It's a Dirty Job

By LESLEY WRIGHT

Sept. 29, 1996 12 AM PT

SPECIAL TO THE TIMES

Wanted: a few good contaminated industrial sites.

That message is seeping through the country’s large real estate offices as developers scramble to snap up tainted land once occupied by such polluters as gas stations, dry cleaners, factories and industrial parks.

Some sites have been vacant for decades, but they’re now being viewed as lucrative development opportunities because of new state and federal regulations making it easier to clean up and develop properties saturated with chemicals and other pollutants.

Several Southern California companies figure to become major players in transforming these “brownfields” into working real estate. Newport Beach-based Koll Investment Management, for example, has teamed up with a Massachusetts environmental engineering firm to buy up toxic properties stretching from Orange County to the ghettos of New Jersey. The companies hope eventually to hold a portfolio worth $1 billion, although they won’t reveal specific sites because many purchases are still pending.

“We have our sights set very high,” said Nicholas Patin, managing director of Koll Investment and an executive of the new joint venture with ENSR Consulting and Engineering of Acton, Mass. “We are positioning to be the dominant player in this industry.”

Dames & Moore, Inc., an environmental consulting firm based in Los Angeles, has a similar venture going with the Brookhill Group, a New York-based developer.

The opportunities appear to be ample. Developers and government officials estimate there are as many as 500,000 “environmentally challenged” sites across the United States, many near freeways and in other prime urban locations.

Collectively, they are worth $500 billion to $750 billion even in their abandoned state--a fraction of what they could be worth after being cleaned up and transformed into retail or commercial centers, according to government reports. In California, at least 5,000 of these sites have been identified so far.

The Clinton administration opened the gates for this new land rush in January 1995 when it unveiled a new policy, called the Brownfields Initiative, in response to state and municipal complaints about the blight caused by these vacant properties. The asbestos-ridden, chemically saturated sites once occupied by gas stations and factories had sat fallow for years, caught up in legal wrangling over who was responsible for the contamination and who has to clean it up.

Developers say this initiative, as well as more lenient state standards, provide the private sector with two key incentives:

* They limit the legal exposure of investors who develop sites filled with hazardous wastes. Developers as well as lenders generally won’t be held responsible for pollutants left by a previous owner.

* They ease rules that have required developers to clean up contaminated sites to much higher residential standards, even when they were not intended for residential use.

When homes go up, regulators assume that children and adults will be digging in the dirt and could come into contact with contaminants and toxins in the soil and water 24 hours a day, 365 days a year. So they have insisted that contaminants be completely removed, no matter how deeply they may be buried.

The new standards don’t require such a thorough cleanup, recognizing that workers and shoppers at a commercial center are less likely to be exposed to contaminants left deep in the soil.

“The problem with cleaning these dirty sites was, up until a couple of years ago, you had to deal with the EPA [Environmental Protection Agency] and state agencies in a rigid, authoritarian manner,” said Alan Krusi, a geologist and manager with Dames & Moore.

The agencies would balk over “ridiculously low” levels of contamination, even at sites targeted for industrial development, he said.

“They would expect us to clean up [soil and water] to drinking level, which was a killer because it would cost so much money to attain those levels,” Krusi noted. “Companies said, ‘This is ridiculous. . . . Why are you making me clean up the sites to these levels?’ ”

Supporters see numerous benefits to the more flexible policies. If developers clean up these sites and fill them with shopping centers, office buildings or industrial complexes, property values and tax revenue will go up, and more jobs will be created. The effort also draws praise from those who believe it is better to reclaim existing industrial land rather than pave over farmland or other undeveloped land.

A few years ago, the site of the 75-acre Carson Towne Center next to the San Diego Freeway was just an eyesore, a vacant parcel abandoned by an oil refinery that was going out of business.

In stepped the state’s Environmental Protection Agency, which hammered out an agreement calling for the owners of the old Golden Eagle Refinery to remove lead, petroleum hydrocarbons and solvents left on the site. Cal-EPA also said it would not take any legal action against the developer, Torrance-based Mar Ventures Inc. The agreement includes a standard clause saying the land can’t be converted to residential use in the future without a full cleanup.

Soil remediation started two years ago at the site, and engineers will be removing tainted ground water for another five to seven years, said Thomas M. Cota, a hazardous substances scientist with Cal-EPA, which is supervising the cleanup. But the development is on its way.

A Kmart store already has opened on the 40-acre shopping area of the new Carson Towne Center, which eventually will be a 500,000-square-foot open-air mall. Another 35 acres of the old refinery will house office buildings and industrial parks. The project is expected to generate about 2,000 new jobs and contribute $12 million annually to the city’s tax base.

Of course, developers also hope to profit from revitalizing acres of abandoned blighted land.

Spurred by the more lenient policies, the Dames & Moore/Brookhill venture has transformed a shopping center in Huntsville, Ala., from a site filled with asbestos and leaky oil tanks into a profitable operation generating an income of $1.34 million a year for the developers.

And the Koll venture is hoping to achieve returns of 20% to 40% on its brownfield investments, said William Trefethen, a senior vice president of the Newport Beach concern, one of the nation’s largest real estate investment advisors.

The new movement does have its critics and skeptics. While environmental groups are anxious to see contaminated sites cleaned up, many question the government decision to encourage the private sector to get involved.

“It was the free market that got us here,” said Carlos Porras, Southern California director of Communities for a Better Environment. “I think we have enough examples of flawed thinking among the agencies created to protect our public health.”

Porras and others said the current trend could simply lead to the creation of new polluting industries on these sites, subjecting the surrounding communities to the same hazards they had before.

“I don’t trust them [developers] as far as I can throw them,” said Vernice Miller, director of environmental justice for the Natural Resources Defense Council. “I’m particularly leery of situations where they identify a site, they get the interests together, they do a limited cleanup, and then put another use on that site that will still pollute the community.”

But public agencies say they are pleased that the private sector has responded so enthusiastically. And few are more delighted than the federal agencies charged with protecting the public from toxins.

They are hoping to extricate these brownfield sites from the policies and tangled legal web that can be traced to the government’s Superfund program, which was created more than 15 years ago to force the cleanup of some of the most polluted dumps and other sites in the country.

The so-called Superfund law attached liability for cleaning up some of these sites to current owners, no matter who actually polluted the land, said William Keener, an associate EPA counsel who is assigned to the agency’s Brownfields team in San Francisco.

“My understanding is that Congress said the buck has got to stop somewhere,” Keener said. “The current owner is responsible for the contamination. Even if you’ve never touched it, you’ve got some responsibility.”

But the law was being applied to smaller, less lethal sites as well as the extremely hazardous sites on the federal Superfund list. As a result, developers started shying away from commercial sites such as dry cleaners, photo labs and gas stations.

“The problem was that people were simply scared,” Keener said. “If they heard the word ‘contamination,’ they didn’t want anything to do with it.”

“We are trying to ameliorate this very complex liability picture that stems from Superfund legislation,” Keener said. “What we’ve done is to clarify the liability or give a liability exemption to these new purchasers.”

These brownfield projects still pose risks, however, developers note. For one thing, there’s no guarantee that property values will increase enough or generate enough revenue to offset cleanup costs.

These costs also are difficult to nail down. Engineers can estimate cleanup costs at $1 million, for example, only to discover some hidden plume of contamination that will cost millions of dollars more to remove while delaying development for years.

“Some of these people are running around thinking this is a slam-dunk, but this could cost them their business,” said Krusi of the Dames & Moore/Brookhill venture.

“I think there’s a lot of attention to this and people start making deals,” he added. “What’s going to happen is a few of the big players will get burned and people will say this isn’t the panacea they thought it was.”

Allan MacKenzie, president of Mar Ventures, which is developing the mall in Carson, also is cautious. “The brownfields initiative to me is an excellent idea in theory, but there have not been many examples of projects that have borne fruit,” he points out. “It’s more complex than maybe a lot of people realize.”

But Koll and other developers are pushing ahead to snap up brownfield sites. Now relieved from having to clean every site to residential standards, private industry has the motivation--as well as the resources--to deal with the long-running problem, they say.

“In order for someone to take action, there has to be money to pay for the remediation costs,” said Nicholas Patin, Koll’s managing director. “That’s what [the Koll venture] is all about--to buy the assets, perform the required remediation, and sell them.

“The regulatory society has created a place in a capitalistic society where people come in and take action and everyone benefits.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Turning Brownfields Green

Last year, the Environmental Protection Agency established the Brownfields Economic Redevelopment Initiative to assist developers in acquiring, cleaning up and redeveloping contaminated properties in urban areas. State environmental agencies also have revised regulations to encourage developers to clean up toxic sites. Details on the effort:

What are brownfields?

Contaminated industrial or commercial sites ranging in size from gas stations with leaky underground storage tanks to large industrial complexes where toxic dumping has occurred. There may be as many as 500,000 brownfield sites nationwide.

How brownfields affect the community:

* Owners cannot afford to clean up contaminated sites, making the property useless

* Sites become idle or abandoned eyesores

* Potential tax revenue is lost

Key changes in EPA and state policies:

* Relaxed cleanup standards for nonresidential redevelopment

* New liability guidelines for owners and prospective buyers

How companies profit from brownfields:

* Can purchase tainted, nonproductive vacant sites at rock-bottom prices

* Cleaned-up sites appreciate in value and generate revenue after being developed for retail, commercial or industrial uses

Potential risks facing developers:

* Hidden pollution can add millions of dollars to cleanup costs and delay development