United States
Environmental Protection
Agency
Urban and Economic
Development Division
EPA231-R-99-007
October 1999
Financing Brownfields
Redevelopment Projects
A Guide for Developers
-------
Financing Brownfields
Redevelopment Projects
A Guide for Developers
Urban and Economic Development Division
U.S. Environmental Protection Agency
Washington, DC 20460
-------
7 his source book was compiled using information from
existing studies, current bibliographical research,
and interviews with experts including developers;
appraisers and insurers; and loan officers, vice presidents, and
environmental risk managers from lending institutions. The
publication was developed under EPA Purchase Order 6W-
3586-NASA and EPA Contract Number 68-W4-0041,
respectively.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Table of Contents
Introduction 1
Chapter 1: Redeveloping Urban Properties:
The Potential for Exceptional Profits 2
The Advantages of Urban Sites 2
Discounted Property Price 2
Low Infrastructure Costs 2
Favorable Zoning/Land Use Provisions 3
Support For Brownfields Redevelopment 3
Chapter 2: Financing Sources and Technical
Assistance for Brownfields Redevelopment 5
Private Financing Sources 5
Public Financing Sources 5
Federal 6
State 9
Local 9
Chapter 3: Preparing Project Finance Plans 11
Brownfields Considerations 11
Elements of Project Finance Plans 12
Chapter 4: Approaching Private Lenders 15
Lender Experiences, Attitudes, and Policies 15
Lender Policies on Environmental Assessments 15
Bank Size and Ownership 16
Bank Commitment to Locality 17
Chapter 5: Minimizing the Risks of Brownfields Redevelopment 18
The Liability Risks of Potential Contamination 18
Federal Policies Offering Liability Protection 19
State Policies and Programs Offering Liability Protection 20
No Further Action Letters 20
Covenants Not to Sue 21
Prospective Purchaser and Buyer-Seller Agreements 21
Intervention in the Chain of Ownership 21
Structuring the Purchase to Lessen Risk Exposure 22
Indemnification 22
Purchase Options 23
Conditional Agreements to Lease 23
Subdividing 23
Joint Ventures 23
Compensating Lenders' Risks 23
Loan-to-Value Ratio 24
Sources of Collateral 24
Environmental Insurance Availability 24
Chapter 6: Environmental Site Assessments and Cleanup Alternatives 26
Environmental Site
Assessment Phases 26
Site Remediation 27
Oversight 29
Selecting Consultants 30
Selecting Legal Counsel 30
Appendix A: Resources 33
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Financing Brownfields
Redevelopment Projects -
A Guide for Developers
rhis guide is intended for
developers and property
owners devising strategies for
financing development projects on aban-
doned or underutilized properties, known
as "brownfields." An issue of particular
importance in devising and implementing
financing strategies for brownfields rede-
velopment is potential contamination
from previous site uses. The perception,
presence, nature and extent of contamina-
tion can affect the cost of redevelopment
and the liability risk, both of which
influence the ability to secure financing.
Despite the costs and uncertainties
associated with potential site contamina-
tion, many brownfields sites offer the
potential for exceptional returns on
investment. Knowledgeable developers
and property owners are increasingly
capitalizing on such redevelopment oppor-
tunities. In addition to financial benefits
to developers and investors, brownfields
redevelopment also offers substantial
environmental, economic and social ben-
efits, particularly for metropolitan areas.
Cleaning up and returning these proper-
ties to productive use can reduce human
health risks, provide jobs and needed tax
revenues and, depending on the use and
design, can revitalize deteriorated neigh-
borhoods and provide needed community
services. Recognition of these benefits has
stimulated many federal, state and local
governments to institute programs and
policies to remove some of the barriers to
financing brownfields redevelopment.
Together, public and private sector
leaders are implementing approaches to
increase funds for developers, minimize
their liability concerns, and reduce delays
due to contamination. As a result,
developers and property owners across the
country are realizing the financial feasibil-
ity of redeveloping brownfields. Public
and private organizations are offering
funds in the form of grants or debt that can
reduce the cost of capital. The public
sector is also offering tax credits to
brownfields projects and encouraging
investment by the private sector through
the use of equity arrangements, financial
assurances, liability assurances, informa-
tion services, and legislative reforms.
This guide provides information on
these and other brownfields financing
issues and informs developers and prop-
erty owners on the most crucial aspects of
financing brownfields redevelopment:
identifying potential financing sources,
preparing project plans, approaching
private lenders, minimizing the financial
risks associated with liability, and under-
standing the site assessment and cleanup
process. It also advises developers on
selecting and utilizing specialized envi-
ronmental and legal consultants. Several
of the guide's exhibits list information that
developers should obtain from lenders,
environmental agency personnel, consult-
ants, and lawyers in the course of the
redevelopment process. In addition, the
guide provides case study examples that
illustrate the practices and techniques
discussed. The appendix includes key
contacts and references.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Redeveloping Urban Properties:
The Potential for Exceptional
Profits
/n the 1990s, government officials
across the country started to
provide widespread support for
returning idle or underutilized urban
properties to productive to generate taxes
and employment opportunities that cities
desperately need. As officials have
stepped up their efforts to promote reuse
projects, developers have sought opportu-
nities for profit in redeveloping
underutilized properties. Some firms are
resolutely seeking out brownfields for
investment; they can realize high returns
by applying their expertise in minimizing
brownfields project costs. Developers are
finding that expert management of the
environmental risks can yield exceptional
profits on brownfield sites.
The Advantages
of Urban Sites
Discounted Property Price
One reason for the profit potential in
brownfields redevelopment is below-
market or subsidized pricing of the
properties. Private sellers often prefer to
lower the price of idle properties than
incur the costs associated with possible
contamination. Abandoned sites, espe-
cially, may be bought at minimal cost. In
some cases, they turn out to require little
or no cleanup. In addition, most cities
have a variety of sites awaiting redevelop-
ment. The sites are usually acquired in
one of two ways. First, sites may be taken
for tax delinquency; usually failure to pay
real estate taxes. Second, economic
development agencies may accumulate
land for economic regeneration, often
combining small parcels together in larger
sites to attract new businesses. Such sites
are typically available at a subsidized or
even a symbolic price, at times as little as a
dollar. Eventually, these sites may yield
exceptional returns on the initial assess-
ment and cleanup investments. The
developer should be forewarned that
deeply discounted sites are often highly
contaminated or have limited market
value and may be difficult to finance.
Low Infrastructure Costs
In some cases, preparation of
brownfields sites for redevelopment may
require more money and more time than
launching new greenfield construction,
especially if the brownfields property is
heavily contaminated. Other factors,
however, compensate for the site assess-
ment, cleanup costs, and time.
One compensating factors is the
presence of existing infrastructure at
most brownfields sites. On-site infrastruc-
ture includes utility hookups, lighting, and
sidewalks. Off-site infrastructure in-
cludes storm sewers and drainage. The
presence of such infrastructure can save
development costs. Moreover, used urban
sites usually can be redeveloped in their
entirety. They are rarely affected
retroactively by new zoning restrictions,
applicable to greenfields, that often
require that 50 percent or more of the land
be left undeveloped for roof and pavement
runoff. Thus, a project on a used urban site
may need only half the land it would
require in the suburbs.
e
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Costs of urban site redevelopment also
depend on the state of existing buildings.
Often the buildings do not need to be
demolished, but instead can be rehabili-
tated and adapted for reuse at a fraction of
new building construction costs.
Favorable Zoning/Land Use
Provisions
The availability of urban sites already
zoned for development eases the process of
meeting zoning requirements. Unlike
suburban greenfields development,
brownfields projects rarely suffer delays
due to zoning commission hearings and
decisions. In addition, city land use
requirements and building codes often
have established set-back requirements
and other standards, leaving little room
for negotiation. Conversely, in suburban
areas, local governments generally re-
quire review and approval of landscaping
and development plans. As in the case of
zoning, the need for detailed approval of
greenfield site use and construction plans
can generate uncertainty about final
requirements and delay project implemen-
tation. Such requirements can be more
troublesome than those at well-under-
stood urban sites.
On balance, urban redevelopment
typically involves less regulatory negotia-
tion related to the development plans than
suburban development. The simpler
development project approval process may
help defray the regulatory costs and offset
any project delays associated with poten-
tial contamination of used sites.
Support For Brownfields
Redevelopment
The current outlook for obtaining
funding for brownfields redevelopment is
very positive. In the last five years, the
federal government has
launched a variety of efforts
to encourage urban revital-
ization by removing finan-
cial barriers and providing
financial incentives for
brownfields redevelopment.
In February 1997, Presi-
dent Clinton initiated the
Brownfields National Part-
nership (BNP), to "spur
cleanup and redevelopment
at some 5,000 brownfields
sites around the U.S." The BNP includes
$300 million of federal investment in
brownfields cleanup and redevelopment
and another $165 million in loan guaran-
tees. It also marshals the combined forces
of fifteen federal agencies now responsible
for providing resources to brownfields
remediation and redevelopment efforts.
According to the President's Council on
Environmental Quality, this spending
should leverage between $5 billion and $28
billion in private brownfields investment,
create 196,000 new jobs, and foster
improvement in the quality of life for up to
18 million Americans currently living near
brownfields.1
The federal government has also been
quite active in the creation of tax
incentives to spur development. Federal
tax code allows developers to deduct
remediation expenditures from tax
liability. Currently, qualified sites are
restricted to the following areas:
*> Population census tracts with
poverty rates of 20% or higher;
*> Population census tracts with
populations less than 2,000 people
Brownfields Positives
Below-market or subsidized real
estate prices.
Presence of existing infrastruc-
ture.
Developable in their entirety, no
set asides for runoff.
Well-established and favorable
land use policies.
Simple regulatory process for the
approval of development plans.
1 Council on Environmental Quality,
Clinton Administration Expands Commitment
to Brownfields Redevelopment, May 13, 1997.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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if more than 75% is zoned for
commercial or industrial use, or if
the tract is contiguous to such a
tract;
«J« Empowerment zones or enterprise
communities; and
*> Brownfields Pilot sites announced
before February 1, 1997.
Recently, Congress introduced several
pieces of legislation to broaden eligibility
for these incentives. Some of the proposed
legislation expands tax deductions to more
categories, while other proposed legisla-
tion would apply the deduction to any
remediation expense at non-Superfund
sites. Although this legislation is still
pending, it is likely that some broadening
on the federal tax incentive for brownfields
will occur in 1999.2
Fueled by such federal actions, state
and local governments, as well as private
non-profit organizations, have also initi-
ated activities to promote economic
development related to brownfields rede-
velopment through financial assistance
and incentive programs. For instance, the
EPA has become more flexible in terms of
the required level of cleanup at brownfields
sites; now risk and end use are considered.
Greater flexibility also applies to the
conditions under which states can issue
liability assurances, such as Prospective
Purchaser Agreements and Covenants
Not to Sue. The government has
subsidized environmental insurance poli-
cies to make them affordable for
brownfields redevelopers. The eligibility
requirements for existing economic devel-
opment funds have been restructured to
target brownfields redevelopment. States
have increased the availability of low
interest loans by establishing revolving
loan funds, floating tax exempt redevelop-
ment bonds, and making other economic
development loan programs available to
brownfields redevelopment. Grants are
offered for site assessment and cleanup,
and other grant sources are available for
redevelopment. State and local tax codes
now allow site owners to take advantage of
further tax credits and abatements that
offset cleanup costs.
On a local level, agencies such as land
registries and regulatory compliance
assistance centers help educate develop-
ers about suitable sites and regulatory
options. If the redevelopment project
occurs in an area with environmental
problems, regulators often reward devel-
opers with timely review of cleanup and
site development progress. Environmen-
tal justice sentiment may spur extra
cooperation and assistance for redevelop-
ment of defunct sites in neglected
neighborhoods. Once prime areas of trade
and industry, these areas suffer from a
disproportional accumulation of post-
industrial effects, including possible site
contamination. The rising concern for
environmental justice suggests that devel-
opment in these neighborhoods, where
poor, minority citizens often live, is a
public service.
e
2 For more information on federal tax
incentives, see forthcoming documents:
Brownfield Tax Incentive Guidelines and
Brownfield Tax Incentives- What's In It for You?
Available at http://www.epa.gov/brownfields
in October, 1999.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Financing Sources and
Technical Assistance for
Brownfields Redevelopment
rhere is a large network of
government and private pro-
grams that provide support for
brownfields redevelopment. Many of
these programs provide financial support
in the form of grants, loans, loan
guarantees, bonds, and tax credits or
enhancements. These funding sources are
described in detail here.
Private Financing Sources
In many situations, polluters clean up
their contaminated property voluntarily,
or buyers of the properties pay the
remediation costs in exchange for dis-
counted purchase prices. Alternatively,
foundations might donate money for
cleanup or companies may offer in-kind
work. The Clean Land Fund, dedicated to
providing financing for brownfields revi-
talization, maintains a sustainable revolv-
ing loan fund used for acquisition,
remediation, and reuse of brownfields
properties. The National Association of
Development Organizations Research
Foundation conducts research on
brownfields in rural areas for the EPA.
These two organizations are a small
sampling of a variety of private, non-profit
companies dedicated to brownfields
projects. The Brownfields Non-Profits
Network lists many others on their
Internet site: www.brownfieldsnet.org.
Property owners may also seek
financing from private banks. While some
commercial banks are reluctant to invest
in brownfields due to liability concerns and
perceived market disadvantages, the May
1995 amendment to the Community
Reinvestment Act encourages banks to
invest in brownfields by making them one
of the options for requisite community
investment. Community Development
Banks (CDB) or other special community-
based lenders are also likely sources of
private financing. CDBs are typically full-
service commercial banks, chartered to
provide retail banking services in specific
geographic areas. Created to promote
investment in targeted economic develop-
ment areas, CDBs provide advice and
make loans. Because they lend only for
projects within specified areas, developers
will not compete for funds with out-of-
town investment alternatives. Moreover,
many CDBs act as "agents" for other
banks, including them in deals they
structure. Thus, CDBs may serve as
liaisons for developers in attracting money
from commercial banks.
Public Financing Sources
In addition to providing incentives for
private investment, government pro-
grams provide grants, loans, and tax
credits. Grants are usually awarded for
site preparation and infrastructure im-
provements. Industrial development
bonds, with lower than market interest
rates and tax free interest, provide debt
financing for fixed assets. Economic
development agencies also offer loans at
below-market rates of interest. Often
some stipulation is attached, such as the
creation of new jobs. Financial assur-
ances, such as loan guarantees and bond/
loan insurance, assure lenders that they
ro
Financing Brownfields Redevelopment Projects - A Guide for Developers
e
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will be repaid by a secondary source if the
developer should default.
Federal
U. S. Environmental Protection
Agency
The U.S. Environmental Protection
Agency (EPA) has launched its
"Brownfields Economic Redevelopment
Initiative," a program based on the
premise that cleaning contaminated prop-
erty goes hand-in-hand with bringing
economic vitality back to communities.
The program includes several measures to
encourage urban revitalization. It funds
brownfields pilot projects throughout the
country, provides capital for revolving
loan funds, develops job training pro-
grams, and builds partnerships with other
government bodies and private associa-
tions to facilitate redevelopment. EPA has
also clarified many liability issues associ-
ated with possible brownfields site
contamination. For more information on
this program, contact the applicable EPA
Regional Brownfields Coordinator (listed
in the appendix) or consult EPA's web site:
www.epa.gov/ brownfields.
The Brownfields Assessment Demon-
stration Pilot Program provides grants of
$200,000 to assist in redeveloping
brownfields. Two hundred and fifty
Assessment Pilots were established be-
tween 1995 and 1999. Additional pilots
will be selected in coming years. These
pilot grants facilitate public and private
efforts, remove some regulatory barriers,
and promote community cleanup. States,
cities, towns, counties, and Indian tribes
are all eligible for pilot grants. The
funding must be used on activities
involving sites that are not on the
CERCLA National Priorities List and are
Focus On:
BROWNFIELD
DEMONSTRATION PILOT GRANTS
Oregon Mills Conversion Project
Astoria, Oregon
During the last decade, a vast number of timber mills have shut down in Oregon,
displacing thousands of workers and leaving contamination behind. The City of Astoria,
Oregon has responded by using an EPA Pilot Grant of $200,000 to team up with
Oregon's Department of Environmental Quality and community groups to assess and
plan conversion of the former mills. Following assessment, the Astoria Plywood Mill
is using a $700,000 loan from Shore Trust Advisory Services to cleanup the existing
contamination and redevelop the mill site into a multi-use area including a public prom-
enade, shops, and housing. Following assessment, another mill site was purchased
by a private corporation and redeveloped into an industrial park; it is expected to
create 1,000 new jobs. The EPA Pilot Grant was integral to jumpstarting this project
and ensuring its ultimate success.
Case study information from:
http://www.epa.gov/swerosps/bf/html-docs/ss_orgmil.htm
e
Financing Brownfields Redevelopment Projects - A Guide for Developers
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not undergoing RCRA corrective action,
but have contaminants that endanger
public health. Funds are intended for site
assessment and cleanup planning, not for
cleanup, construction, or job training. For
more information, please see www.
epa.gov/swerosps/bf/pilot.htm. Applicants
should contact their regional brownfield
coordinator for assistance; contact infor-
mation is provided in the appendix.
EPA also provides funds to enable
municipalities to capitalize revolving loan
funds for the cleanup and redevelopment
of brownfields sites. Brownfields develop-
ers can borrow from the funds; when they
pay back the loans, the money is used to
finance other projects. EPA's revolving
loan program has been funded for FY99 at
$35 million. This is intended to provide
capital for 60 communities, with up to
$500,000 for each community.
U. S. Department of Housing and
Urban Development
The U.S. Department of Housing and
Urban Development (HUD) also finances
brownfields redevelopment. HUD's three
types of financing programs are Commu-
nity Development Block Grants (CDBG),3
Section 108 loan guarantees,4 and
Brownfields Economic Development Ini-
tiative grants (BEDI).5 Funds can be used
for land acquisition, site assessment and
remediation, and construction of public
facilities. CDBG and Section 108 loans
must benefit low-income people, prevent
slums, or improve the health and safety of
communities. Since brownfields redevel-
opment projects create jobs, promote
economic development and revitalization
3 www.hud.gov/progdesc/cdbgent.html.
4 www.hud.gov/progdesc/cdbg-108.html.
5 www.hud.gov/progdesc/edi.html.
of neighborhoods, and improve public
health by cleaning contaminated areas,
they constitute an appropriate uses of
these funds.
The Section 108 Loan Guarantee
Program uses CDBG funds as collateral
for loan guarantees. BEDI grants, which
must be applied for in conjunction with
Section 108 loan guarantees, provided a
total of $25 million in 1998 and will
provide the same in 1999. The average
BEDI grants are $1 million. This money
serves as leverage for additional loans to
supplement those guaranteed by Section
108.
HUD also designates Empowerment
Zones and Enterprise Communities, which
channel resources to some of the poorest
and neediest urban areas. Such a
designation qualifies the municipality
receiving the designation to: (1) access
Qualified Empowerment Zone Facility
Bonds; (2) receive a $3 million grant of
Human Service Block Grant funds; and (3)
claim up to $37,000 of accelerated
depreciation on new equipment purchased
by businesses in the EZ/EC. For more
information, call the HUD Brownfields
Hotline at 1-800-998-9999 or consult the
web site: www.hud.gov/progdesc/ezec.html.
U. S. Department of Health and
Human Services
The U.S. Department of Health and
Human Services (DHHS) offers additional
funds, tax benefits, wage credits, and tax-
exempt bond financing, which can be
applied to brownfields redevelopment by
either private or public agencies. DHHS
links welfare reforms with brownfields
redevelopment, and provides money in the
form of Social Services Block Grants that
can be used for job training in Empower-
ment Zones and Enterprise Communities.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Main Sources of Federal Financial
Assistance
EPA: Brownfields Economic Rede-
velopment Initiative, Brownfields As-
sessment Demonstration Pilot Grants,
Revolving Loan Program.
HUD: Community Development
Block Grants (CDBG), Section 108
Loan Guarantee Program, Brownfields
Economic Development Initiative
(BEDI), EZ/EC designation.
DHHS: Tax benefits, wage credits,
and tax-exempt bond financing,
health studies and job training.
DOC: Economic Development and
Adjustment Assistance Grants,
Coastal Zone Management Program.
DOT: Livable Communities Initiative,
ISTEA/TEA-2 funds.
Two subagencies of the Department of
Health and Human Services are the
Agency for Toxic Substances and Disease
Registry (ATSDR) and the National
Institute of Environmental Health Ser-
vices (NIEHS). These agencies support
brownfields through health studies and
environmental job training programs,
respectively. For more information,
consult the ATSDR web site: http://
atsdrl.atsdr.cdc.gov:8080/OUA/.
U. S. Department of Commerce
The Department of Commerce (DOC)
supplies resources through two agencies
the Economic Development Adminis-
tration (EDA) and the National Oceanic
and Atmospheric Administration (NOAA).
EDA offers Economic Development and
Adjustment Assistance Grants for busi-
ness development in economically dis-
tressed areas. Supported implementation
activities include revolving loan funds and
infrastructure improvements for redevel-
opment. Average grants for projects range
from $200,000 to $300,000. Money can be
used for area wide planning, market and
environmental studies,
defense conversion, and
public works to encour-
age private investment.
Private businesses may
apply for revolving loan
funds.
NOAA's Coastal Zone
Management Program
uses Section 306 funds
for coastal development
projects that could in-
volve brownfields. Such
funds, delegated by states
and local coastal re-
source managers, can be
used for purchasing land,
designing a site, or constructing public
access to the waterfront.
U. S. Department of Transportation
The U.S. Department of Transporta-
tion (DOT) has funds available for
brownfields redevelopment as part of its
Livable Communities Initiative,8 a pro-
gram designed to strengthen the link
between transit and communities. If the
land use involves transportation, funds
may be used for property acquisition, site
preparation, and construction. Likewise,
the Intermodal Surface Transportation
Efficiency Act (ISTEA) funds environmen-
tal projects related to transportation and
fosters accessible jobs and housing. The
Transportation Equity Act for the 21st
Century (TEA-21) reauthorizes funding
previously available under ISTEA. If a
brownfields site will become a transporta-
tion site, then TEA-21 funds are available
for its redevelopment. Both local
governments and private developers may
apply for funds. In addition, TEA-21 funds
are available for transportation projects in
connection with brownfields redevelop-
ment, such as new interchanges or road
upgrades.
Other Federal Agencies
Additional sources of public funding
are available through the National Park
Service, the State Underground Storage
Tank Trust Fund Program, the Appala-
chian Regional Commission Supplemental
Grants, and the Federal Housing Finance
Board. The Finance Board has a
Community Investment Cash Advance
Program designed to finance the rehabili-
tation of low-income housing.
o
6 http://www.fta.dot.gov/library/planning/
livbro.html.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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State
States provide financial incentives
such as grant and loan funds, insurance
for lenders, and tax credits. If a project is
risky, a state agency may become involved
and see it through to completion.
Developers should contact relevant state
environmental and economic development
agencies to learn about available financing
programs and sources. Contact names are
listed in the appendix.
As of July 1999, 47 of the 50 states had
established Voluntary Cleanup Programs
(VCPs) to provide for cooperative arrange-
ments between owners or prospective
owners and state environmental agencies
to prepare sites for redevelopment. VCPs
provide oversight for environmental
cleanup, technical guidance, cleanup
verification, and most importantly, liabil-
ity assurances. These assurances come in
the form of No Further Action Letters,
Covenants Not to Sue, Certificates of
Completion, and other liability releases.
VCPs hasten the cleanup process and
provide clear technical guidance and
cleanup standards. Some also offer low
interest loans or grants for environmental
site assessments, cleanups, or redevelop-
ment. Contact people for each state are
listed in the appendix and on EPA's web
site: www.epa.gov/swerosps/bfstcntct.htm.
Local
Financial assistance at the local level
involves the use of tax incentives. Forty
states offer tax increment financing (TIF),
a system used by local governments to
fund redevelopment efforts with predicted
increases in local property taxes. The use
of TIF is facilitated by state laws that
allow the establishment of special districts
to collect TIF revenues and issue debt.
Abatements are another local tax tool
that freeze the assessed value of land at its
preimprovement rate. Reduced taxes
attract developers, and after redevelop-
ment, taxes are gradually increased to
reflect the new assessed value. The terms
of the tax abatement may depend on the
number of new jobs created or the location
of the brownfields site.
The federal Empowerment Zone/
Enterprise Community program (EZ/EC)
provides funds for local authorities to
allocate at their discretion. With an EZ/EC
designation, cities receive a one-time $3
million grant of Human Services Block
Grant Funds. Portions of these funds can
be used to fund brownfields redevelop-
ment projects that are directly tied to the
employment of EZ/EC residents. EZ/EC
designation also provides Empowerment
Zone/Wage Tax Credits, which give
employers a $3,000 tax credit for every
employee hired who lives within the
Empowerment Zone boundaries. Desig-
nated EZ/ECs also have access to qualified
Empowerment Zone Facility Bonds. These
tax-exempt bonds provide up to $3 million
to finance the construction of privately-
owned, new or expanded facilities and to
purchase machinery for projects within an
Empowerment Zone or Enterprise Com-
munity.
Many municipalities have designated
their own "redevelopment areas" or
"special economic development districts."
Sites within such zones receive priority for
proposal and site development review by
planning and oversight agencies. The
location also gives developers priority
access to development funds and to state
or local subsidies for assessment and
cleanup costs.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Another method of local funding,
public sector equity participation, uses
lease arrangements, reclamation banks,
and city ownership to allow the public to
assume part of the risk of brownfields
redevelopment projects. In return,
subsequent increases in tax revenues on
improved properties repay the public for
its share in the risk.
Tax-exempt bonds can be used to raise
capital for redevelopment. The higher tax
revenues realized from the redevelopment
redeem the bonds. Tax-exempt general
obligation bonds or revenue bonds can
finance a publicly owned facility. Under
the IRS code, five percent of the profits of a
general obligation debt issue can be used
for activities that do not otherwise qualify
for tax-exemption. Cities issue general
obligation bonds and back them with the
credit of the city.
Qualified 501(c)(3) bonds can be used
to finance a non-profit owned facility with
non-profit beneficiaries. These bonds are
typically issued by state agencies, depend-
ing on the nature of the non-profit entity.
Such bonds are supported by the full faith
and credit of the non-profit organization or
a specific revenue stream. Industrial
development bonds, a form of tax-exempt
bonds, finance manufacturing facilities.
Competition can limit the availability
of funds already difficult to win due to
demanding eligibility requirements. In-
vestors and developers should contact
their local economic development and
environmental agency offices to learn
what assistance is available and what the
application process entails.
Focus On:
COMBINED FUNDING
Fallon/St. Vincent Medical City
Worcester, Massachusetts
Fallen and St. Vincent Health Care merged in 1 992 with the goal of building a state-of-
the-art integrated health facility in an urban setting. Excited about the prospects of
the facility, the City of Worcester, Massachusetts, created a new institution, the
Worcester Redevelopment Authority, to work with the developers and target juxta-
posed brownfield sites for acquisition. The city and state split a total of $42 million in
expenses to demolish existing structures, remediate, and prepare the properties for
new construction. The land was then sold to Fallon/St. Vincent for $6.4 million with
a Covenant Not to Sue. The facility is projected to create 3,000 new jobs and bring in
$875 million in direct economic impacts within 10 years, which is a great return on
investment for all parties involved.
Case study information from:
http://www.nemw.org/lessons.htm
o
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Preparing Project
Finance Plans
\ well written project finance plan
/ 1 allows financially sound
A. \. and socially beneficial redevelop-
ment projects to get off the ground.
Developers use finance plans to convince
lenders that their projects will generate
enough revenue to repay borrowed debt.
The three primary elements of the plan
are: the funding amount the developer
needs to borrow, what the money will be
used for, and the costs and benefits of the
project. A developer should clearly
articulate, but not exaggerate, the positive
aspects of the plan.
Brownfields Considerations
The widely held belief that brownfields
redevelopment projects present high
financial risk at low rates of return may
provide an added challenge to attracting
financing. Lenders need confidence in
borrowers' knowledge of brownfields
redevelopment, and this should be ad-
dressed in the project finance plan. A
project proposal must be both realistic and
promising. Due to the uncertain nature of
cleanup, developers should allow for cost
overruns in their budgets. Working
closely with environmental and engineer-
ing professionals will facilitate generation
of realistic cost estimates.
Increasingly, lenders are overcoming
their earlier beliefs that brownfield
projects are not financially viable. Gov-
ernment guarantees help to increase
viability, but to earn federal assistance, a
project must have a convincing proposal
demonstrating that benefits outweigh
costs. Benefits include improvement in
the local economy, environmental
remediation, conservation, environmental
justice, tax revenues, and returns on
investment. While the government might
subsidize environmental, social, and eco-
nomic development benefits, they want to
see financial returns that justify invest-
ments.
Preparing project finance plans will
help with applications for government
funds. Although the requirements of
applications vary according to funding
source, many of the elements are likely to
be the same. For example, the Depart-
ment of Housing and Urban Development
has three interconnected economic devel-
opment financing programs Commu-
nity Development Block Grants, Section
108 Loan Guarantees, and the Brownfields
Economic Development Initiative. Activi-
ties receiving funding from any of the
three sources must benefit low income
people, prevent slums, or address condi-
tions that threaten community health and
safety.
Proposals are rated according to the
extent of the problem addressed, the
soundness of the approach, financial need,
and the organizational experience of the
applicant. Bonus points are given to
projects in certain Brownfields Showcase
Communities. Project finance plans
should explicitly address social, environ-
mental and broad economic benefits
required by the sources they are targeting.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Below is a table listing the elements
that are important to include in a project
finance plan. The elements include
descriptions of the project, the property
and its location, the development team,
the costs and benefits, the market for the
project, the financing involved, and
financial projections. Developers should
tailor plans to meet the requirements of
their lenders; not all of the elements listed
in the table are necessarily essential to
every plan.
e
Elements of
Project Finance Plans
When preparing finance plans, devel-
opers should keep their audience in mind.
A lender wants to be reassured that the
project will be completed. Developers
should include evidence of completed
similar projects, and of planning and
predevelopment work in their finance
plans. Documents proving site control or
contract of sale, architect's plans, letters of
interest from other funders, and a market
study showing demand for the service
offered on the brownfield site are also
helpful.
Elements to Include in a Project Finance Plan
Formal Loan Request
Name of borrower.
Type and amount of loan requested.
Intended use of loan.
Location of project.
Project Description
Brief description of site, site history, and developer.
Economic justification. List of other sources of proposed financing.
Plan for environmental remediation.
Documentation of engineering and design work. Description of planned
construction and rehabilitation.
Status report on legal approval/permitting process.
Timeline of events.
Property Location and Description
Detailed description of site including size, features, condition, past and
present use, buildings, and zoning designation.
Description of neighborhood and block including socioeconomic condition
of area.
Emphasis on positive aspects such as recent investments in neighborhood
or preexisting amenities.
Discussion of access to transportation, stores, schools, parks, etc.
Local maps.
Project Sponsorship/Ownership
Detailed description of private and public sector sponsorship and support.
Outline of legal ownership structures for constructing and operating the
project.
Identification of owners and operators of project.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Elements to Include in a Project Finance Plan
(continued)
Development Team
Description of the developer's organization, history, goals, operating
budget, and staff size.
Provision of resumes of the executive director, project manager, and
property manager.
Demonstration of ability to plan and manage.
Mention of past achievements with similar projects.
If an architect is involved, brief description of firm and any similar projects
completed.
Description of the contractor. Provision of contracting firm's financial
statements and list of similar projects completed.
Project Costs
Initial capital costs to construct project.
Project development, design, engineering, and regulatory approval costs.
Project operating and maintenance costs.
Financing costs.
Project Benefits
Analysis of financial feasibility (direct return on investment).
Analysis of economic impacts (jobs, income, expenditures).
Analysis of fiscal impacts (e.g., tax revenues, infrastructure costs, public
service costs).
Evaluation of social benefits to community (e.g., aesthetic improvements,
public services, environmental justice).
Evidence that there is demand for the property at the projected sales
price; thus, loans can be repaid.
Rental or sales prices on comparative properties.
Recent appraisals from similar properties.
Assessment of local supply of goods or services offered.
Real estate absorption rates.
Explanation of how redevelopment businesses can compete with
other similar businesses.
Mention of experience in selling goods or services or credentials of broker
who will be handling the sales.
Proposed Structure of Financing/Financial Analysis
Sources and amounts of financing (private/public debt, private equity,
federal and state grants, and annual operating revenues). Breakdown of
interim versus permanent financing.
Analysis of terms and conditions of proposed financing sources.
Description of credit enhancements (collateralizations, guarantees, credit
insurance).
Development budget showing how funds will be used. Certainty that
sources and uses of funds will balance. Costs include:
Acquisition.
Construction and development.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Elements to Include in a Project Finance Plan
(continued)
Proposed Structure of Financing/Financial Analysis (continued)
Soft costs incurred as part of the development process (construction
period interest, architectural fees, legal fees, bank fees, and mortgage
recording tax).
Annual operating and maintenance costs.
Pro forma financial statements showing expected annual income and
expenses.
Implementation Plan
Timeline and schedule showing sequence of events.
Most recent annual report of organization in charge of project.
Audited financial statements for the past three years.
Developer's organizational budget for the current year. List of sources of
income.
Evidence of site control such as a deed, ground lease, contract of sale, or
option agreement.
Architect's plans and specifications.
Detailed bid from contractor.
Photographs of the building or site.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Approaching
Private Lenders
Potential private real estate
lenders include commercial
banks, insurance companies,
saving and loan associations, pension
funds, and bank trust departments.
However, the lenders most likely to
finance urban brownfields projects are
commercial banks, which will be the focus
here. They are legally required to
maintain diverse portfolios of investments
and to reinvest in the communities that do
business with them. Under the federal
Community Reinvestment Act (CRA),
banks must disclose their lending in the
neighborhoods in which they have branches
and from which they draw deposits.
Brownfields investments generally help
these banks earn and maintain their CRA
status.
Lending decisions made by private
lenders are influenced by a variety of
factors. As addressed in Chapter 3, the
merits of the project weigh heavily in the
decision, as well as the applicant's credit
rating. In addition, banks' internal
policies regarding brownfields properties
and loan size, as well as regulatory
constraints and incentives, will play a role
in lending decisions. This chapter focuses
on these policy and regulatory aspects of
obtaining financing from private lending
institutions.
Lender Experiences,
Attitudes, and Policies
Lenders' attitudes toward brownfields
redevelopment projects and experience
with them will affect their willingness to
make redevelopment loans for brownfields
properties. Some banks will have explicit
policies about loans for brownfields
redevelopment. Lender attitudes and
policies will vary by location and by bank.
Generally, it is easier to get a
redevelopment loan in an area with a long
industrial history, where lenders view
past site pollution as a common problem
that urban areas must address. In non-
industrial areas, it may be easier to get
redevelopment loans from local branches
of banks whose urban headquarters may
have environmental risk management
experts with brownfields experience.
Lender Policies on
Environmental Assessments
Most lenders require some type of
environmental site assessment for used
properties. The requirements vary
according to the size of the loan and the
probability of site contamination. For
small loans on sites with low risks of
contamination, lenders only need to
conduct environmental screenings. Dur-
ing an environmental screening, a loan
officer inspects the site, and a developer
fills out a questionnaire about its past use.
For larger loans on sites with a higher risk
of contamination, lenders require Phase I
assessments performed by experts (more
information about site assessments is
provided in Chapter 6).
A developer may occasionally be
tempted to overlook an environmental
screening detail. While such actions may
Financing Brownfields Redevelopment Projects - A Guide for Developers
O
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Environmental Assessments:
Some Important Dos and Don'ts
DO investigate the past uses of a
property and learn about possible
environmental problems.
DO keep careful records of
environmental documents submitted to
lenders.
DO adopt a policy of transparency and
disclosure with lenders regarding any
environmental issues that face the
property.
DON'T minimize the loan request or
allow an incomplete environmental
assessment; developers may be legally
or economically damaged in the future
by such practices.
be advantageous in
quickly securing financ-
ing, cutting corners on
site assessments can
hurt developers in the
long run. It is in
developers' best inter-
est to know if proper-
ties they own or want
to buy have environ-
mental problems and
the nature of such
problems. It is also in
their best interest to
reveal to lenders all
that they know about
past uses of sites dur-
ing environmental transaction screening.
For legal self-protection, developers should
be sure to keep copies of any documents
that they submit to lenders, including
statements about site environmental
conditions.
Bank Size and Ownership
Because the debt requirements of
brownfields projects and typical loan sizes
for lenders vary substantially, loan size
and bank size have to be matched
properly. In some cases, a small
community bank may be appropriate; in
others, a large multi-billion dollar bank
that operates in several states or even
internationally may be more suitable. The
best match will depend on the needed loan
size and the lending practices of the bank.
There are community, regional, and
multi-national lending institutions. The
banks in a developer's community may be
linked to bank holding companies that
own banks in other states or regions. In
such cases, the practices of a local bank
may be affected by the holding company's
brownfields policies. Also, an institution's
geographic coverage is not always related
to the size of its assets. A community bank
a in large city may have greater assets
than a regional bank.
Factors to Consider in Selecting Lenders
SMALL LENDERS (With Assets Under $100 Million)
Relative Advantages
Local area focus.
Small loan expertise.
Relative Disadvantages
Maximum loan amount may be too small for some redevelopment
projects.
May have a rigid policy of rejecting loans on contaminated property.
LARGE LENDERS (With Assets of $100 Million or More)
Relative Advantages
Expertise to help borrowers deal with environmental problems.
May be flexible and open to loaning on environmentally suspect proper-
ties.
Relative Disadvantages
Minimum loan amount may be too large for small redevelopment projects.
May be less willing to invest in local commercial real estate because it
has more lending options.
Transaction costs may be higher due to multiple oversight levels.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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The table on page 16 presents the
relative advantages and disadvantages of
small and large lending institutions,
which developers should consider when
deciding to approach a small local bank or
a larger lender. The advantages of smaller
lenders stem from their focus on local
areas and small loans. Also, many small
banks form consortiums or partnerships
with other banks, which allow them to
make loans that exceed their loan ceilings,
usually for additional fees. The advan-
tages of larger lenders with small business
divisions lie in their environmental
expertise and lending flexibility. They
have their own environmental risk
specialists to assess the viability of
brownfields investments. This can
facilitate loan approvals and help develop-
ers with their assessments of financial risk
associated with site contamination.
In sum, the decision to approach a
small or a large bank largely depends on
the size of the loan needed for the project
and the environmental risk expertise
needed.
Bank Commitment
to Locality
As stated previously, the federal
Community Reinvestment Act (CRA)
provides banks with incentives for meet-
ing the credit needs of their communities.
It strongly encourages investment in low
to moderate income neighborhoods. Fed-
eral regulators rate banks according to
their performance in offering loans in
these communities. Recent amendments
to CRA have increased pressures on banks
to make more loans in lower income
neighborhoods, and regulators now award
CRA credits specifically for brownfields
redevelopment.
While other, perhaps less risky,
options to earn CRA credits exist, the Act
may provide some incentive for banks to
invest in brownfields. CRA ratings can
greatly affect bank profitability, because
regulators use the scores when deciding
whether to approve branch openings and
other proposed bank moves. Since poor
CRA ratings can hurt banks, competition
for financially sound projects in low
income neighborhoods has increased. This
may favor brownfields developers. They
should approach banks that are eager to
make investments that will generate CRA
credits.
Summary of General Information Developers
Need From Potential Lenders
Q Minimum lending amount for specific types of projects, (e.g., those
requiring site remediation, construction loan, mortgage, small busi-
ness loan). There is no point in applying for a loan if the bank's
lending priorities exclude a given project.
Q Loans made for other projects in the area. This will help the devel-
oper determine if the property area is stigmatized in the eyes of the
lender.
U Procedures for processing loans on brownfield properties (e.g., home
office or holding company role, role of environmental risk manager
or specialist).
Q List of approved environmental consultants for site assessments.
Q Loan amount threshold for requiring a Phase I site assessment.
Q Copies of the environmental transaction screen, buyer's affidavit,
and other forms used for expedited environmental review.
Q Environmental condition documentation included in Closing Require-
ments list.
U Stage of an application review at which specialists are involved
(e.g., property appraiser, Phase I site assessor or engineer, internal
reviewer of Phase I findings, Phase II assessor or engineer).
Q Role of loan applicant in hiring and paying for specialists. The
developer needs to understand the loan application costs and the
lender's review process. If there is a choice of lenders, a developer
may as well start with the least expensive one, other things being
equal.
Q Flexibility in dealing with situations that may fall outside normal
loan approval criteria. Lenders often reject projects that do not
meet criteria such as acceptable land or site preparation costs as a
proportion of total project costs. Such criteria are based on past
bank investments that do not reflect successful brownfields rede-
velopment projects. Therefore the criteria may not be appropriate
for brownfields projects. The more rigid the bank is in assuring all
projects fit these standards, the more difficult its loan approval
process.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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ID
Minimizing the Risks of
Brownfields Redevelopment
\ major concern that lenders have
/ 1 in relation to financing
A. \. brownfields redevelopments is
the liability risk faced by owners of
contaminated sites. Owners, prospective
purchasers, and lenders can minimize
these risks by taking advantage of
government programs and policies and by
structuring ownership and purchasing
arrangements to reduce liability exposure.
Environmental insurance policies are also
available. General information on ap-
proaches available to limit liability for
owners and lenders and subsequently
increase the potential for obtaining
financing are presented here. Owners and
lenders should consult environmental
lawyers and engineering experts about the
best ways to address specific liability
concerns.
The Liability Risks
of Potential Contamination
Contrary to popular preconceptions,
many former industrial use urban proper-
ties are not contaminated. While
properties that once housed dry cleaners,
gas stations, metal plating shops, and
other operations heavily reliant on toxins
are more likely to be contaminated, many
are fairly clean and can be remediated at
minimal or no cost to developers. In most
cases, the cleanup costs are borne by
current or past owners, rather than the
developer. Nevertheless, the potentially
significant liability associated with state
and federal hazardous waste site laws is
often a major deterrent to some developers
and lenders.
The federal CERCLA law imposes
"strict, joint and several liability" for past
pollution on all parties in a property's
"chain of title." This chain includes all the
previous and current owners and users of a
property from the onset of pollution.
"Strict" liability means that property
owners and business operators may be
held liable for environmental cleanup
without regard for negligence or fault.
"Joint and several" liability applies to
situations where more than one Poten-
tially Responsible Party (PRP) exists. Any
one party can be assigned the full
responsibility for environmental harm
caused by several parties, even if the
damage was done before the party owned
or occupied the site.
The "innocent landowner defense"
offers protection from CERCLA liability.
To claim this protection successfully,
owners must prove that they:
«J« Bought the property after the
polluting occurred,
*> Did not know, and had no reason
to know, that the site was
contaminated when they bought
it, and
«J« Exercised "due diligence" before
the purchase (i.e., they conducted
all appropriate inquiry that was
consistent with "good commercial
and customary practice").
Therefore, developers should invest in
thorough site assessments and make their
purchases conditional on the results.
O
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Developers who decide to buy will have
complied with due diligence requirements.
Concerns about lending on potentially
contaminated properties stem from older
court decisions in which lenders were held
liable for contamination on properties on
which they foreclosed, or had the capacity
to participate in the management of
businesses to which they made loans. In
1996, however, CERCLA was amended by
the Asset Conservation, Lender Liability,
and Deposit Insurance Protection Act
(ALDA) to limit and clarify lender liability.
This legislation provides lenders with
detailed guidance on how they can be
involved in a borrower's activities without
participating in management and assum-
ing liability. The law also specifies actions
lenders can take to avoid liability if they
foreclose; as long as they sell or re-lease
the property at the earliest practicable
time, on commercially reasonable terms,
their liability exemption remains intact.
While this legislation encourages
lenders to make loans on brownfields
properties, they still have reason to track
site environmental issues closely for the
following reasons.
«J« Lenders are mainly concerned
with borrowers' ability to repay
loans and this ability may be
jeopardized by unexpected and
expensive cleanup.
«J« Lenders may fear that if they
foreclose, environmental prob-
lems will lower the value of their
collateral.
*> Lenders may become liable if their
actions extend beyond those cov-
ered by the liability exemption.
In short, it is in the interest of both lender
and developer to conduct a thorough site
assessment. An overview of assessment
procedures is provided in Chapter 6.
Federal Policies Offering
Liability Protection
An important part of EPA's brownfields
effort is to assure prospective purchasers,
lenders and property owners that, under
certain conditions, they need not be
concerned with federal CERCLA liability.
Over the last two years, the EPA has taken
several steps to reduce uncertainties
associated with brownfields properties.
For example, EPA has issued policy
statements that have:
«J« Indicated the Agency will not
pursue owners of otherwise un-
contaminated property situated
above groundwater polluted by a
neighboring property;7
*> Announced increased consider-
ation of anticipated future land
use in selecting cleanup rem-
edies;8
*> Expanded the circumstances un-
der which the Agency will enter
into Prospective Purchaser Agree-
ments involving Covenants Not to
Sue for contamination that existed
before a landowner purchased a
property;9
7 Final Policy Toward Owners of Property
Containing Contaminated Aquifers, www.epa.
gov/swerosps/bf/gdc.htm.
8 Land Use in the CERCLA Remedy
Selection Process, www.epa.gov/swerosps/bf/
gdc.htm.
9 Guidance on Settlements with Prospective
Purchasers of Contaminated Property, www.
epa.gov/swerosps/bf/gdc.htm.
Financing Brownfields Redevelopment Projects - A Guide for Developers
©
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*> Outlined criteria for determining
when lenders and municipalities
are exempt from federal enforce-
ment if they involuntarily acquire
polluted property;10
«J« Expressed willingness to issue
Comfort/Status Letters that pro-
vide redevelopers with EPA
information about a specific site
and indicate EPA plans not to take
federal action at the site;11
«J« Provided soil screening guidance
to help decision-makers quickly
determine which portions of a site
require further study and which
pose little risk to human health
and may be developed without
further study and extensive
cleanup.12
Some of these policies apply more to
large redevelopment projects where con-
tamination is a major problem, than to
small-scale projects without significant
contamination. Prospective Purchaser
Agreements, for example, are given
sparingly. For a developer to be eligible,
EPA must have acted or anticipate action
on the property, and redevelopment must
offer substantial advantages, including
cleanup and community benefits such as
job creation. Likewise, Comfort/Status
Letters are considered only if there is a
realistic perception or probability of
incurring CERCLA liability.
10 CERCLA Enforcement Against Lenders
and Government Entities that Acquire Property
Involuntarily, www.epa.gov/swerosps/bf/ascii/
involun.txt.
11 Policy on the Issuance of Comfort/Status
Letters, www.epa.gov/swerosps/bf/html-doc/
confmemo.htm.
12 Soil Screening Guidance: Fact Sheet,
www.epa.gov/superfund/resources/soil/
index.htm.
Most contaminated brownfields sites
undergo cleanup through state programs,
and EPA involvement is unlikely. EPA
has negotiated "Memoranda of Agree-
ment" with some state environmental
agencies, which minimize duplication of
state and federal efforts. They indicate
EPA's intention not to take action on sites
in approved state Voluntary Cleanup
Programs unless the EPA determines that
a site poses a substantial danger to public
health or the environment.
Despite the fact that CERCLA involve-
ment in most brownfields site redevelop-
ments is unlikely, the determined federal
effort to facilitate brownfields redevelop-
ment by addressing CERCLA liability
barriers provides some assurance to
developers and lenders. It also shapes
state policies and programs that are more
likely to guide redevelopment efforts.
State Policies and Programs
Offering Liability Protection
Assurances against liability for past or
current pollution are also available from
many states. The forty-seven states that
have Voluntary Cleanup Programs offer
some form of protection against liability.
Twenty-one states offer No Further Action
Letters or No Further Remediation
Agreements, thirteen offer Covenants Not
to Sue, others offer unique protections that
do not fall into these categories. Only
North Dakota, South Dakota, Wyoming,
and Nevada offer no guarantees.
No Further Action Letters
No Further Action (NFA) letters may
be issued by a state environmental agency
once a site has been cleaned up. Such
letters, state that the regulatory agency
requests no further environmental cleanup.
Reopener clauses limit NFA letters, and
Financing Brownfields Redevelopment Projects - A Guide for Developers
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the value of the liability protection
provided by the letter depends on the
language used in the reopener. Some
states have detailed descriptions of the
specific conditions that may trigger re-
examinations of cleanup adequacy; others
leave the possibilities vague. The NFA
letter, however, lessens the likelihood of
future government re-examination of the
site by assigning it a low priority. An NFA
letter can make it easier to get lender
support for a project. In some states,
lenders insist on such a letter as a
condition of loan approval.
Covenants Not to Sue
State Covenants Not to Sue may be
used as part of formal agreements between
states and buyers and sellers. In such
covenants, the state offers assurance that,
in return for meeting specified cleanup
standards, it will not sue for further
cleanup. In some cases, the covenant is
subject to reexamination if new informa-
tion about contamination emerges. The
requirements for proof of cleanup comple-
tion vary from state to state and involve
different costs. Some states only ask the
owner to conduct the cleanup recom-
mended by licensed environmental engi-
neering professionals; others may demand
full state agency oversight of cleanup
procedures.
Prospective Purchaser
and Buyer-Seller Agreements
Many state laws also have provisions
that help buyers limit costs and liability
for site contamination that occurs prior to
purchasing property. Such provisions are
sometimes referred to as "Prospective
Purchaser Agreements" or "Buyer-Seller
Agreements." These agreements protect
the new owners from liability for past
contamination that occurred under previ-
ous ownership. While these contracts
should be arranged with legal assistance,
state personnel can offer expertise in
framing the agreements. Some states
charge a fee for preparing and negotiating
agreements; others offer the service for
free.
Intervention in the Chain of
Ownership
A buyer may also secure protection
from liability by involving the state or
another public agency (such as a county,
municipality, landbank, or redevelopment
authority) in the cleanup process and
chain of title. Some states have laws that
permit a public entity to take title to a site
and arrange for its cleanup, sometimes at
the seller's expense. The public entity is
generally protected from liability. After
the site has been cleaned up, the state
certifies that it will protect future owners
from any costs imposed by state courts as
the result of joint and several liability. In
effect, the period of public ownership
breaks the chain of title and limits the
buyer's liability, just as in buyer-seller
agreements.
Summary of General Information Developers
Need From State (and Local) Environmental Agency Personnel
Q Guidance on how to apply for and work with special state (local)
programs or policies that deal with the redevelopment of poten-
tially contaminated properties.
Q The existence of certain conditions (development, extent of con-
tamination, etc.), that may make participation in a state (local)
program mandatory. Benefits of participating in these programs
include: Covenants Not to Sue, No Further Action Letters, or other
liability assurances.
Q The procedures and conditions for recognized or certified Buyer-
Seller or Prospective Purchaser Agreements under which liability
protections will be provided, the cost of the agreements, and the
anticipated length of time needed for their approval.
Q Inspections required to assure cleanups, and the average waiting
time before an inspector checks a site. Inspection of work may be
throughout the cleanup process or only after the cleanup is com-
pleted.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Structuring the Purchase to
Lessen Risk Exposure
Under the provisions of joint and
several liability, parties that owned a
property during or after the time that
contamination occurred may be held
responsible for environmental damage
and cleanup costs. This means a developer
may be able to engage prior owners in
cleanup cost-sharing, thus reducing the
financial risks. In such situations, lenders
will be more confident that loans will be
satisfied even if unexpected cleanup costs
occur.
A variety of measures that minimize
developers' cleanup costs and liability
exposure are described below. Each
involves working with the seller to develop
a mutually agreeable plan. A legal expert
versed in real estate and environmental
law should draft the agreements.
Indemnification
Purchase and sales agreements for
contaminated properties can state that the
buyer is indemnified by the seller from
responsibility for environmental cleanup.
Many real estate documents contain
language minimizing the innocent parties'
potential liability. Provisions can be
included to protect buyers (and subse-
quent site owners) from possible lawsuits
for problems due to past pollution. As
noted earlier, Buyer-Seller or Prospective
Purchaser Agreements can be arranged
under some state environmental laws.
Focus On:
SUBDIVIDING
Glendale Technology Center
Glendale, Wisconsin
The City of Glendale purchased the site of a former canning operation in 1996 in
hopes of cleaning up and revitalizing the large tract of deteriorating property. Upon
assessment, however, the city found extensive contamination; soil on parts of the
property was contaminated with heavy metals, underground storage tanks were dis-
covered, and elevated levels of pollutants were found in groundwater under certain
sections. In order to separate the heavily contaminated from the lightly contaminated
areas, the city subdivided the site into 11-acre and 24-acre parcels. The 11-acre
parcel was lightly contaminated, so remediation and development proceeded with
greater ease and at lower cost. A private developer constructed a new building on the
property and leased it to a business interiors company. The 24-acre parcel was sub-
divided again to further isolate the heavily contaminated sections; less contaminated
sections were remediated and received a Certificate of Completion from the state.
Had the site not been subdivided, cleanup would have been lengthy and cost prohibi-
tive; with subdivision, it was easier for the city to remediate and market the proper-
ties.
Case study information from:
http://www.dnr.state.wi.us/org/aw/rr/brownfields/glendale.html
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Purchase Options
Buying an option to purchase a
property, rather than buying it outright,
can motivate the seller to conduct a
cleanup. The buyer holds the right to
purchase the property, but does not take
title until the site is clean. If the seller fails
to meet a cleanup deadline, the buyer can
abandon the option at minimal cost. In
addition, the buyer can share the cleanup
costs with the seller and account for them
in a reduced purchase price.
Conditional Agreements to
Lease
Conditional Agreements to Lease are
an alternative for those who want to
occupy a site, but do not need to own it.
The arrangement obliges the property
owner to clean up the property prior to
leasing and requires the tenant to lease
the property for a specified time if the
cleanup is completed. Leasing a site with
known contamination that has not been
cleaned up requires careful consideration;
a lessee (operator) may be held legally
liable for cleanup costs, even after the
lease has expired.
Subdividing
A large site may be subdivided into
smaller parcels, allowing the contami-
nated section of the property to be
separated from the clean developable
sections. While the seller cleans up the
contaminated section, the buyer can
redevelop the clean parcels. Returning
part of the property to productive reuse
can improve the desirability of the area
and also help finance the cleanup. The
developer can also arrange a purchase
option on the contaminated parcel and
plan to develop it after cleanup is
complete.
Joint Ventures
A property owner who
wishes to sell quickly and
obtain funds for cleanup
may be willing to form a
joint venture with the
buyer. The seller may
agree to pay most of the
estimated cleanup costs
and to indemnify the buyer
against future liability.
Such an arrangement can
be better for the developer
than a simple indemnity
from prior owners, because
the seller's commitment to
cleanup is strengthened by
a share in the financial
returns from redevelopment.
Compensating Lenders' Risks
Developers seeking support from
lenders need to provide acceptable secu-
rity for loans. Lenders evaluate loan
applications against a variety of risk
factors. In addition to the liability and
financing implications of site environmen-
tal conditions, two other factors are
central to lenders' decisions on brownfields
redevelopment projects.
«> Loan or credit risk: The risk
that a borrower will be unable to
make payments mandates review
of the project's financial viability
and the borrower's credit rating.
*> Collateral risk: The risk that the
lender will not recoup the value of
the loan from sale of the collateral,
if foreclosure occurs, leads to
reduced loan-to-value ratios if the
value of the collateral is uncertain.
Scenarios for Risk Minimizing
Transactions and Buyer/Seller
Arrangements
Indemnification: When the buyer
wants to purchase outright with no
ties to the seller.
Joint Venture, Subdividing: When
the buyer is willing to work closely
with the seller on a continual ba-
sis.
Purchase Options: When the buyer
wants to purchase contingent upon
cleanup.
Conditional Agreements to Lease:
When buying is not a requirement
for occupancy.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Loan-to-Value Ratio
Whatever the project, the smaller the
loan relative to the value of the project, the
lower the risk to the lender. The
developer's equity participation, the
portion of the project the developer owns
through personal investment, can be
sacrificed for cash to service the loan.
Lenders expect some minimum equity
participation by the owner/developer on
any project (perhaps 15% to 20%), but the
percentage can vary. The greater the
equity participation, the easier it is to
secure a loan.
Even in the unlikely case of a
developer providing more than half of the
project cost in equity, a lender may still
refuse funds because the deal involves too
high a loan-to-value ratio. Lenders rarely
will lend 100 percent of collateral asset
value under any conditions. Lending a
smaller percent of collateral value protects
lenders against collateral risk. It allows
for the cost of selling an asset and for a
possible drop in expected property value.
On brownfields sites, especially ones that
have not been fully remediated, lenders
may provide well below 70 percent of the
property value, the ratio sometimes used
as a maximum for purchases of developed
commercial properties.
Sources of Collateral
The first item of collateral developers
usually offer lenders is the property
targeted for redevelopment. If this is
insufficient to cover the loan, developers
have two choices:
«J« Reduce the level of the loan by
scaling back the project or provid-
ing more equity; or
*> Provide additional collateral, such
as other real estate holdings,
stocks, bonds or mutual funds.
Developers may have working capital
above and beyond the amount committed
to redevelopment projects. Sometimes,
lenders assume that such capital will cover
some of the loan and collateral risk.
Environmental Insurance
Availability
Recent changes in legislation and
technology have caused substantial growth
in the environmental insurance market as
underwriters are better able to calculate
risks. In 1998, the four main providers of
environmental insurance were American
Insurance Group, the industry leader with
19 years in the business, Reliance, Zurich,
and Kemper. Increased competition has
led to lower prices and more flexible
policies. Policies now span the range from
two thousand to several million dollars.
Coverage for multiple sites helps reduce
the cost for developers. Two basic types of
insurance policies exist Cost Overrun
Insurance and Cleanup Liability Insur-
ance. Cost Overrun Insurance covers
cleanup projects that overrun their
budgets, and Cleanup Liability Insurance
covers liability associated with cleanup.
Cleanup Cost Overruns. Coverage
for cleanup cost overruns can greatly
reduce both loan risk and collateral risk for
projects that include removing or contain-
ing past contamination. Cleanup cost
overruns can jeopardize a project, increas-
ing loan risk. However, if a project is
abandoned due to excess cleanup cost,
incomplete cleanup will reduce the
property's value as collateral. Coverage
against overruns lasts until the cleanup is
complete. The insurance company covers
Financing Brownfields Redevelopment Projects - A Guide for Developers
-------
any amount beyond the original estimated
cost of the project; coverage can be as high
as $200 million. Developers can choose to
reduce their costs by selecting policies
with deductibles.
Cleanup Liability Insurance.
Cleanup liability insurance applies to
accidental property damage or bodily
injury involving third parties on- or off-site
during cleanup. Policies might include
cleanup of preexisting, unknown contami-
nation recently discovered or contamina-
tion spread due to cleanup activities.
Some policies include provision for new
contamination. Policy holders who make
every effort to comply with environmental
regulations and unknowingly contami-
nate their property may receive protection
against claims or remediation costs.
Since liability claims can arise long
after actions are taken, developers need to
determine the value of these two types of
policies for specific projects. Issues to
consider include:
«> Duration of the initial policy.
Policies are generally available for
up to fifteen years. This may
suffice only if a developer expects
to sell the property and/or obtain
protection such as a state cleanup
approval.
«> Coverage provided for "succes-
sor" owners. Coverage can be
extended to subsequent owners or
tenants, but extension can dilute
coverage limits.
An indirect benefit of insurance is the
pressure placed on firms to keep their
property clean; firms with clean records
pay less than firms that have polluted.
However, some firms are still reluctant to
purchase insurance. They may assume
that the government will step in and fund
the cleanup if the firm pollutes the land
and then goes bankrupt. Another
difficulty comes from the circular nature of
the insurance process. The insurance
policy is needed to secure financing for
cleanup, but insurance agencies do not like
to sign policies until they have seen an
approved cleanup plan.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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CD
Environmental Site
Assessments and Cleanup
Alternatives
M)st lending institutions rou-
:inely require that envi-
onmental assessments be
conducted on previously used properties
for which they are considering loans for
redevelopment. This chapter discusses
assessment phases and provides an
overview of basic cleanup alternatives for
handling contamination.
Environmental Site
Assessment Phases
Environmental engineers have estab-
lished standard assessment phases to
determine if sites are contaminated, how
serious contamination is, and what
cleanup will cost. These studies should be
conducted by professionals.
Phase I assessments determine
whether there is likely site contamination.
The studies do not involve digging or
testing. Instead, they review past uses of
properties and environmental permits for
practices such as tank storage, land or
water waste disposal, and waste incinera-
tion. Site visits are conducted to assess
any visible problems, such as distressed
vegetation or leaking drums. The
procedures for Phase I studies have been
standardized by the American Society for
Testing and Materials (ASTM), a
professional association of engineers.
Depending on site history, Phase I
assessments usually cost from $2,000 to
$5,000 and take one to three weeks to
complete. An assessment will either
determine that the site is clean or indicate
potential contamination. Establishing the
existence and extent of contamination
requires a Phase II assessment.
Phase II assessments determine the
nature and extent of potential site
contamination. The studies involve sam-
pling and testing of water and soil. Based
on Phase I findings, soil sampling is
concentrated in sections where contami-
nation is most likely. Phase II assess-
ments take from two to eight weeks to
conduct. These tests generally cost from
$5,000 to $15,000, but can be more
expensive for large and complex sites and
those with groundwater contamination. A
low level of contamination does not
necessitate cleanup. If cleanup is
necessary, it might be accomplished with
simple measures such as removing drums
from the site. Other cases may require
more extensive remediation and Phase III
assessments.
Phase III assessments evaluate the
alternatives for site clean up and the
implementation time and cost for each
alternative. The studies may involve more
on-site testing to determine if the
contaminants have spread, perhaps even
to adjacent properties. These studies
typically take from three to ten weeks to
complete. The costs usually exceed $7,000,
and can be much higher, depending on site
conditions. The least expensive
remediation alternative identified in a
Phase III assessment may not be the most
profitable. If it fails to satisfy the lender or
environmental agency inspector, addi-
tional engineering work would impose
new costs and perhaps delays.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Most lenders require a Phase I site
assessment for loans over a specified
threshold, which varies between banks
and according to the particulars of the
project. For loans below the threshold,
lenders generally require Phase I assess-
ments only for properties that once housed
businesses that use toxic chemicals, such
as former metal works, chemical manufac-
turing facilities, dry cleaners, or service
stations.
For small loans outside the high-risk
category, lenders use an "environmental
transaction screen" recommended by
ASTM. The screen usually involves
conducting a site inspection and filling out
a questionnaire. Only if this screening
raises a red flag does the lender require a
Phase I assessment. The exhibit on page
28 presents a sample of typical screening
considerations that developers should be
able to answer before investing time and
money on plans for redevelopment or
approaching lenders.
Site Remediation
Depending on the results of site
assessments, lenders will want assurances
that any contamination will be cleaned up
in a way that complies with all relevant
environmental laws and regulations, and
that the process will be overseen, as
necessary, by the relevant authorities.
Such assurances will minimize the
financial risk associated with the cost of
cleanup and the possibility of future
problems.
The choice of method to deal with site
contamination depends on the nature and
extent of the contamination. It is beyond
the scope of this document to provide
detailed discussion of alternative methods
available for addressing site contamina-
tion. Developers should consult specialists
in environmental engineering in cases
where site contamination is an issue. In
general, however, there are four ap-
proaches.
The first is to excavate the contami-
nated soil and/or pump contaminated
groundwater for storage or treatment at a
hazardous waste facility. As long as the
source of the contamination is removed or
controlled, this approach permanently
addresses the problem.
The second approach is to treat the
contamination on-site, using any of a
variety of technologies. The technologies
include bioremediation, or use of microor-
ganisms to degrade contaminants; vitrifi-
cation, or heating soil to convert contami-
nated materials to inert products; soil
washing, or excavating soil and washing
out its contaminants; and soil vapor
extraction, which involves removing vola-
tile organic pollutants through vapor
extraction wells. If groundwater is
affected, a pumping and treatment system
may need to be installed and will require
regular testing and maintenance.
The third method uses engineering
controls, such as installing subsurface
liners and paving over contaminated
areas, to isolate and contain the pollution.
These solutions, used with increasing
frequency, require monitoring to assure
their long-term effectiveness.
The fourth approach is referred to as
"passive remediation." This relies on
natural processes over time to degrade the
contaminants. Passive remediation is
applicable only at sites where the
contaminants:
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Sample Environmental Screening Considerations
1. Historical use of site.
Examples of sites that may be contaminated include:
gas stations, motor repair facilities, vehicle sales facilities;
commercial printing facilities, dry cleaners, photo developing laboratories;
junkyards, landfills, waste treatment, storage, disposal or recycling facilities;
former military bases, other decommissioned federal operations that routinely
used toxic chemicals.
2. Items stored on-site.
Possible evidence of contaminants include:
discarded automotive or industrial batteries, paints, pesticides or other
chemicals;
industrial drums or sacks of chemicals.
3. Waste disposed on-site.
Evidence of on-site waste include:
landfill materials brought from off-site;
liquid waste disposal facilities, such as pits, ponds, and lagoons;
significantly stained or burned soils and "distressed" vegetation.
4. Presence of underground or aboveground storage tanks.
Evidence of USTs include:
vent pipes;
fill pipes;
pavement repairs.
5. Stains and/or foul odors.
6. Presence of private wells that may have been contaminated.
7. Septic or sewage pre-treatment facility.
8. Knowledge of the owner or current occupant, or records of:
government action against violations of environmental laws or regulations;
existence of petroleum products or hazardous substances on the site;
prior site assessments that indicated contamination or recommended further
assessment of the property;
lawsuits or administrative actions involving actual or possible release of
hazardous substances on the site.
9. On-site operations showing evidence of:
transformers, capacitors or hydraulic equipment on site showing signs of
leaking;
transformers, capacitors or hydraulic equipment on site for which records
indicate they may contain PCBs.
10. Evidence of asbestos (friable and non-friable) present on the property or any
records of asbestos removal or abatement in the past.
11. For residential structures, the condition of interior painted surfaces and the
extent of paint peeling.
12. A record of the property, or adjacent properties, in any of the automated govern-
ment hazardous waste site data bases.
13. Properties on the following government environmental action databases within
the specified distances from the site:
NPL (National Priorities List or Superfund Sites) 1 mile;
CERCLIS List (EPA site investigation list) 0.25 mile;
RCRIS TSD Facilities (licensed hazardous waste facilities) 0.25 mile.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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*> will biodegrade,
«J« will not migrate, and
*> have insignificant impact on hu-
man health and the environment.
These sites require monitoring to ensure
the conditions are being met.
Engineering controls and passive
remediation are generally the least
expensive methods of contamination
management. However, environmental
agencies do not always allow them because
the contamination may pose a continuous
hazard when left in place untreated. Such
approaches are more acceptable in states
that allow consideration of future land use
in determining remediation methods and
have variable cleanup requirements de-
pending on sites' intended use. In such
situations, developers need to protect their
sites from unintended uses through
"institutional controls." These controls
ensure by legal means that the site's use
will remain compatible with its cleanup
level. Controls include various deed
restrictions to meet specific site needs.
They may, for example, restrict site use to
industrial purposes, prevent excavation in
contaminated sections of the site, or
include easements to let inspectors
monitor any remaining contamination.
Institutional controls trigger a review of
the need for further cleanup if the owner or
user seeks a different use. A developer
who takes on a redevelopment project for
future sale should consider a thorough
environmental assessment to determine
what cleanup level will ensure unre-
stricted future use of the site.
Oversight
Many states have Voluntary Cleanup
Programs (VCPs) or similar brownfields
programs with one of three kinds of
environmental agency involvement. In
some states, agency personnel provide
Focus On:
HOW VCPS AID CLEANUPS
Occidental Chemical Corporation (OxyChem)
Clark County, Indiana
OxyChem closed its 26-acre southeastern Indiana chemical plant in 1 991, creating an
expansive and highly contaminated brownfield. OxyChem, the Indiana Department of
Environmental Management (IDEM), the Indiana Department of Commerce, and the
cities of Clarksville and Jeffersonville formed a partnership to address contamination
and future use issues. In 1 993, OxyChem hired a private contractor to remediate the
site under Indiana's Voluntary Remediation Program (VRP). In return for cleaning up
the site, the state agreed not to hold OxyChem responsible for past contamination.
Once remediated, OxyChem received a Certificate of Completion from IDEM and a
Covenant Not to Sue from the Governor's office. These VRP liability assurances
protect past, present, and future owners from any future enforcement action, and
were essential to brokering the deal that transformed the site into the profitable retail
center that it is today.
Case study information from:
http://www.glc.org/projects/robin/cases/occidental.html
Financing Brownfields Redevelopment Projects - A Guide for Developers
-------
How States Arrange Payment
for Oversight Services:
Some Examples
Q per hour
Q per work plan review
Q percentage of estimated costs in
advance
Q application fee
Q VCP participation fee
Q deposit
Q by site size
Many states use of combination of above
mechanisms. For example, Illinois
charges a $5000 fee, or 50% of the an-
ticipated cost of oversight, whichever is
less.
direct technical guidance
and oversight throughout
the cleanup process. Al-
ternatively, state agen-
cies rely on licensed pro-
fessionals to provide ex-
pertise and oversight dur-
ing the cleanup, and to
present evidence of its
completion. In other
states, environmental
agency staff only conduct
the final review of the
cleanup paperwork and
may visit the site to verify
completion of the job.
Developers participating in VCPs may
have to wait for initial inspections and pay
agency staff for oversight. In return, they
gain major advantages. First, state
cleanup reviews boosts lenders' willing-
ness to finance projects. Second, they
minimize the risk that the state will order
further cleanup in the future. Third, many
programs offer varied and advanced
technical assistance. Finally, state
cleanup certification for VCP sites is
generally very prompt.
Selecting Consultants
As previously noted, small-scale
brownfields developers, who have no
reason to expect site contamination, may
not need to hire specialized consultants.
For others, however, the advice of
specialists in environmental engineering
and law may be necessary to conduct
development efforts in the most cost-
effective way.
Environmental engineering consult-
ants conduct site assessments and cleanup.
They usually work for developers, not
banks. However, because banks have to
approve project plans, developers should
select consultants who are acceptable to
their banks. Banks dealing with potential
contamination have lists of approved site
assessment firms. If an unlisted firm has
assessed the site, the bank may ask the
developer to pay for having the assess-
ment reviewed by the bank's assessor or
even for an additional bank-authorized
assessment.
Before hiring consultants, developers
should obtain lists of bank-approved
consultants, select two or three firms
appearing on the lists of multiple banks
and ask each for a Phase I proposal. By
comparing the actions, time-frames, and
costs proposed, the developer will be able
to select the best firm.
In some cases, a bank will want to
contract a site assessment firm directly,
charging the developer for the cost. The
developer should agree, but pay for the
assessment only if the firm is also on other
banks' lists. If the first bank declines to
finance the project, the developer can
submit the site assessment to the next
lender without hiring another firm.
Selecting Legal Counsel
For brownfields sites where contami-
nation is highly probable, an environmen-
tal law specialist may be essential. A real
estate lawyer may lack expertise with
environmental law and liability issues.
Environmental lawyers can help develop-
ers minimize investment risk and opti-
mize returns, and thereby increase
lenders' willingness to finance projects.
Structuring the purchase deal. A
lawyer can prepare a purchase contract
limiting the developer's liability expo-
sures (see Chapter 5). The costs are
negligible if the contract structure can
encourage the bank to finance the project
or help the seller with the cleanup.
Financing Brownfields Redevelopment Projects - A Guide for Developers
-------
Determining seller-buyer respon-
sibilities for contamination. Legal
counsel can draft documents stipulating
the seller's liability for pollution on the
site. Some state environmental depart-
ments will also help prepare such
contracts. Even with the cleanup
completed, developers may want to specify
protection from liability for contamination
that was not discovered or adequately
dealt with during the cleanup.
Negotiating with other potentially
responsible parties. In some instances,
a developer may want to locate and
negotiate cleanup costs with a party other
than the seller. Many potentially
responsible parties will contribute to
cleanup costs in order to avoid litigation.
In a worst case scenario, however, it may
be necessary to take court action to pursue
parties legally responsible for cleanup
costs.
Structuring loan collateral. In
some cases, structuring collateral may be
complicated. For example, a developer
may want to form a separate legal entity to
bear the risk of a brownfield redevelop-
ment. There are various organizational
structures that can assure lenders access
to other collateral or can limit the
developer's legal liability. They vary from
state to state and require legal expertise.
Possible arrangements include:
«J« Offering one or more of the
developer's other assets as collat-
eral for a brownfield loan, when a
lender rejects the use of the site as
collateral;
*> Creating a limited liability
company (LLC) to conduct the
redevelopment of a brownfield
site, if there may be a legal right to
"pierce the corporate veil" and
pursue the owner's other assets;
Taking advantage of any public
sector loan guarantees, liability
protections or other special incen-
tives for brownfields redevelop-
ment (since any such incentives
will involve contracts that go
beyond the loan and real estate
purchase agreements familiar to
most developers).
Summary of General Information
Developers Need in Selecting
Environmental Consultants
Names of banks that list the firm among
their approved site assessors for conduct-
ing Phase I studies.
Proposal indicating the protocols used to
conduct Phase I study and a cost esti-
mate of the study. The consultant/engi-
neer should use the ASTM protocol.
Experience in doing site cleanups, de-
scriptions of recent cleanup jobs, and ref-
erences. If the site has a contamination
problem, the developer may save money
by having the cleanup done by the firm
that does the assessment. Also, the firm
has a stronger incentive to do an accu-
rate and full assessment if it knows it
will have to deal with any missed con-
tamination problem in the event the de-
veloper asks for a cleanup. Finally, the
more experience the firm has, the more
likely it is to be up-to-date on alternative
cleanup technologies. This could save
the developer cleanup costs and make
the lender more confident.
Experience and qualifications documen-
tation for any subcontractors who will
be involved. Documentation on all sub-
contractors will make both lenders and
regulators more comfortable.
Financing Brownfields Redevelopment Projects - A Guide for Developers
e
-------
Summary of General Information Developers
Need in Selecting Real Estate And Environmental Lawyers
Type of real estate and environmental law services provided by the firm. Large firms
charge more per hour, but usually they can both structure a real estate deal and help
developers comply with environmental laws.
Experience working with financial institutions in the area as a representative of buyers in
real estate purchases. Some lawyers specialize in representing buyers, while others have
experience representing sellers or financial institutions. Developers need firms experi-
enced in working for buyers. Developers also need firms accustomed to working with the
lenders they expect to approach, for several reasons.
Developers are better off if their lawyers help them anticipate the lenders' demands.
An understanding built up between the developers' lawyers and the prospective lend-
ers is helpful.
It is more cost-effective for developers to use the same lawyers throughout the rede-
velopment process.
Examples of the deals the lawyer might structure to limit future liability and remediation/
redevelopment costs. There are many ways of structuring deals to limit liability and
unexpected costs. An expert lawyer should be able to show developers examples of how
these arrangements work.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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Resources
Recommended Reading
The EPA Internet homepage, http://
www.epa.gov/brownfields, provides infor-
mation on many aspects of brownfields
redevelopment, including financing, in-
centives, liability, and relevant legisla-
tion.
To obtain the following books, contact
Northeast Midwest Institute, 218 D
Street, SE, Washington, DC 20003;
telephone: (202) 544-5200; fax: (202) 544-
0043; http://www.nemw.org.
«:« Bartsch, Charles, Elizabeth Collaton,
and Edith Pepper. Coming Clean for
Economic Development: A Resource
Book on Environmental Cleanup and
Economic Development Opportunities.
Northeast Midwest Institute. 1996.
*> Brownfields Redevelopment: A Guide-
book for Local Governments and
Communities. International County
Managers Association and Northeast
Midwest Institute. 1997.
*> Pepper, Edith. Lessons from the Field:
Unlocking Economic Potential with an
Environmental Key. Northeast Mid-
west Institute. 1997.
The following book is available from the
American Bar Association Publication
Orders, PO Box 10892; Chicago, IL 60610-
0892, telephone: (800)285-2221.
*> Davis, Todd and Kevin Margolis.
Brownfields: A Comprehensive Guide
to Redeveloping Contaminated Prop-
erty. American Bar Association. 1997.
The following book is available from the
Urban Land Institute, 1025 Thomas
Jefferson St., NW, Suite 500W Washing-
ton D.C. 20007-5201; telephone: (800) 321-
5011; http://www.uli.org
*> Simons, Robert A. Turning Brownfields
into Greenbacks. Urban Land Insti-
tute. 1998.
To obtain the booklet below, contact the
Lincoln Institute of Land Policy, 113
Brattle Street, Cambridge, Massachusetts
002138-3400; telephone: (617) 661-3016;
http://www.lincoln.edu
*> Wright, James. Risks and Rewards of
Brownfield Redevelopment. Lincoln
Institute of Land Policy. 1997.
The Urban and Economic Development
Division of the U.S. EPA in Washington,
DC 20460 provides the following
document, among others on infill and
brownfields redevelopment. Telephone:
(202) 260-2127; fax (202) 260-0174;
www. smartgrowth.org
*> Smart Development: Restoring
Economy, Environment, and Commu-
nity. Urban and Economic Develop-
ment Division. 1998.
Financing Brownfields Redevelopment Projects - A Guide for Developers
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EPA Regional Brownfields Coordinators
EPA regional brownfields coordinators provide support for brownfields developers by
answering questions on relevant issues. They work with applicants selected in the
Brownfields Assessment Demonstration Pilot Program to finalize their cooperative
agreement packages.
EPA Region
Region 1
Region 2
Region 3
Region 4
Region 5
Region 6
Region 7
Region 8
Region 9
Region 10
EPA Headquarters
States in
the Region
CT ME MA
NH Rl VT
NJ NY
PR VI
DE DC MD
PA VA WV
AL FL GA
KY MS NC
SCTN
IL IN Ml
MN OH Wl
AR LA NM
OK TX
IA KS
MO NE
CO MT ND
SD UT WY
AZ CA HI
NV AS GU
AK ID
OR WA
Contact Address,
Phone, Fax
John F. Kennedy Federal Building
One Congress Street
Boston, MA 02203
(617)918-1209 Fax (617) 918-1291
290 Broadway, 18th Floor
New York, NY 10007
(212) 637-4314 Fax (212) 637-4360
1650 Arch Street
Philadelphia, PA 19103
(215)814-3129 Fax (215) 814-3254
Atlanta Federal Center
61 Forsyth Street
Atlanta, GA 30303
(404) 562-8661 Fax (404) 562-8628
77 West Jackson Boulevard
Chicago, IL 60604-3507
(312) 886-1960 Fax (312) 886-7190
First Interstate Bank Tower
1445 Ross Avenue, Suite 1200
Dallas, TX 75202-2733
(214) 665-6735 Fax (214) 665-6660
726 Minnesota Avenue
Kansas City, KS 66101-2728
(913)551-7000 Fax (913)551-7063
999 18th Street, Suite 500 (EPR)
Denver, CO 80202-2405
(303) 312-6803 Fax (303)312-6071
75 Hawthorne Street, H-1
San Francisco, CA 94105
(415) 744-1730 Fax (415) 744-2180
1200 Sixth Avenue
Seattle, WA 98101
(206)553-6523 Fax (206)553-0124
US EPA
Office of Solid Waste and Emergency Response
Washington, DC 20460
(202) 260-4039 Fax (202) 260-6606
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State Programs and Contacts
Most states have at least one, if not multiple, contact people to answer questions on
cleanup procedures. Contact people provide oversight for environmental cleanup,
information on loan and grant availability, technical guidance, and cleanup verification.
47 out of 50 states have official VCP programs; North Dakota, South Dakota and
Wyoming do not have official programs.
State
Alabama
Alaska
Arizona
Arkansas
California
Connecticut
Contact Address, Phone, Fax
Department of Environmental Management
Land Division
1751 Congressman WL Dickinson Drive
Montgomery, AL 36109
(334) 271-7732 Fax (334) 279-3050
Department of Environmental Conservation
Contaminated Sites Remediation Program
410 Willoghby Avenue
Juneau, AK 99801
(907) 465-5390 Fax (907) 465-5262
Department of Environmental Quality
Voluntary Remediation Program
3303 North Central Avenue
Phoenix, AZ 85012
(602) 207-4166 Fax (602) 207-4236
Department of Pollution Control and Ecology
Hazardous Waste Division
8001 National Drive
P.O. Box 8913
Little Rock, AR 72219-8913
(501) 682-0833
Fax (501) 682-0565
California Environmental Protection Agency
Department of Toxic Substances Control
P.O. Box 806
Sacramento, CA 95812-0806
(510) 540-2122 Fax (916) 323-3700
Colorado CO Department of Public Health and Environment
Hazardous Materials and Waste Management Div.
4300 Cherry Creek Drive South
Denver, CO 80246-1530
(303) 692-3449 Fax (303) 759-5355
Department of Environmental Protection
Water Management Bureau
79 Elm Street
Hartford, CT 06106-5127
(860) 424-3705 Fax (860) 424-4057
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State Programs and Contacts (continued)
State
D.C.
Delaware
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Contact Address, Phone, Fax
Department of Health
Environmental Health Administration
51 N Street, NE
Washington, DC 20002
(202) 645-6080 Fax (202) 645-6622
Department of Natural Resources and
Environmental Control
Site Investigation and Restoration Branch
715 Grantham Lane
New Castle, DE 19720-4801
(302) 395-2600 Fax (302) 323-4561
Department of Revenue
820 N. French Street
Wilmington, DE 19801
(302) 577-8455 Fax (302) 577-8656
Department of Environmental Protection
Bureau of Waste Cleanup
Tallahassee, FL
(850) 488-3935
GA Department of Natural Resources
Environmental Protection Division
Suite 1462
Hazardous Waste Management Branch
205 Butler Street, SE
Atlanta, GA 30334
(404) 657-8600 Fax (404) 657-0307
HI Department of Health, Hazard Evaluation,
and Emergency Response
919 Ala Moana Boulevard
Room 206
Honolulu, HI 96814
(808) 586-4249 Fax (808) 586-7537
Division of Environmental Quality
1410 North Hilton Street
Boise, ID 83706
(208) 373-0502 Fax (208) 373-0576
Illinois Environmental Protection Agency
Bureau of Land
Division of Remediation Management
1021 North Grand Avenue East
P.O. Box 19276
Springfield, IL 62794-9276
(217)782-6761 Fax (217) 782-3258
Department of Environmental Management
Voluntary Remediation Program
Indianapolis, IN
(317) 308-3106
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State Programs and Contacts (continued)
State
Iowa
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Massachusetts
Massachusetts
Contact Address, Phone, Fax
IA Department of Natural Resources
Environmental Policy Division
Land Quality Bureau
Wallace State Office Building
Des Moines, IA 50319
(515)242-6346 Fax (51 5) 281-8895
Department of Health and Environment
Division of Environment
Bureau of Environmental Remediation
Forbes Fields Building 740
Topeka, KS 66620-0001
(785)296-1675 Fax (913) 296-1686
Department of Environmental Protection
Division of Waste Management
14 Reilly Road
Frankfurt, KY 40601
(502)564-6716 Fax (502) 564-4049
Department of Environmental Quality
Inactive & Abandoned Sites Division
P.O. Box 82178
Baton Rouge, LA 70884-2178
(225) 765-0487 Fax (504) 765-0484
Maine Voluntary Response Action Program Coordinator
Bureau of Hazardous Materials & Solid Waste
Control
ME Department of Environmental Protection
State House Station 17
Augusta, ME 04333-0017
(207)287-2651 Fax (207) 287-7826
MD Department of the Environment
Voluntary Cleanup
Brownfields Division
2500 Broeing Highway
Baltimore, MD 21224
(410)631-3437 Fax (410) 631-3472
Department of Economic Development
Boston, MA
(617) 727-3206
Office of the Attorney General
Environmental Protection Division
200 Portland Street
Boston, MA 02114
(617)727-2200 Fax (617) 727-9665
Department of Environmental Protection
Bureau of Waste Site Cleanup
1 Winter Street, Floor #7
Boston, MA 02108
(617)556-1121 Fax (617)556-1049
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State Programs and Contacts (continued)
State
Contact Address, Phone, Fax
Michigan
Ml Department of Environmental Quality
Site Reclamation Unit
P.O. Box 30426
Lansing, Ml 48917
(517)373-9540 Fax (517) 373-9657
Minnesota
Mississippi
Minnesota Pollution Control Agency
Groundwater & Solid Waste Unit
520 Lafayette Road
St. Paul, MN 55155-4194
(651)296-9707 Fax (612) 296-9707
Minnesota Department of Trade and Economic Development
St. Paul, MN
(612) 297-4132
Department of Environmental Quality
Pollution Control & Hazardous Waste Division
P.O. Box 10385
Jackson, MS 39289-0385
(601)961-5171 Fax (601) 961-5741
Missouri
MO Department of Natural Resources
Voluntary Cleanup Section
P.O. Box 176
Jefferson City, MO 65102
(573)526-8913 Fax (573) 526-8922
Montana
MT Department of Environmental Quality
Remediation Division
P.O. Box 200901
Helena, MT 59620-0901
(406)444-0492 Fax (406) 444-1901
Nebraska
NE Department of Environmental Quality
Superfund Section
1200 N Street
The Atrium Building, Suite 400
Lincoln, NE 68509-8922
(402) 471-3388 Fax: (402) 471-2909
Nevada
Division of Environmental Protection
Bureau of Corrective Actions
333 West Nye Lane
Carson City, NV 89706
(775) 687-4670 Fax: (775) 687-6396
New Hampshire
Department of Environmental Services
Waste Management Division
State Site Corrective Action Section
6 Hazen Drive
Concord, NH 03304
(603)271-3503 Fax (603) 271-2456
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State Programs and Contacts (continued)
State
Contact Address, Phone, Fax
New Jersey
Department of Environmental Protection
Site Remediation Program
401 East State St., P.O. Box 434
Trenton, NJ 08625-0434
(609) 292-1250 Fax (609) 292-2117
New Mexico
Environment Department
Voluntary Remediation Program
P.O. Box 26110
Santa Fe, NM 87502
(505) 827-2754 Fax (505) 827-2965
New York
Department of Environmental Conservation
Division of Environmental Remediation
50 Wolf Road
Albany, NY 12233-7010
(518)457-5861 Fax (518) 457-9639
North Carolina
Department of Environmental and Natural
Resources
Division of Waste Management Bureau
401 Oberlin Road, P.O. Box 29603
Raleigh, NC 27611-7687
(919) 733-2801 ext. 353 Fax (919) 733-4811
North Dakota Department of Health and Consolidated Labs
Division of Waste Management
P.O. Box 5520
Bismarck, ND 58506-5520
(701) 328-5166 Fax (701) 328-5200
Ohio
Ohio Environmental Protection Agency
1800 Watermark Drive, P.O. Box 1049
Columbus, OH 43266-0419
(614) 644-2279 Fax (614) 644-3146
Oklahoma
OK Department of Environmental Quality
Waste Management Division
1000 Northeast 10th Street, 8th Floor
Oklahoma City, OK 73117-1212
(405) 702-5100 Fax (405) 271-1342
Oklahoma
Department of Environmental Quality
Waste Management Service
1000 Northeast 10th Street
Oklahoma City, OK 73117-1212
(405)271-7128 Fax (405) 271-1342
Oregon
Department of Environmental Quality
Waste Management & Cleanup Division
811 S.W. Sixth Avenue
Portland, OR 97204
(503) 229-5913 Fax (503) 229-6977
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State Programs and Contacts (continued)
State
Rhode Island
Contact Address, Phone, Fax
Pennsylvania Department of Community and Economic
Development
Grants Office, 494 Forum Building
Harrisburg, PA 17120
(717)787-7120 Fax (717) 772-2890
Pennsylvania Department of Environmental Protection
Bureau of Land Recycling & Waste Management
Philadelphia, PA
(717) 783-7816
Department of Environmental Management
Office of Waste Management
235 Promenade Street
Providence, Rl 02908
(401)222-2797 Fax (401) 222-3812
South Carolina
Department of Health and Environmental Control
Bureau of Land & Waste Management
2600 Bull Street
Columbia, SC 29201
(803) 896-4000 Fax (803) 896-4292
South Dakota Department of Water and Natural Resources
Division of Environmental Regulation
523 East Capitol, Foss Building
Pierre, SD 57501
(605) 773-5868 Fax (605) 773-6035
Tennessee Program Manager
TN Department of Environment and Conservation
Division of Superfund
401 Church Street, 4th Floor, L & C Annex
Nashville, TN 37214
(615)532-0900 Fax (615) 532-0938
Texas
TX Natural Resources Conservation Commission
Voluntary Cleanup Program
MC:221, P.O. Box 13087, MC-221
Austin, TX 78711-3087
(512)239-5891 Fax (512) 239-1212
Utah
Department of Environmental Quality
Division of Environmental Response and
Remediation
168 N. 1950 West, 1st Floor
Salt Lake, UT 84116
(801)536-4100 Fax (801) 536-4242
Vermont
VT Agency of Natural Resources
Department of Environmental Conservation
103 South Main Street
Waterbury, VT 05671-0404
(802)241-3888 Fax (802) 241-3296
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State Programs and Contacts (continued)
State
Contact Address, Phone, Fax
Virginia
Department of Environmental Quality
P.O. Box 10009
Richmond, VA 23240
(800) 592-5482 Fax (804) 698-4234
Washington
Wisconsin
Department of Ecology
Toxics Cleanup Program
P.O. Box 47600
Olympia, WA 98504-7600
(360)407-7170 Fax (360) 407-7154
West Virginia WV Division of Environmental Protection
Office of Environmental Remediation
Site Investigation and Response Section
1356 Hansford Street
Charleston, WV 25301
(304) 558-2508 Fax (304) 558-0256
Wisconsin Department of Natural Resources
Division of Environmental Quality
101 South Webster Street, P.O. Box 7921
Madison, Wl 53707-7921
(608) 267-6713 Fax (608) 267-2768
Wyoming
Department of Environmental Quality
Solid and Hazardous Waste Division
122 West 25th
Cheyenne, WY 82002
(307) 777-7752 Fax (307) 777-5973
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