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Wednesday, January 20, 2016

Penny Wise and Pound Foolish: Passing Up the Opportunity to De-Develop a Brownfield for Fear of the Unknown

Most of my posts about land use deal with issues at my own end of Pennsylvania, in the Lehigh Valley of eastern PA. But I feel compelled to write about a news article I saw earlier this week in an environmental news feed I subscribe to. The article was about a recent land use decision made in the western PA community of McCandless, located about a dozen miles north of Pittsburgh.

I had no prior knowledge about the piece of land in question, a roughly 33-acre parcel containing a shuttered movie theater surrounded by asphalt. So I googled the site and found a news story from last October about the original purchase deal that the non-profit Allegheny Land Trust worked out on behalf of the Town of McCandless (McCandless was originally a Township until they adopted a home-rule charter in 1975 and thus became known as a Town. It's one of only two official Towns in PA). The site is bordered to the south by Pine Creek, a tributary of the Allegheny River.  According to the Town Manager, the entire site in located within the creek's designated floodplain. That means that almost the entire 33 acres is impervious surface capping a 100-year floodplain. That's bad, because natural floodplains allow water to percolate into the soil. When undisturbed, they have lots of trees and other vegetation to help absorb flood waters. Yes, natural floodplains can help mitigate flood conditions, and this movie theater appears to have had a history of flooding. Many municipalities prohibit development in 100-year floodplains.  I don't know if McCandless has seen the light and updated their zoning ordinances to exclude construction on floodplains since this site was originally developed, but at least they were actively pursuing an opportunity to de-develop (I just made up that word) this property from an abandoned and completely impervious Brownfield into a green park that would help them manage stormwater and downstream flash flooding.

The outline in red is the 33-acre movie theater property in question in McCandless, PA. It's pretty clear that Pine Creek (highlighted in blue) was hijacked and redirected when Rt. 19 was built. It's also pretty clear that McCandless never gave much thought to prohibiting development on floodplains. The movie theater reportedly flooded up to the fifth row of seats (photo credit: Google Maps). 
But I guess this de-development was too good to be true. Because the story that I initially stumbled upon this week reported on McCandless's leaders getting a case of cold feet at the prospect of paying for additional soil testing to fully characterize the environmental condition of the site.  And I have to acknowledge that most lay people would likely get cold feet when doing the environmental due diligence necessary to consummate a major property acquisition like this one. But if I were a McCandless resident, I would hope that my elected leaders would have consulted with professionals to determine whether pulling the plug on this deal was the best way to allay their concerns, albeit the easiest way. Allow me to give you a very brief overview of environmental due diligence for real estate transactions, and then I'll let you decide if the Town Council jumped the gun.

As part of the purchase of any commercial or industrial property, an environmental site assessment (referred to as a Phase I assessment) would normally be conducted to determine whether there are any physical indications of potential contamination or any public records that might suggest historic operations that may have caused contamination. These sale agreements are usually contingent on the results of the Phase I. If a Phase I turns up any reasons for concern, the buyer generally has two choices: either walk away from the deal completely or perform a Phase II investigation (at the buyer's expense).  A Phase II typically involves collecting confirmatory samples of soil and/or groundwater from locations of concern.  If contamination above state cleanup standards is confirmed, the seller is usually liable for any cleanup costs if both parties want the deal to go through.  If the seller refuses to pay for remediation, the transaction usually dies right there. A good environmental attorney can usually craft a buyer/seller agreement that would become part of the agreement of sale and would lay out target cleanup standards and time schedules for remediation. Or the agreement could even document an agreed upon dollar figure to credit the buyer on the sale price in exchange for the buyer conducting all remediation and thereby absolving the seller of any future liability for the contamination that had been identified. Bottom line is that with two willing parties, a buyer/seller agreement can ensure that the site is cleaned up with no residual liability for the documented contamination for either the buyer or seller. This is a simplified explanation, but it is generally how Pennsylvania's Act 2 Land Recycling program works. In my personal and professional opinion, in Pennsylvania, there is no reason that a willing buyer and a willing seller should ever have a real estate deal collapse over the environmental condition of the subject property.

I don't know exactly what McCandless's Phase I turned up for this site, but I have one idea based on an aerial photo of the site from 1957. In the photo below, I outlined the approximate current property boundaries in red, and Pine Creek is approximately highlighted in blue. The round objects located on the property immediately east of the theater site appear to be large above-ground storage tanks. There are no obvious tanks on the theater site in this photo, but there appears to be a pond, which would have to be man-made based on the geology and topography in this area.  A Phase I would also include a chain of title search and a regulatory database search, both of which are outside of the scope of this blog post (which is now vying for the record of my longest post ever). Although the neighboring storage tanks are shown to have some sort of containment berms around them, containment berms are not foolproof; and it is not likely that these 1950s berms were constructed to current containment standards. If the tank shown to the immediate north of the northeast corner of the theater site had leaked and the berm was breached, the contaminant plume could have migrated to the theater property both over the ground surface and/or below the ground surface. Another question would be whether the former on-site pond was filled in with clean fill or if contaminated fill material was used to level the pond prior to building the movie theater parking lot. So based simply on a quick look at one historical aerial photo of the site, there certainly would be valid reasons to perform confirmatory Phase II sampling. 

This is a 1957 aerial photo of the site which shows some large above-ground storage tanks at the property to the immediate east of the current theater property. This photo shows a pond was present on the theater site in 1957. You know what concerns me the most in this photo?  What municipal officials in their right mind allowed a tank farm to be constructed on a floodplain like this? In the 21st century, this tank farm at this location would be called an "epic planning fail." (photo credit: Pennsylvania Geological Survey).
The recent article indicated that McCandless has spent nearly $40,000 on preliminary soil sampling and associated legal fees.  As an environmental professional, I know that you can install three shallow groundwater monitoring wells and collect and analyze dozens of soil and groundwater samples for under $20,000. I don't know how extensive their Phase II sampling was at this site, but I have to wonder what the legal price tag has been so far. Don't get me wrong, because the legal review is absolutely necessary. However, the cost of legal review is not necessarily indicative of the magnitude of contamination present in the field.  In addition to the environmental due diligence costs, after the $1.25 million sale price for the property,McCandless officials estimated they would incur $400,000 to demolish the theater and its parking lots. Based on my experience with my township's Environmental Advisory Council, I can tell you that Pennsylvania has many grant opportunities for projects like this one, such as the annual Growing Greener grant program. So the out of pocket cost to McCandless to de-develop this land would very likely have been limited to one-half of the total cost after the matching requirement for any available grants. 

I think it's hugely unfortunate that McCandless is foregoing the extremely rare opportunity to de-develop a brownfield into a greenfield. They currently have 33 acres of floodplain paved and impervious, which surely must be exacerbating flooding downstream from this site. The seller would be responsible for the costs of any necessary remediation. The Town simply had to conduct a reasonably thorough characterization of the current soil and groundwater quality and work out an agreement with the seller to ensure that any contamination identified at concentrations above the state's residential cleanup standards is cleaned up to meet those standards.  The Town may even have been able to recover some of those due diligence costs through available grants if they had gone ahead and purchased the land and built the park that was originally proposed. While I certainly do not have all necessary information about the environmental condition of the site to pass judgement on the Town's officials, I have seen enough to have to wonder if they are getting their environmental advice from an environmental professional who has sufficient experience with Pennsylvania's Land Recycling Program (such as myself). 

Cleaning up a contaminated site for future use as a park is not necessarily as easy as cleaning it up for future commercial or industrial use. The residential cleanup standards that must be met for a public park could potentially mean a significantly higher cleanup cost than cleaning up to non-residential standards, in which case the seller might have eventually gotten cold feet. Or the cost differential between meeting residential versus non-residential standards could have been negligible as a percentage of total sale price.  However, I would expect this seller would want to bend over backwards to unload a property that is guaranteed to flood and that, hopefully by now, has zoning limitations on its use due to its location in the 100-year floodplain.

De-development opportunities like this one in McCandless are rare. From my experience, there are very few environmental conditions that cannot be successfully managed when both the buyer and seller of a contaminated property have reasonable expectations and are willing to work together. If I was a McCandless resident, you can bet I would have been making myself heard at their recent Town council meeting.

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