EFAB
Robin L. Wiessmann
fh.ir
Richard B. Geltman
VkeOair
John C Wise
ExocutiV9 Director
Members
Kononbio Poto V,
HoooisUo Bozy! P.
KoMtibte States Ooldanfeh
Hoaenbla Mcynird Jacfara
MKeiieflW.B«i«r
MfehidCaiby
Peter MEmawa
DeeohaFenii
SounP. LeOnM
HobcttO.LnM
DmidM.Lkk
Dobotu A* FbottflB
Robert P. Sda»«ti
ItaJ.Taai
SnMaF.Vofl
Frieda K-WaUm
MujrEOeaWUMonh
BiabethYtea
Brownfields Report No. 1
INFORMATION NEEDS OF CAPITAL PROVIDERS
• IN BROWNFIELDS REDEVELOPMENT
This report has not been reviewed for approval by the
U.S. Environmental Protection Agency; and hence, the view:
and opinions expressed in the report do not necessarily
represent those of the Agency or any other agencies in the
Federal Government.
September 1995
-------
INFORMATION NEEDS OF CAPITAL PROVIDERS
IN BROWNFIELDS REDEVELOPMENT
EFAB Advisory
September 1995
TABLE OF CONTENTS
Executive Summary • i
A. Introduction 1
B. Background : 1
C. Overcoming the Barrier of Uncertainty 2
D. Users 3
E. Lending Criteria for Capital Providers 3
F. Role of Oversight Entities and Trade Organizations ; 7
G. Recommendations 9
Appendix A '. A-l
Appendix B . . B-l
-------
Information Weeds of Capital Providers
in Brownfields Redevelopment
EXECUTIVE SUMMARY
This advisory identifies and makes recommendations on the informational needs of
capital providers in redevelopment transactions of contaminated industrial and commercial
sites, known as "brownfields." .The advisory recommends actions the Environmental
Protection Agency could take to help meet these needs of capital providers.
The advisory is primarily directed at the needs of lenders who provide capital for
redevelopment projects. These lenders, or capital providers, have become reluctant partners
in brownfields redevelopment, due in part to the uncertainty of financial risk from
environmental contamination. Uncertainty translates into a reluctance, or hesitancy, of
capital providers to lend money,-which inhibits redevelopment and environmental cleanup.
The Board believes that, in many cases, by eliminating or reducing this uncertainty,
capital providers would be more inclined to lend money for projects. Redevelopment and the
associated cleanup would proceed, in part because capital providers would have a greater
understanding of the financial risk involved. As a result, capital providers would be better
able to respond to their customers' financing needs, and they would, in effect, become
partners in financing environmental compliance.
Criteria for Lending Decisions
This advisory presents a simplified model for lending decisions that reflects basic
criteria — credit, capacity, and environmental factors. The environmental factors are
important because they may ultimately impact the. credit worthiness of the applicant and the
capacity to repay the loan. This advisory further elaborates on several categories of
environmental factors that capital providers should be knowledgeable of when evaluating
either lending opportunities or their existing loan portfolio. These categories which are
meant to be a starting point include: environmental legislation, regulations, and court rulings;
site assessment; cleanup; reuse of property; and liability.
Recommendations
The Board recommends that the Agency support the development of a Brownfields
Redevelopment Clearinghouse to help capital providers in making lending decisions to fund
the redevelopment and cleanup of brownfields properties. The Clearinghouse would be a
partnership with various organizations, including: state environmental regulatory agencies;
oversight entities and trade organizations of the capital providers; capital providers
themselves; other brownfields redevelopment participants, including real estate developers
-------
Informaeion Weeds of.Capital Providers
in Bratmfields Redevelopment
and brokers, community groups, local officials, and urban and community planners; and non-
profit organizations, such as universities, experienced in brownfields redevelopment and
financing issues. Potential components of the Clearinghouse would include: Brownfields
Databases, Brownfields Case Studies and Model Programs, Brownfields Feedback on
Proposed Rules and Regulations* Software for Brownfields Transactions, and Brownfields
Resource Material and .Consultation.
Development and Implementation
The development and implementation of the Clearinghouse would best occur on a
pilot basis, with a target audience for each component, as appropriate. Pilots would allow
the developmental and operational features of the Clearinghouse to be fully tested and
explored. For example, there may be various alternatives to access the Clearinghouse, such
as using databases that currently exist in either the private, public, or non-profit sectors.
The Board does not recommend that the Agency itself develop and implement the
Clearinghouse. An approach that the Agency may find effective is to enlist non-profit
organizations, such as a university, or group of universities, as lead entities in developing',
and later maintaining, the Clearinghouse. Also, in reaching the target audience, the "one-
stop general store" concept may be successful. An example of this approach is in Houston,
Texas where the U.S. General Store for Small Business recently opened to provide one-stop
assistance for small businesses on various government requirements and issues.
Benefits of the Clearinghouse
When capital providers are better able to manage the uncertainties of lending, the
benefits reach beyond themselves and their customers. For example, the lending of money
for brownfields redevelopment would spur a multitude of investments, both in terms of the
economy with greater employment, more productivity, and increased demand for corollary
products and services, and in terms of environmental improvements with the cleanup of
contamination. Results would be a cleaner environment, a more robust economy, and an
improved quality of life for a given locality.
ii
-------
Information Weeds of Capital Providers
in Brownfields Redevelopment
A. Introduction
The Economic Incentives Committee of the Environmental Financial Advisory Board
(EFAB) has begun a series of reports on the financial and environmental issues affecting the
redevelopment of contaminated industrial and commercial sites, known as "brownfields."
EFAB's primary objective with this initiative is to develop policy and program
recommendations that would help reduce the risks, and hence the cost, of financing
brownfields redevelopment. This advisory, the first in the series, identifies the informational
needs of capital providers in redevelopment transactions and recommends actions the
Environmental Protection Agency (EPA) could take to help meet these needs. Other
brownfields reports underway are: (1) Financing Brownfields Redevelopment: Linkages to
the Empowerment Zone/Enterprise Community Program; (2) Summary of Indianapolis,
Indiana Brownfields Financing Field Meeting; (3) Brownfields Financing Case Studies; (4)
Brownfields Financing Strategies and Techniques; and (5) Brownfields Financing Barriers
and Incentives.
The Board wants to express its appreciation and support of EPA's current efforts to
promote the redevelopment of brownfield sites. EPA's brownfields redevelopment activities
are an organized commitment to help communities revitalize underused industrial and
commercial facilities where redevelopment is complicated by environmental contamination.
For example, EPA is targeting fifty demonstration pilots in 1995 and 1996 to support
creative solutions to promote redevelopment. These pilots will provide concrete data for
national policy discussions, along with a series of models for states and localities.
B. Background
The brownfields issue merges cleanup and economic development concerns in the
sense that many cities are running out of clean land to accommodate industrial expansion. In
the absence of clean, developable locations in cities, companies often choose suburban and
rural locations. As a result, cities lose businesses, jobs, and tax revenues. The actual
number of underused or abandoned sites is difficult to quantify, but the problem is
significant. Some experts have suggested that more than 500,000 sites nationwide show
evidence of at least some contamination which could trigger regulatory action and ultimately
inhibit their owners from selling the site, securing financing, or proceeding with reuse.
Public officials and private lenders can give examples of specific properties and describe the
problems, but few are able to offer an overall estimate of their number. Listings of vacant
space are readily available, but they include only properties for sale or lease, not property
withdrawn from the market. '
Brownfield sites are most highly concentrated in older industrial areas of large cities
in the Northeast and Midwest regions of the United States. Their economic use has typically
ceased or has become highly marginal relative to original use. In Cleveland, Ohio, for
example, there are approximately 700 abandoned brownfield sites. They generally have
-------
Information Weeds of Capital Providers
in Brownfields Redevelopment
varying degrees of contamination stemming from waste generation, handling, and disposal
practices that occurred before the environmental regulation of recent years. For example,
there may be soil and groundwater contamination caused by solvents that either leaked or
were improperly disposed. Also, asbestos may be a problem that needs to be removed from
a building's interior prior to redevelopment.
Small-to-medium cities and local communities also have brownfield sites, although the
incidence there is on a much smaller scale than hi large cities. A common occurrence in
local communities is old gas stations that are no longer in use that have environmental
concerns due to underground storage tanks. Potential buyers/developers would need to .
assess any contamination and undertake cleanup, as required, hi conjunction with the
projected reuse of the stations.
C. Overcoming the Barrier of Uncertainty
Capital providers have become reluctant partners in brownfields redevelopment, due
in part to uncertainty of financial risk from environmental-contamination. The financial risk
may be unknown, difficult to measure, or appear too excessive, thus malting project
profitability questionable. Liability issues are a critical area that contributes to financial
uncertainty. Capital providers may become financially liable (i.e. lender liability) for any
illness or damage caused by contamination even though they did not know about the problem
when they lent money to purchasers or builders. Another concern to capital providers is
liability to borrowers which may occur due to the borrowers' possible non-compliance or -
ignorance of environmental regulations. This liability could hinder the borrowers' ability to
repay the loan and affect the value of the collateral used for the loan.
* #°
Uncertainty translates into a reluctance, or hesitancy, of capital providers to lend
money, which inhibits redevelopment and environmental cleanup. This advisory attempts to
help capital providers by recommending ways of providing information that will enhance their
understanding and management of the uncertainties of financial risk attributed to
environmental issues.
The Board believes that, in many cases, by eliminating or reducing the level of
uncertainty, capital providers would be more inclined to lend money for projects.
Redevelopment and the associated cleanup would proceed, in part because capital providers
would have a greater understanding of the financial risk involved. In the process, capital
providers would be better able to respond to their customers' financing needs, and they
would, hi effect, become partners in financing environmental compliance.
Information alone cannot overcome all barriers to brownfields redevelopment as other
remedies may be required, such as changes in legislation and/or regulations and the
-------
Information Weeds of Capital Providers
in flrownfields Redevelopment
development of financial options and incentives. For example, changes might be needed to
bring greater certainty to the decision-making process to address such barriers as: liability
risk for past contamination, cleanup standards and the cost of cleanup, and the lack of
funding and incentives. Subsequent advisories will focus on these issues and other such
barriers. In addition, there are often non-environmental barriers to brownfields
redevelopment that policy makers would need to address, such as those relating to land-use
planning/community development, real estate and local market issues, building design,
transportation access, and workforce availability.
D. Users
This advisory is primarily directed at the capital providers that are providing debt
capital for redevelopment projects, such as financial institutions, finance companies,
insurance companies, and pension funds. There are many players in the financial services
industry in the United States. They range from traditional "banking" financial institutions,
such as commercial banks, thrift institutions, and credit unions, to other financial service
firms, such as insurance companies, finance companies, investment banking firms,
investment companies, and pension funds.
Besides capital providers, other significant players in brownfield site transactions
share a common objective of wanting to reduce the uncertainty associated with brownfield
projects. These entities would also benefit from the information in this advisory. They
include: the recipients of the debt capital (the borrowers); contributors of equity capital,
including real estate developers, industry, and others; and community groups, including its
officials, citizen groups, and urban and community planners. Also, with the goal of more
effective information triggering more redevelopment and environmental cleanup, regulatory
agencies at the Federal and state levels would be extremely interested in the role of
information to reduce uncertainty in brownfield projects.
E. Lending Criteria for Capital Providers.
A simplified model for capital provider lending decisions, shown in Appendix A,
reflects basic criteria throughout the lifecycle of a loan and includes environmental factors.
The appendix outlines the criteria — credit, capacity, and environmental factors — and also
lists examples of questions that capital providers would be asking prospective borrowers.
The lending criteria are not mutually exclusive as there will be overlap, especially
regarding the environmental factors. In addition, the criteria are not static in time, since
capital providers address them at various stages, as appropriate, in the life of the loan. The
"loan life" begins with loan application, later involves loan portfolio monitoring, and
ultimately'includes loan termination, either repayment, sale, or foreclosure.' Environmental
-------
Information Weeds~o£ Capital Providers
in Brownfields Redevelopment
factors need to be aggressively determined up-front in the loan application process since that
is probably the time of greater focus, or scrutiny, from capital providers. However, loans
should be routinely monitored after they have been made for changes in environmental
factors just as they are for the credit and capacity criteria.
Credit and Capacity
The criteria begins with "credit" and "capacity," which are paramount in all potential
lending transactions. Capital providers must be concerned about the applicant's credit
worthiness and history of past debt repayments. In addition, providers must be assured that
the applicant has the capacity to repay the loan either through cash flows of the projected
project or from other sources. The Board is not addressing credit and capacity criteria.
Granting a loan may be ~ pure and simple - a poor business decision on the part of the
capital provider. The borrower may have poor credit history or lacking the skills, or the
access to the skills, necessary for project success. Also, die future reuse of the site may be
impractical, resulting in little profit, or even a loss, for the project.
Environmental Factors
Another tier of criteria in potential lending transactions is environmental factors.
These factors take on great importance because they may ultimately impact the credit
worthiness of the applicant and the capacity to repay the loan. There is an array of
information on environmental factors that capital providers should be knowledgeable of when
evaluating either lending opportunities or their existing loan portfolio. Listed below are
several categories of environmental factors meant.to be a starting point. .
o Environmental Legislation, Regulations, and Court Rulings
Capital providers need to be aware of the principal provisions of environmental
legislation relating to their specific business of lending money for brownfield site
redevelopment. They should be familiar with legislation governing hazardous waste, solid
waste, water, and air. Additionally, they should have an understanding of the relationships
between regulations on compliance and enforcement and Federal/state/local authority and
responsibility.
«
Capital providers need access to changes in environmental regulations. These
regulations change rapidly with Federal and state authorities continually working on revising
existing regulations, as well as developing regulations for new concerns. In addition, the
courts in their interpretation of laws and regulations may be establishing important precedents
and case law affecting redevelopment. Capital providers need this up-to-date information to
help them reduce uncertainty in potential lending decisions.
-------
Information Needs of Capital Providers
in Srownfields -Redevelopment
o Site Assessment
In addition to understanding the environmental legislative structure, capital providers
need to be knowledgeable of specific site-related issues. An important place to begin is with
the site assessment. For example, are there different levels, or phases, of site assessments,
and how do lenders know what level is required? Are test borings needed? Is there a need
for chemical, geological, or hydrogeological studies? Capital providers need to be fairly
confident that they are, first, asking the right people the correct questions, and, second,
getting information which they can rely on in their decision-making process. A reliable site
assessment process cannot be over-emphasized because lenders who have confidence in their
assessment program and capabilities will better be able to differentiate between high and low
risk sites. •
Another source on prospective properties is the public record, which contains valuable
historical information, especially when capital providers do not have firsthand knowledge of
a specific site's history. Lenders should know who maintains the public record, how to
access it, and the information they want to gain from the record. Another issue is the cost of
the doing the assessments, or better phrased, "who pays and how much?" True, the
assessment costs are borne to the potential borrower as expenses of undertaking a
redevelopment. However, capital providers may be able to offer their experiences regarding
these costs, or even information as to the availability of any fund that may exist, possibility
at the state level, to assist with site assessment costs.
o Cleanup
Uncertainty in either the nature of the cleanup or its cost are highly detrimental to a
potential transaction. Capital providers need to know such factors as: the cleanup standards
that are in place governing the potential project, whether Federal requirements would
supersede state requirements, and the existence of any voluntary cleanup programs that
borrowers may want to consider.
The potential for a project to have cost overruns makes the price of capital rise. This
is true not only for costs of construction, but also for costs of cleanup. In either case, cost
escalations could drain a borrower's cash flow which would hamper the capacity to repay the
loan. As with site assessment costs, capital providers should also be aware of any funds
available that may provide low interest loans or grants for cleanup. This may be the needed
"extra" to make the deal possible for the potential borrower.
o Reuse of Property
Reuse of property issues must be considered in conjunction with cleanup issues. An
-------
Information Needs of Capital Providers
in flrownfields Redevelopment
important point here is whether there is any flexibility in the degree of cleanup that is needed
given the future use of the site. Related to future use is future exposure, which may be a
criteria of greater importance in determining the degree of cleanup. For example, the future
use of the site may be the same, but exposure to health and safety may be different; and
conversely, the future use of the site may be different, but exposure may be the same.
Standards which would allow for cleanup to be tailored to the future use/exposure of a given
site may be more appropriate and result in less cleanup costs which would lower the
borrower's financing requirements.
Capital providers should also be knowledgeable of land use control issues, in
particular, whether such controls currently exist on the property or could be imposed in the
future. Many states impose controls under current law. Controls may be significant because
of the impact on future use, acquisition, and collateral value of a site, which in turn could
effect future profitability of the project. Again, this is another environmental site issue that
could affect a borrower's profitability and therefore ability to repay a loan.
Site marketability is another area that capital providers should be aware. For
example, even after the cleanup occurs, will there be a "fear" in the public's eyes of the
prior contamination? Even though it is impossible to price this fear factor, capital providers
must consider this uncertainty in any potential lending decision. Depending on the likelihood
of the public not accepting the future site as "clean," profitability of the potential project
could be impacted.
o Liability
Liability issues are important to capital providers for several reasons. They must be
concerned about lender liability because as a party to the transaction they could be at risk
even though they were unaware of the environmental problem when they lent the money.
Capital providers must be knowledgeable of Federal and state liability laws, especially, in
regard to who would be held responsible and the requirements to secure release. They need
assurances that participants to project redevelopment, including themselves, are not at risk to
lawsuits from various sources, such as federal, state, or local governments, former or future
employees working on the site, adjacent landowners, and local residents. Critical points here
include the difficulties in knowing, and in documenting, if and when the responsibility for
site cleanup has been met. Another liability issue for capital providers is when borrowers
encounter unforeseen liability which could impair their cash flow and ability to repay the
loan. This liability could also reduce the value of the property and therefore reduce
collateral if the property was used as collateral for the loan.
There may be potential avenues to reduce exposure to liability. Capital providers
need to be aware of federal release options, or partial releases, as well as state releases
-------
Information Needs of Capital Providers
in arownfields Redevelopment
including any conflicts with federal requirements. Another option involves the assumption of
liability by states or local governments. These public entities may consider assuming a
degree of risk and in effect providing protection to capital providers and developers. Other
possible avenues include Federal policies, such as "comfort letters" or site-specific
covenams-not-to sue, which would also lower uncertainty associated with environmental
liability.
Insurance is another means that may be available to respond to environmental risks.
Capital providers need to be aware of programs that measure and pool risk, in effect pricing
risk into the equation. The issue with insurance may not be quantifying the exposure.or
pricing that quantification, but whether the costs can be absorbed. However, being able to
insure the risk, even with its associated cost, brings greater certainty into the decision-
making process that may allow the lending transaction to proceed.
Lenders must be able to distinguish between circumstances of liability that are
legitimate and valid as opposed to instances where they may be over-reacting to uncertainty.
Undoubtedly, liability concerns are an important example where other remedies are needed in
additional to information.
F. Role of Oversight Entities and Trade Organizations
In determining the contents of the information for capital providers and the method or
options, for accessing the information, the Board believes that it would be extremely
beneficial to involve the entities responsible for the regulation and oversight of the financial
service firms as well as the trade organizations that represent the firms. With these entities
knowing the "environment" in which capital providers operate, they would be very helpful in
fine-tuning the practical application and utility of the informational tools in lenders' day-to-
day operations. These entities may even offer sources, or potential ways, to deliver
information to capital providers due to their existing linkages and contacts.
For financial institutions such as commercial banks, they come under the purview of
the Office of the Comptroller of the Currency (OCC) if they are nationally-chartered banks,
or a state regulatory agency if they are state-chartered banks. The OCC's supervision of
banks is aided by the required submission of period reports and detailed on-site examinations,
which are conducted by a staff of over 2,800 national bank examiners. Since the OCC is
responsible for rules and regulations for national banks and bank directors, it could also
serve as an important educational link to national banks on environmental issues.
Regulations of the Federal Reserve System and the Federal Deposit Insurance
Corporation may also apply to commercial banks. For example, all nationally chartered
commercial banks must be part of the Federal-Reserve, as well as the Federal deposit
-------
Iruformaeion Needs of Capital Providers
in Branmfields Redevelopment
insurance program. The Federal Reserve structure offers another opportunity to reach
member banks, A particularly effective method might be to use regional federal reserve
banks to reach the respective banks in their geographic area. Interaction on a regional basis
may have a particular appeal due to the closer proximity and keener sensitivity on specific
issues facing line bankers within their area.
Federal thrift institutions also operate under an oversight structure of the Federal
government's Office of Thrift Supervision. This structure may offer an opportunity to reach
this segment of capital providers. The Office charters, regulates, and examines Federal
thrifts and cooperates in the examination and supervision of certain-state-chartered thrifts. In
total, its oversight extends to more than 1,500 thrifts with more than 11,000 operating
branches. .
Insurance companies and pension funds also come under oversight and regulation.
Pension funds are regulated at the Federal level by the Department of Labor (DOL).
Through its audit and oversight procedures, OOL would have the potential to reach this
group of capital providers. Insurance companies technically also come under Federal
regulation since they are in the business of interstate commerce. In practice, however,
insurance companies are regulated at the state level. There is a trend toward uniformity in
state insurance laws which has- been encouraged by the National Association of Insurance
Commissioners, comprised of representatives of all states. .This organization meets regularly
to discuss mutual issues applicable to the insurance industry and would offer an opportunity
to reacira targeted segment of capital providers.
Another avenue of direct contact with capital providers is through trade organizations
that represent financial institutions, insurance companies, and other financial service firmsr
These trade organizations, such as the American Bankers Association, the Mortgage Bankers
Association, the Independent Bankers Association, and others, through their recurring
outreach programs with their constituents via newsletters, publications, and conferences,
could serve as a vital source of providing information to capital providers.
In addition to the regulatory hierarchy over capital providers, there exists regulatory
oversight over their customers, i.e. the borrowers, in terms of die reporting requirements to .
the Federal government's Securities and Exchange Commission (SEC). The primary mission
of the SEC is to protect the interests of the investing public. In this regard, issuers that have
conducted public offerings, have securities traded in the public markets, or have total assets
and security holder populations of specified sizes, are required to furnish management,
financial, and business information to the SEC on a continuing basis. To die degree that this
information to the SEC results from environmental factors, capital providers should have
access to it. If the factors effect a borrower's financial position, capital providers should
know this as part of their decision-making process in evaluating lending opportunities.
8
-------
Information Meeds of Capital Providers
in Brownfields Redevelopment
G. Recommendations
The Board recommends that the Agency support the development of a Brownfi?ld
-------
Information Weeds of Capital Providers
in Brownfields Redevelopment
Center (EFC) at the Cleveland State University on brownfield financing issues and urban
economic development at several cities in the Great Lakes Region. The Cleveland State EFC
is one of six EFCs in a network that provides state, local, and private sector officials with
training, advisory services, publications, and analyses on environmental financing issues.
Other sources of case studies would include: the fifty Brownfields Economic Redevelopment
Pilots, funded by EPA in either 1995 and 1996, to support creative redevelopment solutions,
and the Brownfields Financing Case Studies being developed by EFAB.
Brown/tebjs fffffrifrflcfr 0^ Proposed Rules and Regulations
Another potential component would be the Brownfields Feedback on Proposed Rides and
Regulations. Ibis component would serve to inform interested parties and seek their
comments on proposed regulations and rules that could ultimately impact brownfield
redevelopment. For example, proposed Federal and state rules affecting costs of remediation
and the types of remediation required could critically impact a borrower's ability to
redevelop a brownfield site as well as a capital provider's ability to be part of that
transaction. In effect, this component could serve as a communication vehicle to give
regulatory officials another vehicle to receive comments and give them valuable insight on
proposed regulations and rules. The component could also provide for expansion to allow
for comment on existing rules and regulations affecting redevelopment.
Software for Brownfields Transactions
Another potential component would be Software for Brownfields Transactions. This
component would provide capital providers with software to use as a step-by-step approach
on brownfield site financing. In effect, this would represent a "how-to guide" on steps for
proceeding with prospective buyers, and sellers, of brownfield site redevelopments. The
software might also include "elements of success" that would typically be part of the
borrower's operational business plan for the site redevelopment.
A model that could be used to develop this Software, from a technological standpoint, may
be a rate model developed by the Government Finance Officers Association for communities
to reflect the true cost of providing drinking water and wastewater services.
Brownfields Resource Materials and Consultation
Another component would be Brownfields Resource Materials and Consultation. Through
telephone access, users could obtain, either free or with minimal cost, educational products,
such as brochures, videotapes, newsletters, and government publications. They could also
access information (date, location, subject, contact, etc.) on brownfields meetings and
conferences. In addition, users could ask questions of technical experts regarding brownfield
redevelopment issues.
10
-------
Information Needs of Capital Providers
in Srownfields Redevelopment
Another feature of the Brownfields Resource Materials and Consultation would be a
brownfields "green pages directory" depicting actual redevelopment transactions. This
feature would enable users to obtain information on real-life brownfields projects, such as
project highlights, sources of financing, barriers overcome, critical success factors, and the
names and phone numbers of the principal players (i.e. developers, capital providers,
community leaders, engineers, etc.) in the project. In effect, this feature would serve as a
repository of "abstracts" of brownfields case studies. Appendix B contains an example of the
"green pages directory."
Capital providers and their oversight entities and trade organizations will need to be.
integrally involved in the .development and implementation of the Clearinghouse. It will be
extremely important to learn from capital providers the precise information needed to assist
them in their lending decisions. Also, meetings should occur with representatives of
financial oversight entities and trade organizations, such as those highlighted in Part E, Role
of Oversight Entities and Trade Organizations. In addition to providing insights on existing
information that capital providers either use or do not use, these groups can provide an
important linkage to their clientele on environmental information to assist them in their day-
to-day business activities involving brownfield sites redevelopment.
The development and implementation of the Clearinghouse might best occur on a pilot
basis, with a targeted audience for each component, as appropriate. One approach might be
for a pilot on databases in the first year, a pUot of case studies in the second year, and a
pilot on other components in the third year. The goal would be to create model components
that could later serve additional audiences. Pilots would allow for the developmental and
operational features of the Clearinghouse to be fully tested and explored, such as data
contents, menu options and accessibility, downloading capabilities, resource requirements',
and the role of various organizations, including the regulatory agencies. For example, there
may be various alternatives to access the Clearinghouse Haas, may be very effective, such as
using databases that currently exist in either the private, public, or non-profit sectors.
The Board does not recommend that the Agency develop the Clearinghouse. Instead,
the Agency may find it effective to enlist non-profit organizations, such as a university, or
group of universities, as lead entities in developing, and later maintaining, the
Clearinghouse. The Environmental Finance Center (EFC) network might be utilized in this
manner. The EFCs would be highly effective in piloting components of the Clearinghouse
given their targeted geographic focus and emphasis on sharing information among other
Centers. •
Another opportunity for a pilot would be to use the "one-stop general store" approach
to reach the target audience. An example, of this approach is in Houston, Texas where the
country's first U.S. General Store for Small Business opened-in July 1995 to provide one-
11
-------
Information Needs of Capital Providers
in Brownfields Redevelopment:
stop assistance for small businesses that need help complying with federal regulations,
solving tax problems, bidding on contracts, and obtaining government loans. The General
Store is user accessible (opened on some evenings and weekends) and computer friendly
(providing information via electronic mail on Internet). Thirteen departments of the federal
government are participating in the new venture, including the Environmental Protection
Agency. This general-store concept may be another alternative for piloting components of
the Clearinghouse.
The pilot would need to fully explore resource requirements for the Clearinghouse.
Initial investments would be needed, both in terms of dollars and in-kind services, for the •
pilot to proceed, which could be solicited from various sources on a cost-sharing basis. The
pilot would explore system operational costs and the extent that user fees could recover these
costs. -
The benefits envisioned from the proposed Clearinghouse would be numerous. When
capital providers are better able to manage the uncertainties of lending, many groups would
benefit, including themselves, their customers, the environment, and society. Lenders would
definitely benefit by having better and more accurate information to make decisions. They
would either be: (1) making profitable loans that would not have otherwise been made, (2)
making loans at a lower cost, or (3) not making loans due to a clearer rationale of the
environmental issues involved. Their customers would also- gain when capital providers take
a more informed and predictable approach to environmental factors in lending decisions.
They would, of course, gain if the loan is made since financing costs would be reduced due
to more accurate pricing of the environmental risks. On the other hand, customers would
also gain when capital providers do not grant a loan due to environmental factors because
potential customers would know in a more quantifiable basis the •environmental risks
involved. Customers may, as a result, alter their financial estimates for the proposed
redevelopment, and may decide not to proceed any further with the project. ' .,
There are broader benefits, as well, of capital providers being better able to manage
environmental risks. For example, the lending of money for a brownfield site redevelopment
would spur a multitude of investments, both in terms of the economy with greater
employment, more productivity, and increased demand for corollary products and services,
and in terms of environmental improvements with the cleanup of contamination. This
definitely would affect in a positive manner the environment and, coupled with the benefits to
the economy, would improve the quality of life for a given locality. Furthermore, the
willingness of capital providers to finance brownfields redevelopment places them in a unique
position to not only help themselves and their customers, but also to be an agent to help
enforce environmental regulatory mandates. .
12
-------
reformation .Veeds of Capital Providers
in SrownfieJd Sice Redevelopment
Appendix A: Overview of Lending Criteria for Capital Providers
Environmental Factors
credit of the applicant I capacity to repay I
tjQT"t*hinegg nf
What is the financial track record of the applicant in terms
of being a good credit risk?
How do you access the "character" of the applicant in terms
of past credit history?
Does the applicant have the necessary technical and
administrative skills, or access to them, to be a good
credit risk?
t*.o repay fht* loan
Is the business venture being proposed by the applicant a-
good investment?
Is there a demand for the business venture?
What is the competition for the business venture?
Are there other cash flows that the applicant can draw from
to repay the loan?
What the estimated, as well as firm, .occupancy for the •
redeveloped real estate? . '
What collateral is being offered by the applicant?
A-l
-------
Information Heeds of Capital Providers
in Brownfield Sice Redevelopment
Appendix A: Overview of Lending Criteria for Capital Providers
(Continued)
What are the Federal, state, and local regulations in place
affecting the site?
How can we determine if a cleanup is needed and what will, be
the cleanup costs? ""
What are the risks of escalation in cleanup costs, whether
due to unforeseen.costs, or changing regulations?
what are the. liability issues that are involved from the
standpoint of the borrower as well as the lender?.
Are there options available in environmental risk insurance
and who provides it?
A-2
-------
Inforaiacion .Veeds of Capital Providers
in Brovnfield Sice Redevelopment
Appendix B: ..Brownfields "Green Pages Directory"
1. Where did the initial impetus for the proposed use come
from? Private (i.e. property owner or borrower) or public?
2. What were the environmental conditions at the site?
3. What information on environmental conditions was available
at the time the project was first proposed?
4. Did the project, developer consider other sites? If so, had
any others been rejected because of- environmental
considerations?
5. Was the potential for CERCLA liability a consideration for
any of the parties in the transaction?
6. What kind of capital provider was involved?
7. What were the factors which initially led the user to the
site?
8. What role, if any, did the community of community-related
considerations play in. the site selection or negotiation?
9. Did the site appear on any local, state of federally
maintained list of contaminated sites?
10. Were there existing structures on the site and, if so. what
role did their condition or configuration play?
11. What was the property's tax status?
12. Did the EPA Guidance on Brownfields play a role in the
process? .
13. What administrative mechanisms were available to approve the
remediation of the site and use of the property? Were they
in place at the time that the site selection and development
process began?
14. What legal instrument was used to approve the remediation
and/or to release the user from future liability?
15. What type of financing was utilized?
16. What role, if any, did the Community-Reinvestment Act play
in the project?
B-l
------- |