FEATURE
RESURRECTING BROWNFIELDS RONALD BEGLEY
Regulatory changes open the door to remediation, but so far the action is more stagesetting than cleanup.
o 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 riskbased cleanup standards that take into account the future use of a site and establish some mechanisms for limiting future liabilit.. At the federal level, EAA is expanding its program of pilot projects that test models for redeveloping sites. The projects include assessing sites, removing regulatory barriers, and encouraging public-private partnerships. In Congress, bills are pending to remove liability concerns and grant tax breaks to redevelopers of contaminated sites. Environmental remediation firms and real estate developers see diese 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 thesefirmshave 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
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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 drinkins water standards.
Liability a major concern Since September 1995, the Texas Natural Resource Conservation Commission has issued certificates of completion to about 70 of the 350 sites that have entered its voluntary cleanup program. These certificates release all future landowners and lenders "The environmental who are not responsible parties from state cleanindustry sees this as a up liability for past contamination. According to ray of light, but Chuck Epperson, manager of the program, "Evthere's been a lot ery state is dirterent in the more talk than degree of incentive they oner. i ne other states are action." not gernng as much interest as we are. i\ j^ey — Anthony Buonicore, reason, he says, is the asProvided by this Environmental Data surance release of liability. Resources In addition, a memorailUUi.ll Ul a g i c c l l l c l l t
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Epperson says that 85% of the programs applicants are sellers with prospective purchasers lined up and ine assessments diready done. n.e is seeing inure tried-anQ_true inan innovative remedidiion technoiogies. People are definitely not experimenting with remedies, he said. Sonie 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 (South2 2 8 A • V O L . 3 1 , NO. 5, 1997 / ENVIRONMENTAL SCIENCE & TECHNOLOGY / NEWS
Environmental consulting firms have had to develop new relationships with developers and municipalities in brownfield work. CH2M Hill has been working with Schnitzer Investment Corp. on a 19-acre former industrial site along the Portland, Ore., riverfront. The site was contaminated with petroleum products, lead, and PCBs. (Courtesy CH2M Hill)
port, 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-andtreat 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."
President Clinton calls for action Superfund notwithstanding, cleaning up brownfield sites has been a priority for the Clinton administration. President Clinton mentioned the issue in his 1997 State of the Union address in the context of reviving poor neighborhoods. Between calls for more empowerment zones and more community development banks, Clinton said, "We should restore contaminated urban land and buildings to productive use." 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. "Brave new world" for remediators The complexity of dealing with these sites is part of what makes brownfield redevelopment a brave new world for remediators. Remediators are used to regulation-driven work; but with brownfields, regulatory changes are not mandating that anything be cleaned up. They are merely opening the door for real estate developers to take on abandoned contaminated sites. Environmental remediators, real estate developers, and regulators agree that although environmental contamination is one impediment to redevelopment, it is not the only one. Many sites also suffer from crime-ridden neighborhoods and lowtech workforces. 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 Spring-
Environmental remediation firms are joining with real estate developers to remediate and redevelop abandoned brownfield sites. Versar, Inc., and the Chicago Reed Joint Venture Group are working to clean up a 73-acre site near Chicago's 0'Hare Airport, contaminated with petrochemicals and asbestos. (Courtesy of Versar, Inc.)
field, 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 litde 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 designfirms.Formed last year, IT/BSC formed a strategic alliance with bandBank, which adds real estate,financial,and insurance services to IT's technological expertise. VOL.31, NO. 5, 1997/ENVIRONMENTAL SCIENCE & TECHNOLOGY/NEWS " 2 2 9 A
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. Cleanup expertise plus capital IT/BSC s goal is to create successful exit strategies" that include site remediation and redevelopment. LandBank, through its partnership with Underwriters Reinsurance, provides "stop-loss" insurance that caps remediation costs by protecting against cost overruns caused by greater-than-expected site contamination. Bruce Beattie, director of program development for IT/BSC, said, "We want to let the commercial sector take a property clean and take title." That strategy includes using the company's capital to get a buyer. His firm offers more than just knowledge of "how to pull tanks and clean soil. It's capital-, real estate-, and science-intensive." 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 2 3 0 A • VOL. 31, NO. 5, 1997 / ENVIRONMENTAL SCIENCE & TECHNOLOGY / NEWS
of the redevelopment work as components of the cleanup. Role for innovative technologies? Beattie says innovative technologies are "absolutely important, especially with solvents in groundwater. We're constantly looking at new technologies to do it faster, better, and cheaper. A lot of what we do is in situ biological treatment." Other technologies the company uses include steam injection and soil vapor extraction; thermal desorption; and soil washing, particularly with metals contamination found in plating wastes. 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 approach." 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." Ronald Begley is afreelancejournalist based in Richmond, Va. He is former Washington Bureau Chief of Chemical Week magazine.
