Developers Don't Need To Shy Away From Contaminated Sites, They Just Need The Right Team

As the need for affordable housing, data centers, healthcare facilities and other key commercial real estate properties continues to rise, developers are struggling to find the land to build these spaces. 

Increasingly, they are turning to brownfields, previously developed industrial and commercial properties contaminated by pollutants. Developers are exploring how these sites can be transformed from environmental blights into thriving community hubs. 

Building on these sites naturally comes with unique challenges. The key to overcoming them is having the right consulting team involved early on, said Roux Vice President Frank Cherena. 

“When you’re dealing with sites like this, problems are going to eventually rear their head, but the bigger issue is not being prepared for these problems from the outset,” he said. 

As an environmental consulting and management company, Roux gives clients the advisory, regulatory and field services they need to successfully acquire and redevelop a brownfield site. But an environmental consultant alone is not enough, Cherena said. Developers also need the expertise of an environmental lawyer to help guide them through these uncertain waters. 

Bisnow sat down with Cherena and Elizabeth Mack, Dallas office managing partner at Troutman Pepper Locke. Mack is national environmental counsel for developers across the country, giving her a wide-ranging perspective on environmental issues affecting contaminated property redevelopment. Cherena and Mack spoke about the relationship between environmental consultants and counselors and the steps needed to complete a successful brownfield deal. 

Bisnow: From your experience, what are the environmental issues that most often complicate transactions or redevelopment — and why do you think those same mistakes keep happening?

Mack: The repeat culprits are legacy contamination that wasn’t identified or fully characterized, perfluoroalkyl and polyfluoroalkyl substances — PFAS — and solvent plumes, wetlands/fill issues and permitting gaps. These problems persist because teams may bring environmental counsel in late, rely on the seller’s diligence, and/or underestimate schedules and budgets. The fix is simple: Engage your own environmental consultant and environmental counsel early and allow us to tailor the diligence scope to the site. We can then provide a toolkit for the resolution of the issues, an analysis of potential liabilities, and cost and time estimates, which will make negotiations and budgeting smoother.    

Sometimes, we are brought in later, when an unexpected issue arises. The issue could have been latent; at other times, the client did not have time to bring in environmental counsel prior to closing the transaction. We are here to help, regardless of when or how the issue arises.    

Bisnow: How can tools like prospective purchaser agreements or environmental insurance help buyers manage liability and move forward with sites that might otherwise be considered too risky?

Mack: Prospective purchaser/brownfield agreements are a terrific tool and enable a prospective developer who did not cause or contribute to the contamination to obtain liability protection, greater certainty regarding remedial responsibilities, and, in some states, tax benefits. Many sites would not be able to be redeveloped without these agreements in place. 

Environmental insurance can also be helpful, even if coverage is limited. Take, for example, a traditional pollution policy for redeveloping a site to multifamily residential. The policy may not cover soil contamination found during redevelopment, but it may cover the multimillion-dollar mold claim initiated after occupancy. Separately, lender coverage may enable a lender to get comfortable with an otherwise environmentally risky site. 

Bottom line: Combined with a realistic remedial plan, these tools can move difficult sites from "too risky" to "doable."

Bisnow: Where does an environmental consultant fit into this picture? How can they help a developer spot potential environmental pitfalls before they become problems?

Cherena: Our role as an environmental consultant is key, but we are not the entire solution. I’ve seen the most successful conversions come from the combined efforts of the consultant and environmental counsel. The consultant serves on the front line, doing the background fact-finding, looking to create a clear narrative of the property’s environmental history and potential environmental hazards. Environmental counsel can then assess and provide analysis on the risks presented in the consultant’s findings and recommendations to help assess.

And sometimes, what Roux finds isn’t even an environmental problem; it’s a development or entitlement issue that we’re uniquely able to catch because we’ve seen so many different transactions. When you’ve worked on enough brownfield and redevelopment deals, you start to recognize the potential pitfalls early, and this, along with regular, open communication between the consultant and the attorney, helps make sure those issues get solved before they interfere with our clients’ plans.

Bisnow: Due diligence can sound like a formality, but in your view, what makes it absolutely critical? Have you seen cases where skipping that step caused major issues later?

Cherena: Due diligence is essential not only for meeting regulatory requirements and securing potential liability protections but also for helping developers establish realistic budgets, schedules and a clear understanding of project risks. Also, it serves as a test for what environmental issues may arise on an exit on an investment. It’s not just box-checking for the real estate owners; it’s helping them ensure their outcome is successful. I’ve been brought in on deals to support when improper due diligence resulted in a significant delay to a redevelopment project due to previously unknown and unaccounted for environmental issues being discovered.

Bisnow: If you could give every developer one piece of advice before they even start looking for a site, what would it be — and why?

Mack: Make sure you have a great environmental team in place — consultant and counsel — so that they are ready to mobilize quickly when you find the right deal.  

Cherena: My advice is not to shy away from properties that are environmentally contaminated. Often, there are opportunities through purchase price adjustments, grants, tax credits and more that, combined with the right consulting and counsel team, can help you close a great deal. 

Mack: I could not agree with Frank more!

This article was produced in collaboration between Roux and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.