownfields a boon. It's an area of potential growth."
As IT/BSC's Beattie said, "Deep pockets are never totally out of CERCLA liability. It's joint and several forever." EPA's Stolle agrees: "Superfund still ties our hands. We say we've signed off on a state program, but we don't come out and say there's no chance of federal involvement. The first time we come out and sue a new owner and word gets out, it would kill the program."
Congressional Republicans last year refused to pass separate brownfields legislation without also reforming Superfund. In January, Sen. Frank Lautenberg (D-NJ) introduced the "Brownfields and Environmental Cleanup Act of 1997" (S.18). The bill would limit the potential liability of innocent buyers and would set a standard for deciding when parties could not have reasonably known that a property was contaminated. The bill also builds on EPA's pilot program by funding grants to inventory and evaluate brownfield sites.
EPA has endorsed the bill, but it is unclear whether congressional opposition to stand-alone brownfields legislation will soften this year. Buonicore is confident that federal liability legislation will pass eventually. He recommends that remediation companies position themselves for that day by working with cities as consultants. As for actual remediation work, he said, "That's a while away. The site assessment alone can take a few years before cleanup."
Still, optimism reigns supreme. Beattie said, "We're on the baby steps, and there are no clear leaders, no deals out there to serve as models. But I think it's going to be big business."
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