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Recycling Real Estate
August 31, 2015
The U.S. Environmental Protection Agency (USEPA) recently announced the award of $400,000 USD in Brownfield grants to Pittsburgh, Pennsylvania’s North Side Industrial Development Company (NSIDC). The money will be used to assess clean-up needs at 10 Brownfield sites in the area for redevelopment, hoping to revitalize several older industrial suburbs and to bring new jobs to the area.Pittsburgh’s award was among 243 USEPA grants totaling $54.3 million that the agency awarded to 147 communities in May 2015. These investments are intended to provide communities with the funding necessary to assess, clean-up and redevelop contaminated properties, returning them to productive use to help boost local economies and to create local jobs while, while at the same time, protecting public health and the environment. In announcing Pittsburgh’s grant, USEPA Mid-Atlantic Regional Administrator Shawn M. Garvin said, “This funding will help NSIDC and the city of Pittsburgh reclaim properties that have been unused for years and turn those sites into assets for the community, the environment and the economy. Brownfields initiatives demonstrate how environmental protection and economic development work hand-in-hand.”Brown vs. GreenWhat is a Brownfield? ‘Brownfield’ is a term used in urban planning to describe land previously used for industrial purposes or some commercial uses. On the other hand, a ‘Greenfield’ is property that has not been developed. The USEPA defines a Brownfield as "real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant." A Brownfield may have been contaminated with hazardous waste or pollution from previous activity on the site. Or, the property might simply give the impression that there might be some pollution somewhere on the property. Either way, once assessed and cleaned up, if necessary, such a site can become host to a business development such as a retail park. For instance, XL Catlin has offices in Stamford, Connecticut at Harbor Point, a multi-phased, mixed-use development located on a former “Brownfield” site overlooking the Stamford Harbor. While there is no assessment or clean-up necessary on a Greenfield, there can be environmental concerns for these types of property – including concerns about urban sprawl, destruction of natural habitat and loss of open space – associated with building on previously undeveloped property. Knocking Down ObstaclesWhile redeveloping Brownfields means that a “Greenfield” goes untouched and open space is preserved, early Brownfields redevelopment met their share of obstacles. Fortunately, federal programs like the USEPA Brownfields program and various state programs are helping with funding and other resources to reclaim formerly used property and put them back to good use. Environmental liability, or even the potential for assuming some bit of environmental liability, has long been a big impediment in Brownfields development. Real estate developers did not want to take on an unknown condition, something that could result in a very costly clean-up or third-party lawsuits. After all, Brownfield sites can come in a variety of conditions with extensive soil and groundwater contamination, underground storage tanks (USTs), buildings containing asbestos and lead-based paint, or pollutants stored on the property. In addition to the unlimited potential environmental liability and the cost to clean-up the property, there are also challenges obtaining financing for remediation projects and more expensive due diligence. In general, it is a more complex sale transaction with complicated indemnity clauses and bureaucratic red tape.
Insuring RedevelopmentRealizing the unique liability concerns of participants in this kind of real estate redevelopment, insurers have responded to the challenge by creating custom environmental insurance packages specially designed to address Brownfield redevelopment related issues. To remove the myriad doubts and question marks that can stall-out an attempt at contaminated land transfer and reclamation, environmental coverages are now available to insure every party and every aspect of various real estate redevelopment projects, property transfers or sales transactions, including contractors, developers, subcontractors, financial institutions, and future buyers.
An environmental insurance program is specifically designed to cover potential environmental exposures during the clean-up and transfer of property and provides protection for both the company acquiring the liability and the owner or former owner of the property. As a risk transfer mechanism, environmental insurance has proven very successful in helping companies manage their environmental liabilities and proceeding with such business transactions. Available coverages offer protection against: third-party bodily injury or property damage claims arising from on-site pollution conditions; on-site contamination discovered during the policy period; and additional on-site contamination discovered in excess of quantities or characteristics previously known by the Insured company.
Redevelopment SuccessOver the last decade or so, many community development groups and private developers have successfully used environmental insurance to transfer risks, ease public concern, and assist in the marketing of the site, and even more important, return properties to good use again. The USEPA shares a number of success stories on its website. And we don’ t have to look far for more, like other early Brownfields successes like the former Philadelphia Naval Yard, the nation’s first shipyard and a former military base that today is The Navy Yard, home to more than 11,000 employees and 145 companies in the office, industrial/manufacturing, and research and development sectors, occupying over 7 million square feet of real estate in a mix of both renovated, historic buildings and new construction.
Increasingly, grants, innovative federal and state programs, along with environmental insurance and other innovative risk transfer mechanisms, are playing a key role in returning land to productive community use. Success in recycling real estate that will bring back community resources, boost local economies and bring back jobs. And that success will only bring more success. In an age where so much of the environmental news focuses on the rapid erosion or contamination of resources, redeveloping used real estate instead rebuilds resources and preserves our nation's “Greenfields.” About the authors . . .Bob Hallenbeck is Senior Vice President, Sales and Marketing and Anthony Gentile, Vice President, Executive Underwriter in XL Catlin’s environmental insurance business. Bob and Anthony have been helping provide environmental insurance and other risk management services to local redevelopment authorities, developers and others involved in Brownfields redevelopment for more than 20 years.
For more information and resources on Brownfields redevelopment, visit:The US Environmental Protection Agency’s Brownfields ProgramThe Brownfields CenterAssociation of Defense Communities