Redevelopment

Hidden Treasures

CCIMs help communities strike it rich through brownfield redevelopment.

What was once an unusable chunk of Bethlehem, Pa.'s taxable land base is under redevelopment to become the Bethlehem Commerce Center, which is expected to generate $1.5 billion in investment capital and add 6,000 jobs to a once economically depressed area.

When Lehigh Valley Industrial Park bought the 1,000-acre brownfield in Bethlehem, the land harbored scars from 140 years of steel mill operation including contaminated groundwater and soil and a buried building foundation. But a little more than three years later, the Bethlehem Commerce Center serves as an example of how like-minded environmental organizations, commercial real estate professionals, and community officials can turn useless land into profitable developments.

Similar opportunities for brownfield redevelopment abound. There are more than 450,000 brownfields across the U.S., according to the Environmental Protection Agency, and many are located in urban areas prime for development. Cleaning up and rebuilding on these valuable land parcels not only reaps environmental benefits, but it is an effective way to curb urban sprawl, increase local tax bases, and create jobs in the community.

Clearly redeveloping a brownfield is no small task, and the time, capital, and liabilities involved sometimes can discourage commercial real estate professionals. "Investors considering brownfield properties must have a high tolerance for risk, excellent environmental consultants, substantial cash - because banks rarely will finance brownfields - and the ability to negotiate with state officials," says Stephen R. Collins, CCIM, executive vice president of Environmental Liability Transfer in St. Louis, a division of the Commercial Development Co., which specializes in the purchase and redevelopment of brownfield properties.

Still, the time and effort are worth it, according to CCIMs who have undertaken these projects. The three CCIMs whose brownfield case studies follow are examples of how informed and civic-minded commercial real estate professionals can help revive environmentally challenged properties into developments that benefit their communities and offer profits to investors.


Gateway to Madison
Rob A. Zache, CCIM, SIOR, president,
Central Place Real Estate, Middleton, Wis.

Photo caption: A Madison, Wis., brownfield property sat vacant for years before Central Place Real Estate remediated it and built this office complex.
Photo credit: Central Place Real Estate

When Central Place Real Estate committed to constructing a commercial office building on a brownfield at 660 John Nolen Drive in Madison, Wis., it became clear that patience and hard work would be necessary to get the development out of the ground. A 32,500-square-foot brick, stone, and metal-shingle class A office building was planned for the southern end of an isthmus between Madison's Monona and Mendota lakes - the strip of land that encompasses the city's thriving downtown.

Before construction could begin, Central Place assembled several parcels owned by private and public entities for the redevelopment. In all 4.5 acres were needed to provide sufficient land for the proposed office building. Central Place also wanted to control the surrounding land use to keep it compatible with the proposed development.

Historically, the site had been used for bulk petroleum storage and other commercial uses, including home-insulation and lawn-care businesses. The property sat idle for several years until Central Place purchased it in 2001.

To determine the property's environmental condition, Central Place hired BT Squared, a Madison-based engineering firm, to perform Phase 1 and Phase 2 environmental site assessments. The investigations revealed petroleum and chlorinated solvent contamination in soil and groundwater. BT Squared prepared and executed a site remediation plan that included:

• excavation and off-site disposal of heavily contaminated soils;

• underground storage tank removal;

• design of an engineered cap, in this case a parking lot, that allowed for natural cleanup of lightly contaminated soils and groundwater;

• groundwater monitoring to confirm that natural cleanup progressed as expected; and

• civil, grading, and utility planning for the project development.

The remediation costs were approximately $211,000 - plus approximately $175,000 to address soft soils with a deep foundation system and another $29,000 for demolition of remaining concrete structures.

In a meeting with the Wisconsin commerce department to discuss the viability of requesting a grant, BT Squared received positive feedback regarding the project's economic development and job creation benefits and completed the grant application. The application emphasized the financial need, innovative remediation, and job creation to highlight the importance of the redevelopment's location at the gateway to downtown Madison. Letters of support from local officials also were included to show public enthusiasm for the project. The commerce department's Blight Elimination and Brownfield Redevelopment program gave a $129,500 grant to help fund the remediation and building process.

While Zache thought the remediation costs were hefty, total remediation expenses have dropped in the past few years. Regulatory agencies now require less work to address impacted soil and groundwater. Property owners are allowed to cap impacted soils to prevent exposure and implement natural attenuation of impacted groundwater. In the past, impacted soil would have required excavation and off-site disposal or on-site treatment. Impacted groundwater also would have required active on-site treatment. So, by integrating civil and environmental engineering into the design of the engineered cap, BT Squared helped Central Place manage contaminated materials, meet regulatory requirements, and reduce environmental remediation costs.

The $5 million office building was completed Aug. 1, 2006. Anchor tenant Chamberlain Research Consultants leased 18,000 square feet and moved into the building soon after completion. Other tenants include Xerox Corp. and Central Place is leasing 6,500 sf.

While Zache admits that any brownfield redevelopment invariably encounters some unexpected costs and delays, in the end the positive quality of transforming an idle, contaminated site into a valuable community asset is worth the hardship.

Medical Breakthrough
Thomas J. Uriona, CCIM, MAI, corporate
real estate director, Intermountain Healthcare Health Services, Salt Lake City

Rendering caption: This rehabilitated Utah brownfield, which is slated for completion later this year, will be home to a Salt Lake Valley medical campus.
Rendering credit: Intermountain Healthcare

It's not surprising that land serving as an arsenic and lead smeltering facility from the late 1800s until just after World War II would need serious remediation. The 142-acre Murray Smelter site in Murray, Utah's central business district once was the country's largest lead smelter. Years after the facility closed, the site's soil, groundwater, and sediment still were contaminated with lead, arsenic, and other heavy metals.

In the early 1990s, Murray officials teamed up with the Environmental Protection Agency, the Utah Department of Environmental Quality, and the American Smelter and Refining Co., the mining company that owned and operated the facility, to remediate and redevelop the site to benefit the community both socially and economically.

Murray used a $176,000 EPA brownfields grant to fund a seismic analysis in 1997, because the property sits on a fault line, and to hire a real estate consultant for redevelopment advice. In 1998, the partners also included local developers, the Utah Transit Authority, and Intermountain Healthcare, a Salt Lake City-based nonprofit healthcare organization, in the plans, which originally called for a mixed-use development with retail, restaurants, a movie theater, and a satellite healthcare facility.

Under a consent decree and record of decision issued by EPA and UDEQ, American Smelter was required to remediate materials considered a threat to human health and safety such as arsenic and lead. The remediation process took four years and included removing designated soils, relocating other designated soils, and capping remaining soils through the redevelopment. Thomas J. Uriona, CCIM, corporate real estate director for Intermountain Healthcare Health Services, negotiated the consent decree and established a purchaser agreement to indemnify Intermountain Healthcare from the prior contamination.

The original plans for the property included preserving the smelting facility's historic smokestacks and featuring them as the landmark of a retail center to be called Chimney Ridge, according to an EPA report. But the smokestacks were deeply contaminated with arsenic and stabilizing them against earthquakes would have made a citywide tax raise necessary. When the tax hike was put to ballot, citizens ultimately voted against it.

The smokestacks were demolished in 2000 and the scrapped retail plans freed up an additional 45 acres for Intermountain Healthcare to purchase. With the additional land, Intermountain Healthcare decided to build a new hospital on the site rather than a satellite facility. Uriona worked with more than 24 landowners to assemble and acquire the additional land parcels.

Murray imposed an overlay district on the site, which was approved by EPA and UDEQ, that specified the type of development that can be placed on the site to best protect human health and safety. A medical campus is an approved use within the overlay district. Intermountain Healthcare is funding the redevelopment through internal reserve funds and bond financing.

After redevelopment, the site will be Intermountain Healthcare's flagship facility containing approximately 1.2 million sf of ambulatory, diagnostic and treatment, critical care, extended critical care, and trauma center space situated in the middle of the Salt Lake Valley.

In addition to the new healthcare center, Intermountain Healthcare ground-leased 16 acres to Costco Wholesale Corp. to allow for development of a Costco store. This site will be an "empty chair" for expansion of the medical campus 20-plus years down the road. This ground-lease arrangement provides tax revenue to Murray and provides Intermountain Healthcare with a revenue stream on that land until it comes back to them at the end of the ground-lease term.

Before the remediation, the area surrounding the site produced $50,000 in annual sales tax revenues; now city officials predict tax revenues of $1.4 million per year, according to the Salt Lake Tribune. Other expected economic, social, and environmental benefits of the remediation and reconstruction include:

• $1 million in annual local tax revenues from Costco;

• increased local business and additional tax revenues from hospital employees and visitors;

• presence of a quality regional healthcare facility;

• reduced congestion and improved access to Salt Lake City via a light-rail facility; and

• improved quality of life for city residents from remediation and beautification of a previously contaminated site.

Construction on the medical campus began in 2004 and is expected to finish in October 2007.

Waterfront Revival
Lydia P. Bennett, CCIM, CPM, director of real estate,
Port of Bellingham Bellingham, Wash.

Rendering caption: Upon completion the Bellingham, Wash., harbor will have a 450-slip marina in addition to retail, multifamily, industrial, and institutional properties.
Rendering credit: Stephanie Bower

For more than 100 years, Bellingham, Wash.'s waterfront has supported industrial facilities such as pulp and paper mills, landfills, fish-processing plants, and ship-building and bulk-fueling sites. But as the local and national economies changed, the waterfront lost its traditional natural resource-based economy and many waterfront properties were left vacant and contaminated. The abandoned pulp, paper, and chemical plants on the downtown waterfront faced environmental issues including mercury and petroleum contamination in groundwater and soil, as well as exposed solid waste.

In 2004 the Port of Bellingham and the city partnered to create a development plan for the remaining waterfront brownfield. Working with Waterfront Futures Group, a group of business and civic leaders including Lydia P. Bennett, CCIM, CPM, the team launched a plan that spanned all 11 miles of Bellingham's waterfront. The plan included service organizations, environmental groups, developers, labor groups, business leaders, landowners, regulatory agencies, and community members.

When the port acquired the 137-acre Georgia-Pacific pulp mill on the waterfront in 2005, Bennett was hired as the port's director of real estate. As the first broker to negotiate a commercial lease with the port, a member of the Waterfront Futures Group, and a local and regional expert, she was a natural fit for the director's post, which required her to work with the various groups involved in determining the best use for the waterfront. She also was responsible for helping to implement the project's master plan, including cleaning up the property, building a marine infrastructure, and providing land for parks, public space, and walkways to the city at no cost.

During the 18-month project, the community spoke loudly in favor of a new waterfront. The most difficult part of the project was trying to determine a use and cleanup procedure that would fit with all the various community groups' needs, Bennett says.

The city committed to construct the necessary public infrastructure and create a regulatory framework that would attract private investment. The port agreed to pay for the cleanup using grants from the Washington State Department of Ecology and revenue from future land leases and sales. After performing environmental due diligence, the port estimates cleanup costs for the mixed-use redevelopment of the GP facilities will total $40.3 million. This does not include the wastewater treatment lagoon, which is the largest of the waterfront's state-listed cleanup sites. The lagoon suffers from mercury contamination released into Bellingham Bay in the 1960s and 1970s by a chemical plant built to bleach wood pulp. Cleaning up this site alone will cost an estimated $44 million dollars and involves removing, transporting, and capping contaminated sediment.

Currently the port and city are developing a master plan for the entire 220-acre property, including the former GP facility. GP estimates that after redevelopment, the assessed value of the property in 2025 will be $750 million to $1 billion with $2.2 million to $3 million in estimated city property taxes.

The vision for the waterfront includes new homes, light industry, and businesses surrounded by large waterfront parks, miles of new public access to the shoreline, moorage docks for visiting boaters, a new waterfront campus for Western Washington University, and a 450-slip state-of-the-art marina.

The port redevelopment project will offer value to the Bellingham community in several ways. The redevelopment effort will include removing wastewater treatment sludges from the waterfront, meeting a strong demand for moorage slips, adding marina-related jobs to the local economy, providing the community with waterfront trails around the breakwater, and creating a new habitat for endangered salmon. Final plans for the property are expected to be approved early this year.

Carolyn Bilsky

Area report is written by Carolyn Bilsky, associate editor of Commercial Investment Real Estate. Contact her at (111) 111-4507 or [email protected]

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