city document: brownfield owners unwilling to sell or remediate

8/6/2019 City Document: Brownfield Owners Unwilling to Sell or Remediate

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ROUTING Contaminated Gas Stations Task Force Committee | DELEGATION M. Brostrom/P. OhmWRITTEN BY B. Daly | May 9, 2011 Corporate Services Department 2011OOE005

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Brownfield OwnersUnwilling to Sell orRemediate

Brownfield Redevelopment Inertia

Recommendation:

That the May 9, 2011, CorporateServices Department report2011OOE005 be received forinformation.

Report Summary

The information in this report

identifies reasons for and options toovercome unwillingness ofbrownfield owners to remediate orsell their properties.

Previous Council/Committee Action

At the January 26, 2011, ContaminatedGas Station Task Force Meeting, thefollowing motion was passed:

1. reasons for parties unwilling tosell and/or remediate and

potential strategies for the City toaddress the issue

2. what 3rd party liabilities andimplications might be for both theCity and other parties

Report

From research in a variety ofjurisdictions, common reasons identifiedfor brownfield owners being unwilling topursue timely remediation or consider

selling their properties include:

remediation costs may render profittoo low for sale or redevelopment.Go forward decisions are entirelywithin the owners powers

legislative mechanisms allow for longterm remediation. Owners business

plans that include wait and see areaccommodated

efforts for sale preparation for buyersand sellers (re-zoning, environmentalassessments) may be perceived ascostly, unfamiliar and/or time-

consuming absence of risk transference

mechanisms

limited regulatory certainty

access needs for off-site remediation

risk insurance, where available,impacts pro forma result

limited financing options

limited government supportmechanisms

property stigma perception owners unfamiliar with options for

remediation and exposure control

Strategies to address this inactivity inEdmonton may include:

government support for projects thatalign with municipal objectives andcapture benefits economic, socialand environmental

municipal land acquisition options

(lease, rent and purchase) andcorresponding budget increases

support and education of owners forbrownfield redevelopment thatincludes new and traditionalremediation technology, exposurecontrol and interim solutions

advocacy with other jurisdictions andorders of government to addressregulatory closure and risktransference, improve enforcement,

update standards and expandmunicipal powers specifically inrelation to tax forgiveness/deferral

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Page 1 of 5 Report: 2011OOE005 Attachment 1

Unwilling Owners: Reasons for Inaction on Remediation and Sale

Research has been conducted in other jurisdictions to understand what would cause abrownfield owner to be unwilling to sell or remediate their property. The following listapplies differently to each property based on individual land characteristics, nature andextent of contamination on and off site, economic conditions and objectives of theproperty owner. These include:

1. Value of land relative to remediation cost2. Legislative mechanisms and surety of enforcement3. Business plans of the owner4. Understanding of brownfield redevelopment5. Absence of risk transference6. Absence of regulatory certainty7. Limitations of Risk Insurance8. Financing9. Limitations of Government Support Options10. Property Stigma11. Buyer Due Diligence12. Environmental RegulationsAwareness of Remediation/Exposure Control

Options.

1. Value of land relative to remediation costLike all business people, developers and land owners must concern themselves withmaking a profit. If the sale of a brownfield site cannot be seen to provide a reasonablerate of return after potentially complex and costly remediation, the developer or landowner will likely choose to leave the brownfield in a low cost condition idle. In

Edmonton, the native geology benefits hydrocarbon contamination (typical for formergas stations), in that liabilities decrease through time as a result of monitored naturalattenuation. A calculation of natural versus active remediation costs against propertyvaluation can make inaction a viable investment decision.

The benefits of brownfield redevelopment often include elements that might be seen tohave little financial value to the developer. These include economic, social andenvironmental benefits that will be enjoyed by surrounding residents and commercialinterests. Capturing these values and stacking them with the developers investment isa potential partnership arrangement that would require facilitation and leadership.An improvement on property values on lands near brownfield redevelopment can,

according to the NRTEE, Brownfield Redevelopment Strategy, increase by as much as10% for commercial, 30% for residential and for 50% for homes. The report alsoidentified that businesses, homes and properties directly abutting can see improvementof as much as 50%. However, these benefits are not seen by the developer who wouldactually remediate a brownfield.


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Municipalities often overlook the additional savings in infrastructure, transportation andvarious municipal services from the re-use of a brownfield instead of a greenfielddevelopment. Calculating these savings and offering financial support up to thatequivalent can become a net gain for a municipality and may encourage brownfieldredevelopment.

2. Legislative mechanisms and likelihood of enforcementAnother reason for inaction by brownfield owners is that competing environmentalpriorities for finite government staffing resources results in limited investigation andfollow-up.

In countries such as South Korea and the Netherlands, brownfield owners or theircompany directors can be charged, fined and incarcerated for failing to comply withenvironmental regulations.

3. Business Plans of the OwnerProperty owners choosing long-term remediation are making an economic decision for

themselves as well as the neighbourhoods in which the property sits. No tool exists formunicipalities to over-rule such a decision.

The challenges of beginning or continuing offsite remediation must also be considered.Once the source property has been sold, access to monitoring activity and equipmentcan negatively impact progress and costs for the original owner.

4. Understanding of brownfield redevelopmentThe discomfort of revealing the nature and extent of contaminants on a brownfield canprove too onerous for some owners.

Engagement of qualified environmental professionals to gain an understanding ofremediation options and costs can change this perspective.

5. Absence of Risk TransferenceThe absence of a formal and binding risk transference mechanism leaves the specter ofperpetual liability. An owner may choose to sit on their land until a desired level ofsurety is possible.

In the words of a CPPI representative, their firm would be horrified to release (sell,lease, rent, gift) any property that wasnt completely remediated to current standards.The cities of Calgary and Toronto have engaged in projects requiring risk transfer.

Liability was formally assigned from polluters to the municipality for the specific projectwhen an outright land purchase occurred. This is not typical since any contract totransfer liability in Canada can be superseded by polluter pays liability. In these twoincidents, polluters were confident that each municipality would honour its liabilitytransfer contract.


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6. Absence of regulatory certaintyThe current Remediation Certificate program in the Province of Alberta has the ability toprovide documentation confirming that a contaminated area of a property now meetscurrent provincial targets.

While this documentation is useful to sellers to demonstrate efforts for clean-up, there isno such documentation available for property-wide certification. The implication oflurking contamination can frighten potential buyers and reduce sale price unfairly.

7. Limitations of Risk InsuranceThere are different risk insurance packages available in different jurisdictions. Thesepolicies may protect the insured from remediation expenses arising from known andunknown conditions, or claims from third parties. Large scale redevelopment projectswith broad profit margins may be able to carry the expense of insurance policies that willcap remediation and provide assurance to investors. However the cost of theseproducts is often too high for smaller projects.

An example of a project where Insurance policies have been purchased is the verylarge brownfield development in Cochrane, Alberta.

8. FinancingRisk issues combined with insurance costs negatively impact the lenders assessedvalue of land as collateral lenders shy away from parcels where a default would leavethem in control of the land with its remediation and liability burdens. In addition, it isvery difficult to obtain capital for the early development phase since, by definition, this isprior to the redevelopment and the land is given a face value. This is a challenge infinancing brownfields and increases the appeal of greenfield development as analternative.

9. Limitations of Government support optionsMarket failure due to low or negative pro forma results can be offset throughgovernment financial incentives. In turn, the development may generate sufficientwealth and income in the tax base to repay the incentives from the public budget.Addressing these sources of market failure on redevelopment that aligns with municipalpriorities may increase the rate of redevelopment and its consequent economic, socialand environmental benefits. Project by project analysis is recommended to determinethe value of these benefits and savings and the corresponding calculation of any grantfunding a municipality would be willing to provide.

10. Property stigmaOccasionally, perceptions of the environmental history of a remediated property may bea barrier for buyers.

11. Buyer due diligenceBuyers will have a limit on the funds available for testing and delineation for prospectivebrownfield purchases. Understanding that the outcome of research may render the


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purchase unwise, buyer-financed due diligence directly impacts the appeal of abrownfield property.

The problem is compounded by the unwillingness of sellers to permit their land to beassessed. Discovery of contamination may trigger regulatory requirements for costlycleanup, without assurance that the buyer will remain interested.

12. Environmental RegulationsGovernments, in addressing their responsibility to ensure health and safety inenvironmental procedures create additional steps for brownfield redevelopment.Creating a municipal support function such as a Brownfield Coordinator that providesuseful information for brownfield redevelopment including municipal process, supportresources, provincial regulation and suggestions of remediation options to explore fortailored solutions, may be advantageous.

13. Options for RemediationThe common approach to remediation has incorporated the expensive dig and dump

process which is an activity understood by laypersons and which provides a comfortlevel that contaminants have been removed and may be the best option for a particularsite. Emerging technologies, especially in situ remediation and exposure controlprograms, have gained wide acceptance around the world. These methods are slowlygaining acceptance in our market place and often are less costly.

For unavoidably long-term remediation, exposure control may offer a near termdevelopment opportunity and allow costs to be protracted over multiple years. Inaddition, interim solutions for properties under long-term remediation will combineexposure control with short-term purposes that can include mobile commercialenterprises, raised community gardens, solar or art installations or additional festival

space. Cooperation between property owners, municipal authorities and communitypartners is critical to advance these agreements.

An Effective Municipal StrategyGiven the many issues that would discourage an owner (and a buyer), a municipalstrategy must have the flexibility to address concerns where redevelopment of theselands aligns with municipal and community goals. An effective strategy must include:

Financial support measures to address thin profit margins. To effectively deliverfinancial incentives, whether as low-interest loans, tax forgiveness or outrightgrants, a strategy will require the ability to tailor support on a project by project

basis.

Transferring the entire value of the social benefit to the redeveloper at the expenseof the taxpayer, should be avoided.

The realities of cost and time as barriers to brownfield redevelopment require themunicipality to support flexible solutions. This includes exposure control programs


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that meet responsibilities for safe communities and promotion of economicdevelopment.

Strategic public investments which would require additional municipal funding mayinclude land acquisition (lease, purchase rent, and gift) and partnership.

Support and promotion of brownfield redevelopment opportunities will increaseunderstanding, gain support for in situ and exposure control options, encourageuse of municipal resources for creative solutions and facilitate partnerships withnon-traditional stakeholders, such as a community league with a major oilcompany.

Advocacy remains key to increasing enforcement, adding accountability withtimelines and milestones, risk transference, regulatory closure, expandingmunicipal powers and continually updating standards to include safe newtechnologies and remediation techniques.

All of these elements have been captured in the City of Edmonton ContaminatedGas Stations Task Force Strategy. An understanding that tailored solutions arerequired has resulted in a menu of support options. The ongoing work internallyand with external stakeholders requires diligence, creativity and determination.

Bibliography

A National Brownfield RedevelopmentStrategy for Canada NRTEE, 2003

Brownfields: a comprehensive guide to redeveloping contaminated property.Todd S. Davis

New Jersey Lawyer Magazine, NJDEP Approves The Use Of Risk Transfer Tools ToFacilitate Brownfield Transactions. Todd W. Terhune, December 2005

city document: brownfield owners unwilling to sell or remediate

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