Turn assessments into assets
This month we talk about the beginning of the brownfield revitalization process, and take a fresh look at Phase I and II, but with an interesting twist. Remember, our main focus throughout this first series of columns is how managers and consultants can turn brownfield cost centers into cash cows.
Why Phase I and IIs?
As you know, the first step for any brownfield developer is to perform a Phase I environmental site assessment. The U.S. Conference of Mayors concluded that the lack of site assessment is the second highest impediment to brownfield redevelopment. A thorough Phase I investigation helps the environmental professional design the scope of the Phase II site assessment. It can also provide buyers, sellers, lenders and others with enough information to decide whether and how to proceed.
A competent site assessment can return 10, 20 or even 50 times its cost to a brownfield developer.
A good site assessment can help a brownfield developer
- Obtain financing from public and private sources;
- Secure tax abatements;
- Reduce the purchase price;
- Craft risk management tools, such as prospective purchaser agreements;
- Negotiate cleanup standards with regulators;
- Make land use decisions; and
- Obtain other benefits.
Today, some environmental consulting firms trade their services for equity in the property being cleaned up. Site assessments should provide these firms with enough information to decide whether, and on what terms, a work for equity swap is desirable.
Teams rely on site assessments
Brownfield redevelopment is a multidisciplinary effort, involving professionals from the environmental, banking, insurance, real estate, appraisal, tax, legal and other fields. None of these people can do their jobs without a site assessment. For example, buyers will not enter into a binding agreement of purchase and sale without a site assessment. A lawyer cannot craft the most helpful contractual language without understanding what environmental risks his or her client is confronting. With a site assessment, however, a lawyer can negotiate an appropriate reduction in the purchase price of tainted property. Bringing the purchase price down to an appropriate level frees up money to clean-up the property. This type of reduction can be as much as hundreds of thousands, or even millions, of dollars.
Lenders are another part of the team that cannot fulfill their role without an adequate environmental site assessment. The reason for this is simple: Lenders will not provide funding until they know the true market value of a property. A property's true market value can only be estimated after its environmental condition has been identified and factored into an appraisal. Only then can a lender determine whether it feels comfortable with a property's environmental condition, and what level of debt is safely secured by the underlying real estate.
Property tax professionals also often have a place on brownfield teams. This type of tax expert uses assessments to ensure that the property taxes accurately reflect the site's condition. Savings from tax appeals can be substantial. As you can see, the assessment must meet the needs of each team member.
People and news
As part of our discussion of Phase I and II site assessments, we spoke with John Bachner, executive vice president of Professional Firms Practicing in the Geosciences (ASFE), an association whose mission is to help member firms succeed in a rapidly changing business climate. John said that ASFE is adamant that a caveat be included in various American Society for Testing and Materials (ASTM) standards that warns readers the standard should not be applied without the benefit of professional judgment. This point is well taken.
The ASTM environmental site assessment standards are useful, but they are only one instrument you should carry in your toolbox. There is no single, right way to do a Phase I or Phase II investigation. ASFE wants to preserve the freedom of environmental professionals to tailor investigations to the client, site and other factors not subject to standardization. Similarly, environmental managers and consultants should tailor assessments to meet the needs of their clients, as well as other team members. If you do this, the assessment will be worth many times more than it cost.
Lessons learned
- Site assessments are the first step toward the redevelopment of brownfield sites.
- Site assessments should be customized to meet the needs of the owner, as well as other team members. Environmental managers and consultants can supervise or perform more effective assessments by learning about the real estate, financial and business concerns of other team members. Team members should consult with one another at the beginning of the process, before the scope of the site investigations has been established.
- A good site assessment is integral to the successful completion of many important functions, such as blending public and private financing and limiting liability.
This article originally appeared in the 03/01/1999 issue of Environmental Protection.