Think of Swans

By Chris Olson

Marie Curie, the first woman to ever win a Nobel Prize, once commented, “One never notices what has been done. One can only see what remains to be done.” In many ways, progress on brownfield redevelopment can be viewed much the same way.

Even for the glass-is-half-full optimistic types, the small percentage of cleanups that has been completed over the past 10 years might seem a little sobering, compared to what remains ahead of us. But we should temper that thought with some reflection.

Recall that it has only been since the mid-1990s that EPA began to formally recognize the benefits of state brownfield programs and voluntary cleanups. And it has only been a few years since the federal brownfield law was enacted in 2002 and EPA officially handed the car keys to states to drive their own programs.

So What’s Ahead for Corporations?

I’m often asked what it will take to get corporations to bring more surplus properties to the marketplace. It’s simply impossible to generalize about “corporations” since they come in many organizational and philosophical shapes and sizes.

However, it’s probably fair to say that impacted, underutilized properties are viewed more as a problem than an asset in most large corporations. The “problems” include remediation, reputation and legal concerns. The track record of unloading these sites for redevelopment prior to being fully remediated has been anything but stellar.

I do see some faint glimmers of hope on the horizon though, with one area being the state-by-state adoption of the Uniform Environmental Covenants Act (UECA). This important legislation provides a legal mechanism for controlling the use of contaminated real estate and makes those use restrictions binding on all subsequent owners.

UECA legislation is especially important to corporations since it ensures that land use restrictions, mandated environmental monitoring, and engineering controls are recorded in the land records and effectively enforced over time — an important consideration when considering divestment of surplus properties. It should be no coincidence, therefore, that the first three brownfield transactions completed by Atlantic Richfield in the United States for BP in 2005 were all located in states where UECA has been enacted.

In addition to UECA, I see the new ASTM standard guide, “Application of Engineering Controls to Facilitate Use or Redevelopment of Chemical-Affected Properties,” as an especially important guide for addressing construction measures and engineering controls to protect construction workers and current or future site users. For corporations, it is especially important that there is guidance available to developers or third parties who work on contaminated sites once they are out of the control of the company.

Although Sarbanes Oxley (SOX) link to is often pointed to as a mechanism to bring more corporate properties to market, my feeling is that this will have a limited effect. I don’t see a quick flood of real estate to the market in order to avoid setting individual environmental provisions for these sites. Most major corporations already had processes in place to ensure that environmental reserves were established. For most, compliance with SOX is more about ensuring that the key procedures are properly documented and applied consistently across the business.

These improvements alone, however, will not bring more corporate properties to market. Until brownfield incentives become available to owners and there is clarity and certainty around liability relief, corporate property owners will continue to manage and retain their risks rather than prematurely allowing these sites out of their care, custody and control.

The Quality Challenge
The most attractive brownfield sites are those that, despite their environmental challenges, are compelling real estate opportunities. These are the sites that are “above water,” meaning their asset value exceeds the cost of environmental remediation and other liabilities.

These sites are the ones developers dream of finding, but as more and more brownfields come to market, it becomes more difficult to locate the dusty jewels that can become true gems. At the same time, with real estate prices climbing fast in many parts of the country, owners are becoming much more savvy about the value of their challenged property.

Even in the best situations, brownfield development is difficult. It takes creativity and a unique set of skills to put deals together that create truly sustainable solutions. I would propose that success in brownfields is the result of 20 percent talent, 10 percent luck and 70 percent persistence. As the better brownfield opportunities are plucked from the market, we can expect the playing field to become more and more overrun with the dogs.

Turning these “upside down” properties to “right side up” will require better incentives, more liability certainty for both buyers and sellers, and a great, great deal of creativity and persistence. There is a saying that “when turkeys mate, they think of swans.” This might serve as good advice as the brownfield market continues to mature. BFN

Chris Olson is manager of real estate reuse at Atlantic Richfield, a BP-affiliated company.