Most people would never consider intentionally purchasing a contaminated property. There are those however, who see opportunity in purchasing contaminated parcels of land with the intent to remediate them and then either develop or resell the property.
Recently, the Cherrytree Group attended a seminar hosted by the Environmental Business Council (EBC) on buying and selling distressed properties. The program featured a mock transaction between a “seller” of contaminated land and a prospective “buyer” of the property.
In the example used in the presentation, the seller owned an industrial property that had been in the family for generations. At some point, the property was contaminated including leakage from underground storage tanks (USTs). As required by law, the seller’s family remediated the site and achieved an Activity and Use Limitation (AUL). This relieved the property owner of the environmental liability and deemed the site safe for industrial use.
In the mock transaction, a buyer wanted to purchase the contaminated land from the seller. This buyer was a well-established developer who already owned the abutting property on which he had built. He wanted to purchase the contaminated land from the seller with the intention of expanding the condos onto the new property.
The issue with this was that as an AUL, the property that was up for sale was not deemed safe for residential use. In order to build the condominiums like he intended, the buyer would have to remediate the land to achieve a solution that would permit residential use. Furthermore, the buyer was concerned that further contamination may have occurred since the site achieved the AUL.
Because he was an experienced developer, he enlisted the help of an environmental lawyer, a licensed site professional (LSP), and environmental insurance broker. This team worked together perform the necessary due diligence, assess the existing contamination, and develop a remediation plan and timeline.
The mock transaction ended in a successful sale between the parties. The point of the transaction was to illustrate the complexity of purchasing a contaminated site. In this case, the developer was smart because he brought a team of experts with him to assist him to make an informed decision.
One area that was not stressed in the mock transaction was the financial feasibility of purchasing contaminated land. Naturally, the price of purchasing a contaminated property will reflect that the land is undesirable to some buyers and will may require significant and costly remediation before it is useable. Programs exist to help subsidize the cost of remediating contaminated sites. In Massachusetts for example, there is a Brownfields Tax Credit that equals up to 50% of eligible costs for achieving a permanent solution and 25% of the costs in achieving an AUL. It can therefore be extremely helpful to add a tax credit consultant on your team to help you understand if your site is tax credit eligible, to help you apply for the credits, and assist in structuring your project in a way that is financially feasible.
The take away from this is that when purchasing a distressed site, hire experts because you will need your team to make an informed decision. Due your due diligence. If you know there is going to be cleanup, have the assessment to figure out how much money you will have to clean up and use an attorney and consultant to see if it is a financially sound decision.
Buying contaminated land is not easy but with proper research and preparation it can be feasible and the benefits can outweigh costs of owning contaminated land. For more information, contact the Cherrytree Group.