Property Buyer, Beware! (Unless You Have an E.S.A.)

Imagine that a local youth organization has construction plans for an unoccupied portion of the property they’ve owned for over fifty years. When the organization approaches the bank to refinance the property, instead of being granted funds to complete the construction, they discover that the soil and/or groundwater is potentially contaminated. Plans for their new activity center and playground are put on hold when they find themselves entangled in the costly activities of further investigation and potential remediation.

Environmental hazards aren't always this obvious.

Unfortunately, this situation is not uncommon. The property owner caught in such difficulties isn’t always a non-profit organization, as in the case of a recent client of the environmental engineering company I work for. Too often, landowners who have not abused their property find themselves having to pay for the actions of previous occupants, who either intentionally or unknowingly contaminated the land before selling it.

The good news is that current real estate buyers can protect themselves through due diligence, by making “all appropriate inquiries into the previous ownership, uses, and environmental conditions of a property,” according to the EPA. By taking these precautions, landowners may qualify for certain liability protections under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as the Superfund program.

Commercial real estate transactions are regularly accompanied by a Phase I Environmental Site Assessment (E.S.A.). These assessments conduct all appropriate inquiries* into historical and current use of the property in order to identify recognized environmental conditions (R.E.C.s). An R.E.C. identifies the presence of any hazardous substance or petroleum product, and includes indications of an existing release, past release, or material threat of release of any hazardous substances or petroleum products.

Environmental hazards like this can be discovered by during an E.S.A. Photo: Environmental Engineers, Inc.

Investigations like these emerged in the 1970s, due to regulations, lawsuits, and prosecutions that assisted potential buyers in assessing the risk associated with purchasing commercial and/or industrial property. In addition, they provided preliminary information regarding any necessary clean-up activities.

A Phase I E.S.A. is conducted by an environmental professional (E.P.), and consists of a site reconnaissance, interviews, and records review. The E.P. generates a report that summarizes known or suspected R.E.C.s, and typically makes recommendations regarding further investigation. Such recommendations are based on the absence or presence of environmental conditions associated with the property, as well as the E.P.’s professional experience. Should the E.P. recommend intrusive investigation, the client may choose to begin Phase II activities.

A Phase II Assessment typically includes sampling the soil and/or groundwater. The E.P. analyzes the samples to determine the presence and/or extent of the contamination. Occasionally, the E.P. will also conduct air sampling to determine the presence of radon or vapor intrusion. The test results determine whether any further action is required.

Site remediation can be quite costly. Photo: Environmental Engineers, Inc.

When considering a real estate transaction, we all want to make wise and prudent investments. As a real estate buyer, remember to conduct due diligence before taking advantage of any “great deal.” Sometimes a property is priced low because the seller knows or suspects it will need costly remediation work. By making “all appropriate inquiries,” you may save yourself from purchasing a property that needs remediation or from being responsible for the cleanup, should you decide to make the purchase.

But even wise and prudent investments may intentionally include remediation work. Remediation is a predictable expense when a buyer purchases a brownfield property. Fortunately, the EPA may assist with the cost of brownfield remediation. By remediating the property, the new owner both revitalizes the site and provides productive economic and green space use through the EPA Brownfields and Land Revitalization program.

*The EPA recognizes the ASTM E1527-05 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process as fully compliant with the AAI final rule. For more information regarding Direct Final Rule on All Appropriate Inquiries refer to the EPA website (Negotiated Rulemaking Committee on All Appropriate Inquiries | Brownfields and Land Revitalization | US EPA).

Stacey Tarrant

Contributing Writer

Blue Planet Green Living (Home Page)

Tax Incentives Boost Green ROI

Robert N. Rafson is VP Engineering of Full Circle, a Chicago-based sustainability management solutions firm. He is also co-author, with Harold J. Rafson, of Brownfields: Redeveloping Environmentally Distressed Properties (1999). What follows is Part Two of a four-part interview.

A former paint factory brownfield site. Photo: Full Circle

BPGL: You’re known in Chicago for the largest rooftop solar installation in the city, on top of a brownfield redevelopment project. But people say solar technology has a long payback. Is solar economically viable?

RAFSON: It’s an interesting time in both the financing and in the technology of solar thermal and solar photovoltaic [solar PV]. The economics of solar PV are changing rapidly. In 2008, Nanosolar came out with their first panels at 99 cents a Watt.

At the same time, the supply of pure silica production has tripled, with three new plants coming online. Now the raw materials cost has decreased dramatically, and we have a rapidly decreasing solar PV price.

The same paint factory after redevelopment. Photo: Full Circle

On one brownfield redevelopment project, a former paint factory property, we installed the largest solar thermal in the City of Chicago. The results have been very nice except for a year like last year. In Illinois, last year, we had only 11 hours of sunshine from January 1, 2008 through February 15, 2008. It was a very depressing winter! Yet we only lost 10 percent efficiency compared to prior years. You have to average your results annually and not focus on a cloudy day.

BPGL: Are you seeing a lot of companies making the leap to install solar technology?

RAFSON: Organizations like schools and hospitals — even government agencies —don’t have the wherewithal or desire to borrow money for what is still considered by some to be “frivolous pursuits.” But there are plenty of ESCOs (energy service companies) created around the world to capitalize on that market.

Engineer Rob Rafson on roof of a renovated brownfield that now uses solar power. Photo: Full Circle

There aren’t that many people like me. Even my partners look at me like, “We spent $600,000 on that project!” But we got state, federal, and local tax credits, as well as grants. Then subtract any favorable tax treatments, and roll all of that back in. With the interest rates as low as they are now, we financed the expense 100 percent. We anticipate $40,000 in savings, and our mortgage payment is only $18,000 per year. They call that “day-one ROI.” So for us, the building becomes $22,000 more profitable than before we put the solar panels in.

BPGL: Tell a bit more about the tax breaks and grants you got.

RAFSON: I was lucky. We got matching funds from the state and 35 solar panels from the city of Chicago to match the federal tax incentives. In Illinois, we’re at 30% matching grants for solar technology. Cook County has an ordinance that any additional renewable energy added to the property doesn’t increase the basis of the property; so, they don’t increase property taxes for added renewable energy. It seems obvious, but it isn’t. If you do $600,000 of improvements on a building, you’d expect that the value of the building would increase by $600,000, and that your property taxes would go up accordingly. This [property tax policy] is very forward thinking and does not penalize property owners for investing in green technologies.

Solar panels sit on the rooftop of the brownfield development. Photo: Full Circle

BPGL: Were you concerned about renovating a brownfield site for reuse?

RAFSON: This project is on a private property (it’s my fourth paint factory cleanup). Yet, it has positive economics. I’m an environmental engineer, for me environmental problems on a property are just a construction item; you simply have to be a little more careful about your management of the materials and construction. And include that in your pro forma when you purchase. We were able to purchase at a significant discount, with savings well above the cleanup cost.

BPGL: What help, if any, did you get from local sources?

RAFSON: We used many energy-saving technologies. Some were benefited by unusual and wonderful incentives that are available from time to time. For example, here in Illinois, the local power authority, Commonwealth Edison, is supporting energy efficiency. They created incentives called “Smart Ideas.” They’re funding energy efficiency projects for the next three years in their service areas for commercial and industrial customers. So I got a few dollars from them to change lights, and do a variable speed drive on my solar project instead of on/off motors. I got a bit more energy efficiency out of my equipment, funded by these types of grants.

BPGL: What about installing wind turbines? Are you doing that in Chicago?

Beautiful to some, but others say, "Not in my backyard!"

RAFSON: I want to try. The problem is, urban wind is very difficult, because of the surface roughness created by buildings. It makes a whole lot more sense to build wind turbines on Lake Michigan if you’re on the Michigan side of the lake. There, you’ve got 100 miles of water for the wind to get consistent and smooth, and that’s what a bladed turbine likes. The more consistent the wind, the more power you can produce.

BPGL: In some communities, there are regulations against installing wind turbines because it “spoils the scenic views.”

RAFSON: It’s a cultural change to get people to accept and understand. The “not-in-my-backyard” people don’t want wind turbines, because they don’t like the look of them. But not everyone thinks that way. A friend of mine in Montana put up a 3 kW wind turbine on his house. Before, no one came around. Now at least two times a week, people come by to watch the turbine spinning.

I believe it’s important to retain the historical and scenic views. But I think we need to have harmony between renewable energy strategies and the lives that we live.

Part 1: The Positive Economics of Going Green

Part 2: Tax Incentives Boost Green ROI (Top of Page)

Julia Wasson

Blue Planet Green Living (Home Page)