Some of you may have happened upon the article “Raising Alexandria” in a recent issue of Smithsonian Magazine. The article chronicles archeological excavations conducted beneath the city 2,000 years after its founding by Alexander the Great, and the race to preserve some of the rich history in the face of modern development. Over the centuries, civilizations have built cities, seen them conquered and leveled, only to have new cities built on top of the last, often reusing the same materials to erect new structures. (And you thought recycling was a fairly new idea?)

So what drives people’s desire to build and then rebuild in the very same place? Not surprising, it’s the same three criteria associated with the sale and purchase of prime real estate; location, location, location. Certain factors like climate, transportation and natural resources repeatedly draw people to specific geographic areas or locations to live and work. In the case of Alexandria, its strategic position on a narrow spit separating the Mediterranean Sea and Lake Mareotis was a key to this great harbor metropolis that linked ancient Greece and Egypt. As a property acquisitions manager of sorts, Alexander would have agreed that a good location is worth fighting for.

So what does this all have to do with brownfield redevelopment and, specifically, residential reuse, the focus of this issue of BFN?

In the U.S., approximately 50 percent of the population lives within 20 minutes of the Atlantic or Pacific oceans, the Gulf of Mexico, or the Great Lakes. That’s an astounding figure given the size of the country, but not really too surprising after some brief reflection. High demand for housing in key localities commands higher residential prices. That can drive good redevelopment economics on impacted properties, where the environmental cleanup and re-entitlement costs can still yield a positive investment on a given project.

In smaller towns and rural areas with other clean land available “just down the road,” reworking an impacted site—especially one facing a long, uphill environmental road—often isn’t feasible economically. Logically then, brownfield investment dollars and redevelopment efforts flow to those advantaged locations, placing corporations and other owners of idled land assets squarely in the crosshairs of redevelopment.

Many corporate property owners fundamentally would question the logic around residential redevelopment on impacted or formerly impacted sites, and rightly so. Sure, we realize that some great redevelopment opportunities exist in some of the prime locations discussed above. The trend and focus on residential redevelopment for urban infill sites is substantiated by the number of developers seeking sites in New York, L.A., New Jersey, San Diego, Chicago, and Atlanta, to name just a few.

But the larger question is, do municipalities understand the risk/reward picture? And if they did, would they allow residential redevelopment to take place at all on more heavily impaired properties?

The Pressure Point
The main problem for corporate landowners is that residential reuse of former industrial property constitutes a high exposure risk, even if the risk is purely perceived. If you read the liability relief article previously penned for Brownfield News, you’re already aware that corporations can rarely, if ever, achieve the true “liability” relief that so many brownfield developers and risk transfer companies promise. In most scenarios, the developer who appears on the corporate owner’s doorstep to assume control of the site is a thinly-financed, limited-liability company structured specifically to protect that company from the very risks corporations are expecting them to take on. Couple that with a litigation-happy society that rewards people for spilling coffee in their lap or for tripping over their own child in a store, and you have all the ingredients necessary to raise the caution flag around divesting impacted lands, especially ones flagged for future residential use.

While many companies may not have an “official” policy prohibiting residential reuse on property, as a practical matter, an “unwritten” policy may exist, usually rooted in a bad past experience. That said, every brownfield site has its own unique characteristics, including degree of contamination, type of constituent, and range of media affected. Essentially, the question comes down to whether the remaining site risks can be mitigated to the point that the redevelopment reward is acceptable. The answer to that tradeoff question will be different for each company.

Things to Consider
Understand your property portfolio well enough to know which sites will be likely candidates (or targets) for residential redevelopment. That old warehouse in Keokuk, Iowa, isn’t likely a priority.

Characterize the site well enough that you fully understand what the risks are and where they are located. Both sellers and buyers agree that nobody likes surprises.

Any future residential considerations at the site should target areas of the property where impacts don’t currently exist or will not exist in the future.

Avoid building over a hot spot. This helps eliminate the risks associated with compromising a vapor barrier, monitoring and maintaining engineering controls, or trying to explain the Johnson-Ettinger Attenuation Model at a condo association meeting.

If you are unable to build over a nonimpacted area, mitigate the environmental risks to a level that meets human health and ecological risks. If you’re depending on that orange plastic barrier as your primary line of defense against vapors, you haven’t done enough work.

Make sure your buyer is financially strong, knowledgeable about the site-specific environmental issues, and has the experience to manage them. Even with reams of data in hand, there will be some unexpected encounters during redevelopment.

If the developer’s indemnity or covenant is weak or limits things like third party claims, work delays, changes in regulatory cleanup levels, or other unknowns, consider a risk management backstop like environmental insurance to limit exposure.

In the end, residential redevelopment is possible assuming both parties fully understand the site issues and there is clear accountability on how known and unknown risks will be managed. A sophisticated buyer with financial strength, technical experience and solid market-based economics can help ease the fear of a risk-averse corporate seller.

Two-thousand years may negate the effects of environmental liability on a property. Certainly, we’ll never know. But a well-remediated site with good soil and geotechnical information should ensure that any archeological dig 20 years or two millennia from now will uncover only the vestiges of smart, modern development in our own time.

Chris Olson is manager of Real Estate Reuse for Atlantic Richfield Company in Chicago, a BP-affiliated company. Any opinions expressed in this article are strictly those of the author and do not necessarily represent the views of Atlantic Richfield or BP.