Duane Graves (Tennessee) authored an article entitled "Winning the Brownfields Gambit" for the Tennessee Bar Association Website on March 1, 2017.
Winning the Brownfields Gambit
Duane Graves, Ph.D., BCES
Geosyntec Consultants, Inc.
180A Market Place Blvd.
Knoxville, Tennessee 37922
Urban landscapes in most cities show the pockmarks of long-gone industry in the form of derelict buildings; silent, cold factories; and vacant lots fenced to keep people out and contamination in. These properties tend to cause a number of problems for their host communities ranging from lost tax revenue to havens for the homeless and gangs to convenient locations for illicit transactions. Transforming these properties is generally not for the faint of heart; however, buyers and sellers who understand Brownfields regulations and the costs and liabilities associated the environmental management of old industrial sites can achieve successful redevelopment and a reasonable return on their investment. Multi-party “win” outcomes should be the goal of every Brownfields project with favorable outcomes for buyers, sellers, cities, and the general public. As communities work toward revitalizing areas fallen into disuse and developers recognize the value of these latent real estate assets, attorneys will see increasing opportunities to support buyers, sellers, communities, and lenders both directly and in collaboration with environmental consultants and contractors.
A brownfield, as defined by law, is 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. Since many Brownfields properties exist in desirable locations, putting the land back into productive use is a high priority for federal, state, and local governments. The United States Environmental Protection Agency (USEPA) and most states, including Tennessee, have Brownfields programs that encourage redevelopment of these properties because of the positive impacts to local communities.
The federal government recognized the value of returning environmental and economically distressed properties to productive use and tax rolls by enacting the Small Business Liability Relief and Brownfields Revitalization Act (a/k/a the Brownfields Law). The Brownfields Law set up a grant program administered by the USEPA under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund) for the purpose of assisting communities, states, redevelopment agencies and other quasi-governmental agencies set up by local or state governments, regional councils, tribes, and land clearance authorities in real property revitalization. For-profit organizations are ineligible. Specific areas available for grant funding include assessments, revolving loan fund grants, cleanup grants, Brownfields area-wide planning programs, and environmental workforce development and job training grants. Assistance for private developers is limited; however, in certain cases municipalities and counties may be willing to make special provisions to assist high value developments. Tax increment financing, new market tax credits, rezoning, and local infrastructure improvements that aid the development are ways the public may choose to help a private developer.
The State of Tennessee offers technical assistance to prospective buyers and sellers (public and private) of Brownfields properties through the Tennessee Department of Environment and Conservation (TDEC). Key outcomes from involving TDEC early include a greater degree of engagement by TDEC in the project’s success, early guidance on cleanup requirements, metrics for declaring the site either clean or adequately managed to allow development and reuse, and avoidance of consent agreements and other state mandated actions which often complicate the cleanup process.
The state, through TDEC, controls one other critical piece in the Brownfields redevelopment process—the “No Further Action” letter. Lenders and investors place high value on official state correspondence indicating that no additional action needs to be taken because of environmental issues. From a lender/investor perspective, a No Further Action letter eliminates from the project’s financial strategy a hard to understand and difficult to estimate liability.
In Tennessee, a Brownfields Voluntary Agreement (BVA) is a negotiated agreement involving the new owner, sometimes the previous owner who has responsibility for environmental conditions predating the sale (or lease), and TDEC. Without the BVA, the new owner can become liable for contamination it did not cause. The BVA offers an innocent owner liability protection for real or perceived contamination; protection from third party contributions; and concurrence from TDEC’s regulatory experts that a property is safe for future planned uses.
The process of taking a potentially contaminated site from a state where it is unfit for reuse to a condition that allows either unencumbered or restricted reuse can take a number of paths that are best navigated with the help of an attorney and an environmental consultant. Some of the more common approaches include:
- The party responsible for site contamination (seller) assesses and cleans up the site under TDEC guidance though the Voluntary Cleanup, Oversight, and Assistance Program (VOAP) or a consent agreement. Once cleanup is completed or in operation and maintenance mode, the property is put up for sale. The seller may have entered into a BVA with TDEC prior to the sale; however, the more common approach is for the BVA to be negotiated as part of the sale when the intended new use for the property is better understood.
- The responsible party (seller) and the buyer negotiate a BVA with TDEC to articulate the seller’s responsibility and the buyer’s lack of responsibility for existing environmental issues. The seller retains liability and may perform cleanup on a site it no longer owns.
- The buyer seeks a BVA with TDEC, independent of the seller, and based on his own due diligence (All Appropriate Inquires). The buyer’s protection may be limited by what is claimed in the BVA.
- Working with or without a BVA, a savvy buyer may estimate the cost to remediate a contaminated site, negotiate a reduction in the sale price, and conduct the cleanup itself.
Once the site has been determined by TDEC to be clean or remediated to the extent practicable, TDEC may issue a “No Further Action” or “Action Complete” letter for sites that were not contaminated in the first place and for sites where contamination is completely removed and disposed legally. However, caveats may accompany the letter. Two common qualifiers include:
- “No further action at this time” allows remediation activities to cease but the case is left open so TDEC can require additional actions if conditions change.
- “No further action at this time with long-term monitoring” statements are issued for sites where remediation was unable to fully cleanup the site but risk assessments indicated that potential exposures to residual contamination are acceptable. Long-term monitoring assures that exposure risks remain acceptable.
For those sites where residual contamination persists but not to an extent that would prevent certain reuse plans, a Soil (or Environmental) Management Plan defines how contaminated media on the property will be handled. This critical document should be written with an eye toward constructability, flexibility in disposal options, cost implications, and protection of workers and the public. The important point for the developer is to recognize early on that contaminated soil, possibly contaminated surface water or groundwater, and vapor mitigation can impart significant costs to the project.
Readers familiar with the University of Tennessee, Knoxville Campus, may recall the old Fulton Bellows factory situated on Kingston Pike between the Agricultural Campus and the Main Campus. The condition of the property was similar in many ways to other post-industrial properties. Metalworking and foundry operations were the principal activities conducted at that property from about 1917 until 2005. At one time, the factory led the world in metal corrugation and precision welding technology while employing hundreds of workers. However, time and technological advances bypassed the factory until all that was left was the environmental legacy of soil and groundwater contamination. The property owner set out to carefully characterize site contamination and understand how to best manage the environmental liability associated with this surplus property. Following detailed site investigations, focused remediation, and demolition of buildings down to the ground level floor slabs, TDEC agreed that environmental conditions could be managed through administrative controls, long-term monitoring, proper environmental health and safety and worker notification procedures, and mitigation measures for potential vapor intrusion.
TDEC-approved land use restrictions (LURs) were finalized for the property and recorded with the deed. Additionally, a BVA was achieved for the site. The LURs imposed the following requirements for any future development of the property and these were reiterated without modification in the BVA:
- At the completion of property redevelopment, soil should remain covered to the current extent to limit infiltration of precipitation and potential contaminant leaching to groundwater.
- Certain activities (e.g., installation of foundation elements and utilities) may require contact with soil and groundwater that may be contaminated. These activities must be conducted under a TDEC approved Environmental Health and Safety Plan that describes how workers, the public, and the environment will be protected from potential contamination and how soil and groundwater will be managed to prevent environmental releases.
- The LURs indicated that future occupants of the site must be protected from potential exposures to vapors emanating from the soil. The purchase agreement further clarified this requirement by stating that an area with known high soil vapor concentrations would not have ground level occupied space (this area was used as a parking area below second story retail space, i.e., not enclosed space and, therefore, compliant with the requirement). Ground level enclosed/occupied space was allowed elsewhere on the property with an active vapor mitigation system installed beneath the floor to eliminate potential vapor intrusion into the buildings.
The property, which had achieved “no further action at this time with long-term monitoring,” was sold to a buyer who met the seller’s criteria for understanding the environmental liabilities of the site. The purchase agreement contained provisions aimed to protect the seller from acts of negligence by the buyer that could exacerbate environmental liabilities and the buyer from existing contamination that remained at the site. The buyer engaged an environmental attorney and shared the seller’s environmental consultant to finalize the BVA; prepare the Notice of Intent to Develop, Health and Safety, and Environmental Management Plans; and preserve knowledge of environmental conditions by linking the environmental consultant to the property rather than either the buyer or the seller.
The project, known as University Commons, was a private Brownfields development, which was not eligible for any federal Brownfields funding. However, the City of Knoxville recognized the value of the development and contributed to the success of the project through the creation of a Redevelopment Area, Tax Increment Financing (TIF) valued at $10 million, New Market Tax Credits of $15 million, modifications of zoning and parking requirements, and $1.5 million in capital funds for the purpose of assisting with public infrastructure for the site, including a bridge and traffic signals.
Complications from site environmental conditions increased the cost of the development by approximately $2 million and included:
- the generation of approximately 25,000 cubic yards of contaminated soil, most of which was stored in secure locations on site but 3,500 cubic yards was disposed under a special waste permit at a subtitle D landfill;
- over 800,000 gallons of contaminated groundwater was produced during foundation installation and disposed off-site at a permitted treatment, storage, and disposal facility;
- onsite health and safety oversight to protect workers from potential exposures to contaminated media; and
- design and installation of an active vapor mitigation system beneath all ground level occupied space.
In spite of considerable risks, the care exercised by the seller and buyer and assistance from the City resulted in a project where the seller received a good price for the property, the developer successfully transformed the property into a profitable development, and the City gained a new source of tax revenue and a base for additional economic development in the area. The project created more than 620 construction jobs during the 18 months of construction. Among a big box retailer, a large grocery store, and the numerous smaller businesses occupying the site, over 1,080 permanent service and retail jobs have been created. The annual community payroll impact has been estimated at approximately $50 million. The total economic impact to the area is estimated to be more than $220 million annually. This project demonstrates the value to all involved parties of a well-conceived Brownfields redevelopment project that starts with a responsible seller, a committed developer, and a City willing to cooperate and assist.
Read the article on the Tennessee Bar Association Website
To learn more about Duane see his profile at: http://www.geosyntec.com/people/duane-graves