Passing by an abandoned industrial site, an unused railroad yard or one of the many closed military bases across the country, one might not realize that these apparent eyesores present very real business opportunities, limited only by the breadth of the beholder’s creativity. These are the nation’s "brownfields," and their redevelopment is the latest progressive method of recycling our country’s "greenfields."

Brownfield redevelopment typically involves contaminated, often abandoned urban and industrial properties, which are reclaimed, remediated, and redeveloped into new businesses, residential areas and parks or other open spaces. Although brownfields are not among the country’s most seriously polluted lands for which cleanup is mandatory under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.A. § 9601 et seq. ("CERCLA"), in their undeveloped state, brownfields do impact greatly on society and present serious pollution issues.

The sites often involve extensive soil and groundwater contamination, underground storage tanks, buildings containing asbestos and lead paint, and may even involve pollutants stored about the property. However, the sites are often located on prime real estate, with existing roadways and infrastructure, and nearby communities which provide an employment and patronage base. Brownfield redevelopment is a voluntary undertaking by the private sector, with the ultimate goal of making the site profitable. The process obviously presents several inherent risks not ordinarily encountered in traditional real estate development.

Obstacles include strict environmental cleanup standards, strict liability for environmental exposure under CERCLA, huge financial hurdles, and the limited availability of insurance coverage for the undertaking. Redevelopment of brownfields also requires the unified effort of several diverse, and at times opposing, groups. A typical brownfield redevelopment will involve developers, lenders, investors, a myriad of contractors, community groups, environmental agencies, real estate brokers, attorneys, and insurers. These groups are often understandably hesitant to undertake a project which involves known environmental contamination and, more importantly, the risk of unknown pollutants.

However, recent changes in approach have begun to ease the way for brownfield redevelopment. In an effort to assist potential developers, the U.S. Environmental Protection Agency, (the "EPA") has recently loosened its grip and broadened its goals with respect to these projects. The EPA has essentially lowered its cleanup standards by adopting a "use-based" cleanup approach. The property need not be cleaned to a pristine condition, but only to a point where the toxicity is consistent with the future use of the property. For example, if an abandoned steel mill is being converted to an auto manufacturing plant, it is cleaned to a different level than if it were being converted to a residential community. The EPA has also developed the "Brownfield Actions Agenda," which has distributed grants of up to $200,000 each to 76 pilot projects since 1995. The money is generally used to estimate the costs of cleanup and develop a workable plan for redevelopment. The EPA has also attempted to remove some of the stigma associated with these sites by removing 27,000 sites from CERCLA’s registry of possible targets for enforcement action under CERCLA. The EPA has joined forces with other agencies of government, like the Department of Housing and Urban Development, in an effort to carry out brownfield redevelopment in a more consistent fashion.

State governments have also begun to encourage the voluntary cleanup of polluted areas by moving away from strict liability schemes and enforcement actions under CERCLA. This approach allows potential participants to realize a cap on liability and make more accurate cost projections. Local, state and federal governments have also implemented investment incentives by expediting project approvals, providing seed money for site assessments, tax abatements and low-interest loans to participants.

Passage of the 1996 Lender Liability Law, which limits the scope of "lender liability" associated with these environmental cleanups, also removed certain obstacles to brownfield redevelopment. In the past, lenders could be held liable for environmental liability if they participated sufficiently in a company’s management. The new law distinguishes "innocent" lenders who merely foreclose on property from those actually involved in making decisions on environmental compliance matters. The result is to make financing for a brownfield project more readily available.

Realizing the unique needs of participants in brownfield redevelopment, insurers have responded to the challenge by creating custom insurance packages uniquely designed to address these issues. The programs are specifically designed for the transfer of real estate that is, or has the potential to be, contaminated. Insurance coverage can be purchased which provides pollution legal liability coverage for third party bodily injury or property damage, or pollution conditions at the site. Remediation legal liability coverage is available for the discovery of on-site contamination that was previously unknown. Remediation stop loss coverage is available to protect against costs associated with the discovery of additional contamination, greater horizontal or vertical spread of contamination, higher disposal costs, and changes in the use-based cleanup standards. These packages also may include the lenders, contractors and other at-risk parties as additional insureds under the policies, providing those entities with the needed protection to encourage their participation in the project.

With these new incentives and resources, developers around the country are now meeting greater success with brownfield redevelopment. For example, in Sacramento, California, a federal courthouse is being built on reclaimed property that formerly was polluted railroad property. In Ontario, California a steel plant has been reclaimed and redeveloped into the immediately popular California Speedway. Across the country, "strip malls" often contaminated by dry cleaners (or other lessees with environmental exposures) are being remediated to allow for the development of other areas of the mall. Military bases closed by the Department of Defense under the Base Realignment and Closure Act, are also being redeveloped in numerous innovative ways. The redevelopment of the Lowry Air Force Base in Denver and Aurora, Colorado is one of these recent success stories (see sidebar).

The ultimate success of these brownfield redevelopment projects is due in large part to careful planning and exhaustive research before the project is begun. Critical to the process is an initial comprehensive environmental assessment to identify as clearly as possible existing conditions and potential risks. Once the type of development is decided upon, a realistic and careful plan for remediation must be established and implemented. Brownfield redevelopment is clearly worthwhile and beneficial — it is a creative and responsible method of recycling resources, which in today’s market can be planned and implemented with limited risk.

Lowry Air Force Base: A Brownfield Redevelopment Success

Story

In 1991, the US Secretary of Defense announced the closure of Lowry Air Force Base ("LAFB") located in Denver and Aurora, Colorado. The impact of the base closure was profoundly felt by area residents in the form of lost jobs, a decreased tax base, and wasted or underutilized resources.

Historically, LAFB was created in 1937, when the City of Denver purchased approximately 2,000 acres of land and donated it to the government’s Army Air Corps to be used as a training base and bombing range. The first runway became operational in 1938 and the base operated as a key link in our defense program for more than fifty years.

The closure of the base in 1991 presented the difficult challenge of developing a new use for the land. The Lowry Redevelopment Authority was organized to formulate a plan for the redevelopment of the site. Developers and other visionaries were asked to submit plans for alternative uses. For two years following the announcement of the closure of LAFB, the Lowry Economic Recovery Project worked with area representatives and residents to reach a consensus plan for the future of the base. Because the base is located in the heart of the Denver metro area, the development of the property as a community with residential housing and education and employment centers, was uniquely suited to the area.

Initial planning consisted of an inventory and analysis of existing environmental conditions. The study revealed a plume of groundwater contamination involving several hundred acres (largely due to spilled jet fuel and de-icing materials), several buildings containing asbestos, contamination associated with a landfill on the premises, and various hazardous and non-hazardous substances stored on the premises. Significantly, it was agreed that remediation of the property would be carried out utilizing the EPA’s "use-based" standard, which allows remediation to be carried out to a level consistent with the anticipated use of the site. Once the use of the property was appropriately determined, the design was developed to accommodate the environmental findings and to implement the use-based remediation techniques. For example, the residential areas were placed on areas with the least groundwater contamination. The areas with the highest levels of contamination were developed with businesses, parking areas and other less sensitive activities. The landfill was remediated and capped and a golf course constructed over it.

Abatement and removal projects were undertaken for all asbestos-containing buildings on the premises. However, buildings that did not require demolition, were retained for new uses. For example, the Colorado Department of Public Health converted an old military classroom complex for use as a laboratory. The existing child care center was conveyed to the Child Opportunity Program for a "Head Start" facility. A cold storage facility was conveyed to the Colorado Historic Society for storage of records and artifacts. A base dormitory was conveyed to the Denver Indian Center for transitional housing of homeless persons. A large hangar is being considered for use as an indoor soccer, tennis or ice skating facility.

A comprehensive insurance program was a critical component of the LAFB project. The Commercial Property Redevelopment ("CPR") Policy, developed by XL Environmental specifically addresses the special environmental risks associated with the development of a brownfield. The policy includes five types of coverage: pollution legal liability coverage for third party bodily injury or property damage, or pollution conditions at the site; remediation legal liability coverage to insure against the risk of the discovery of previously unknown on-site contamination; defense legal liability coverage for costs associated with the defense of any claims brought against LAFB under the pollution legal liability portion of coverage; remediation stop loss coverage to insure against additional costs associated with the discovery of additional contamination, greater horizontal or vertical spread of the groundwater contamination, higher disposal costs, or changes in the use-based cleanup standards. Blanket environmental coverage is also available for any act caused by contractors working on the site that may give rise to an environmental claim.

The Lowry Development Plan is a true brownfield redevelopment success story. It was made possible by forward thinking individuals, cooperation among diverse groups, the development of an economically viable plan and the availability of a comprehensive insurance program to cover the unique risks of such an undertaking. The result of the LAFB project is the cleanup and development of a classic "brownfield" into a unique and vibrant community which utilizes to the greatest extent possible existing infrastructure and other resources.