Strategies for Brownfields Redevelopment

Real estate developers and investors, and their environmental consultants, need strategies to deal with contaminated properties, especially as commercial and residential projects increasingly target previously developed parcels in urban areas and village centers.  Transit Oriented Development (TOD) and “smart growth” projects commonly reuse sites that have a history of environmental impairment, to accomplish Brownfields redevelopment.

For instance, Governor Patrick’s current plan for 10,000 new housing units per year prioritizes development of sites in urban areas and village centers.  Although those properties may be perfect for re-use, it is likely that the developer or contractor will encounter some amount of oil or hazardous materials prior to the acquisition or during construction, or both.

In the past, environmental contamination could stop a good redevelopment plan in its tracks.  However, current regulations and industry practices can be used to manage the risk and facilitate redevelopment. 

Here are some points from a talk I recently gave to Licensed Site Professionals (LSPs) and environmental consultants on Brownfields Redevelopment and Environmental Due Diligence:

1.                   Chapter 21E creates the “Eligible Person” and “Eligible Tenant” categories to provide liability protection for new owners and new tenants that did not cause or contribute to the contamination.  An Eligible Person can receive liability protection after cleaning up the property and an Eligible Tenant can receive protection if the contamination was previously reported to the Department of Environmental Protection (DEP).

2.                  If an Eligible Person needs liability protection before completing the cleanup, the Attorney General’s office can issue a “Brownfields Covenant Not to Sue”, to provide liability relief while the cleanup is underway.  In addition, the Covenant Not to Sue can be used to protect a prospective purchaser as well as a responsible party who caused the contamination as long as the cleanup revitalizes an area and provides public benefits.

3.                   Chapter 21E provides liability relief for a “Secured Lender” to protect banks while they are servicing a loan as well as after a foreclosure.  The Secured Lender must satisfy several conditions to maintain this status but they are not onerous on their face.  In addition, subsidized environmental insurance under the Brownfields Redevelopment Access to Capital (BRAC) program can provide an additional level of comfort for lenders, with Pollution Legal Liability and Cleanup Cost Cap policies.

4.         Similar liability relief is provided to municipal entities such as a redevelopment authority, community development corporation, and economic development and industrial corporations.  Thus, public projects can proceed with a level of comfort.

5.         The Brownfields Tax Credit program has provided up to a 50% credit of the response action costs to achieve a cleanup within economically distressed areas, of which there are many under the applicable State program.  However, Governor Patrick vetoed an extension of this program last year and lawmakers have until August 2013 to conclude action on a further extension.

6.         The Phase I Environmental Site Assessment (ASTM E1527-05) is often considered the industry standard for conducting environmental due diligence in real estate transactions.  However, the scope of E1527-05 does not cover many issues that are frequently of concern in a real estate deal, such as indoor air quality or vapor intrusion, asbestos material, wetlands, regulatory compliance, business environmental risk, and subsurface (soil, groundwater) sampling.  Thus, it is important for the developer and environmental professional to consider the appropriate scope of due diligence in cases where the relatively limited scope of ASTM E1527-05 may not be sufficient.  (Also note that E1527-05 is due to be reissued this year, so some of the provisions may change, including for the soil vapor pathway.)

7.         It will be important to follow DEP’s current proposed amendments to the Massachusetts Contingency Plan (MCP), to determine how the final regulations might affect Brownfields redevelopment.  The current draft includes changes regarding vapor intrusion, future construction on sites with remaining contamination, the close-out process (e.g., eliminating Response Action Outcome (RAO) in favor of Permanent Solutions with or without Conditions and Temporary Solutions), and the deed riders known as Activity and Use Limitations (AULs) restricting future use of a parcel.

Please contact me if you or a colleague has any questions regarding Brownfields Redevelopment, environmental contamination, or real estate or business transactions. 

Is your property contaminated? How about your indoor air? (MassDEP's Guidance on Vapor Intrusion and Indoor Air)

Just in time for the recent Holiday season, the Massachusetts Department of Environmental Protection provided the real estate and environmental communities with a dubious present, the 102-page (plus five appendices) “Interim Final Vapor Intrusion Guidance” document on the scintillating (to some) topic of indoor air contamination caused by groundwater and soil contamination. The Guidance document will be important for building and landowners, developers, lenders, tenants and environmental consultants, particularly Licensed Site Professionals (LSP’s), with the misfortune of encountering (potential) indoor air contamination.

The DEP estimates that approximately 50 new sites are identified each year with the potential for vapor intrusion (i.e., the way contamination in soil and groundwater can enter a building and contaminate the indoor air). In addition, vapor intrusion concerns have been raised at former contaminated sites that were previously cleaned up and believed to be “closed” under the hazardous waste cleanup regulations. Additional expensive and time-consuming hazardous waste response actions have been required at some former sites based upon assertions that the prior cleanup did not properly evaluate the potential for vapor intrusion or for new building construction. As imagined, this uncertainty has been a serious concern for lenders, owners, developers and LSPs.

A title combining the words “Interim”, “Final”, and “Guidance” raises some questions as to the document’s legal and practical effect. According to DEP, the document is “final” insofar as it can be quoted and cited after a prior draft had previously been circulated. It is “interim” insofar as DEP says that it will issue formal revisions to its regulations by July 2012, which may supersede parts of the document and lead to additional revisions. Finally, according to DEP, the “Guidance” is not a regulation, rule or requirement, and should not be construed as mandatory. However, because the Guidance presents the technical recommendations and preferences of DEP, an owner, developer or LSP could be forgiven if they treated the document as a requirement subject to enforcement by DEP.

The Guidance outlines DEP’s recommendations for best practices that will meet the current regulatory requirements. The stated purposes are to clarify when to evaluate the pathway for vapor intrusion; provide guidance on conducting assessments to determine if the vapor intrusion pathway (i.e., migration route from the containment source to the sensitive receptor) is complete and conducting risk assessments if the pathway is complete; and, recommend mitigation strategies to address vapor intrusion.

In terms of evaluating the potential for vapor intrusion at sites where there is soil or groundwater contamination, the Guidance contains a multi-step flow chart including documentation of indoor air contamination or odors, the concentrations of contaminants within certain distances of an occupied building, specific building criteria (e.g., an earthen floor, significant cracks in the foundation, a groundwater sump, etc.), and the potential for contaminants moving along preferential migration pathways such as utility trenches.

The DEP recommends a multiple “Lines of Evidence” approach to determine if the vapor intrusion pathway from source to receptor is complete and likely to be of concern. The Lines of Evidence may include the concentration of contaminants in the soil, groundwater, soil gas below the building (sub-slab soil gas), and indoor air; the presence of preferential migration pathways for vapors; and, the presence of other outdoor and indoor sources for the contaminants (e.g., outdoor sources of pollution, household products, etc.).

In an effort to “simplify” the evaluation of the vapor intrusion pathway, DEP has developed Residential and Commercial/Industrial Threshold Values (TVs). These Threshold Values are used to determine whether measured indoor air concentrations are within the range of typical residential indoor air concentrations and typical exposure scenarios for commercial and industrial settings.

The Guidance addresses the common question of whether, and when, to conduct direct sampling of indoor air. The Guidance indicates that it is not common to sample indoor air for volatile organic compounds (VOCs) without first collecting other data on groundwater, soil, or soil gas that indicates that there might be an indoor air problem due to environmental contamination, at least for the purpose of satisfying hazardous waste cleanup regulations (i.e., there may be other reasons to sample the indoor air unrelated to the Massachusetts Contingency Plan, or MCP, at 310 CMR 40.0000). The Guidance recognizes that direct sampling of indoor air without gathering other site data can result in erroneous conclusions and unnecessary response actions to address conditions that are not related to the MCP. In addition, when sampling indoor air (if it is appropriate), efforts should be made to eliminate sources of contamination within or near the building that can affect the results, such as cigarette smoke, the use of sprays, solvents, paints, and other household products, and operations of nearby businesses, such as a dry cleaner.

The Guidance discusses the contentious issue of potential future building construction when there is a potential risk of vapor intrusion (if a building were to be constructed). Achieving closure of a vacant contaminated site that does not have a building can be difficult because actual building conditions cannot be directly measured and existing methodology may not explicitly address potential indoor air problems at a future building. The Guidance indicates that, if some amount of residual contamination will remain in the soil or groundwater, the potential for vapor intrusion should be considered in planning the future placement of a new building and preparing the building site.

The Guidance states DEP’s preference of using an Activity and Use Limitation (AUL), which is a deed rider recorded at the Registry of Deeds, to provide notice to interested parties of the contamination that remains and how to address it in the future. For instance, an AUL might specify the measures to be taken at the time of future building construction (e.g., installation of sub-slab depressurization (SSD) system and a vapor barrier) or might restrict construction activity to locations outside of areas with contamination, or specify that an LSP must evaluate the potential for vapor intrusion before a building is constructed.

The Guidance provides that engineering measures may be incorporated into the future construction plans to protect against vapor intrusion if a building will be constructed in an area where contamination remains that could lead to vapor intrusion. Depending on the concentration of the contaminants, a vapor barrier and an active SSD system either is not required (Category A site), or “should” be installed (Category B site), or presumably “would” be installed (Category C site). The Guidance provides criteria on whether post-construction confirmatory indoor air sampling is necessary and the procedure to determine if the SSD system can be terminated.

Among the various takeaways for owners, developers, and lenders is that LSPs and environmental professionals will have good reason to be cautious in addressing contaminated sites with the potential for vapor intrusion and indoor air contamination. This includes sites with existing buildings as well as vacant properties on which building and construction activities may occur in the future. The Guidance will likely lead to additional site investigations and sampling, which would likely be reflected in the cost and schedule of the work.

Please contact me if you or a colleague has a question on DEP’s Guidance or on other real estate or environmental issues.