Measuring and Nego.a.ng Environmental Risks in Transac.ons. June 14, 2017

Transcription

1 Measuring and Nego.a.ng Environmental Risks in Transac.ons June 14, 2017

2 Introduc.ons Today s Presenta.on Sarah Sieloff, Center for Crea0ve Land Recycling (CCLR) Cost of Risk Evalua.ons (CORE) Brian Benn, Environmental Risk & Financial Solu0ons (ER&FS) Managing Risks in Remedia.on Kirsten Duey, Apex Companies, LLC Managing Legal & Regulatory Risks Buzz Hines, Farella, Braun + Martel LLP Ques.ons

3 CENTER FOR CREATIVE LAND RECYCLING Workshops & Webinars Policy & Research Consulting Technical Assistance: EPA TAB grantee Online at Sarah Sieloff Ignacio Dayrit Jean Hamerman

4 TAB LOCATIONS Location?

5 TODAY S PRESENTERS Brian Benn is Principal and Co-Founder of Environmental Risk & Financial Solutions (ER&FS). For over 20 years, he has specialized in the evaluation, transfer and financing of environmental risks and liabilities. Combining technical and financial analyses of environmental risks in transactions and disputes, he offers integrated analyses and expert opinions. Kirsten Duey has more than 18 years of engineering and project management experience on a wide range of projects including due diligence studies, soil and groundwater investigations, feasibility studies, remedial action plans, implementation of remediation programs, and site closures. She has also conducted third party technical reviews and cost estimates on dozens of sites for the legal and insurance industry. Robert Hines a partner in Farella Braun + Martel s Environmental Law Department in San Francisco and chairs its Air Quality and Climate Change Group. He is recognized by Chambers USA as a leading environmental lawyer in California. He serves in leadership capacities with both the ABA Section of Litigation and Environmental Law Institute. He formerly served as a Trial Attorney with the U.S. Department of Justice, Environment and Natural Resources Division.

6 Brian Benn, Principal and Co-Founder Environmental Risk & Financial Solu5ons Environmental Risks Cost of Risk Evalua.ons Financial & Insurance Legal & Regulatory

7 Environmental Risk Components Property Corporate Liabili.es Climate Risks ESG Factors for Asset Management Contamina.on

8 Cost of Risk Evalua.ons What, How & Why

9 Common Approaches to Environmental Risks Measured Not Measured Expected Remedia.on Scope of Work Con.ngencies Costs of Guarantees, IF ANY Risk Management Commercial Insurance, IF ANY Cap.ve Insurance Liability Transfer Counterparty Credit / Collectability Special Purpose En..es Costs Beyond Expecta5ons or Guarantees, such as: Costs above Financial Assurance or Guarantor s Capacity Consequen.al Damages (Delays, Loss of Profits, etc.) New or Different Contaminants Changes in Regulatory Standards Costs Beyond Insurance Coverage, Limits or Dura5on, such as: Excluded Contaminants, Media (e.g., GW, Soil-Vapor), and/or Types of Damages (e.g., BI, PD, cleanup) Naturally-Occurring Condi.ons Viola.ons of Land-Use Controls Known, Non-Disclosed Condi.ons

10 Cost of Risk Evalua.ons (CORE)

11 Measuring Risks Related to Expected Remedia.on Probabilis*c Analysis Scenarios Decision-Trees Stop-Loss Risk Pricing Including Ranges of Costs by Major Item Illustra.ve Example Cost of Risk to $10m = ~$5.3m (Assumes $4.2m Present Cost and $1.1m Excess Risk) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Risk Profile Example $4.8m at 75 th Percen.le Millions (Current Dollars)

12 CATEGORIES OF RISK FACTORS Ø History and Redevelopment Plans Ø Site Characteriza.on Ø Scope of Expected Remedia.on Ø Environmental Pathways Ø Surrounding Environment Ø Sensi.vity of Receptors Ø Prior & Current Claims Ø Regional Contamina.on Ø Legal & Regulatory Issues Ø Risk Management COST FACTORS v Dura.on v Amount of Risk Retained v Amount / Extent of Risk-Transfer Measuring Addi.onal Risks A. Unknown Condi.ons, and B. Known But Not Ac.onable Condi.ons COST RANGES BY TYPE OF DAMAGE On/Off-Site Clean-Up - Discovery Trigger or Regulatory Mandate On/Off-Site Bodily Injury (BI) On/Off-Site Property Damage (PD) Natural Resource Damages (NRD) Diminu.on In Value (DIV) Disposal Site Liability Transported Wastes Legal Defense Fines & Penal.es Business Interrup.on Asbestos & Lead in Structures Microbial Maker (Mold)

13 WHY CORE? More Effec.ve Nego.a.ng Strategies Fewer Poten.al Surprises Later

14 Example 1 - Situa.on: Private Developer Performance of Installed Remedial Systems? Mostly remediated site Compa.bility with redevelopment?

15 Example 1 - CORE Solu.on Nego.a.ng Leverage Primary Cost Components Ø Con.ngencies re: system performance Ø Soil management risks Ø Vapor intrusion Ø Naturally occurring condi.ons (methane) Confidence for Capital Partners

16 Example 2 - Situa.on: Public En.ty

17 Example 2 - CORE Solu.on Public Demonstra.on of Robust Diligence Process Ø Regulatory approvals.ming and scope Ø Extent of restora.on Ø Protec.on of cultural resources Ø Poten.al third party claims re: off-site impacts

18 CORE Knowledge for Success Built on Mul.-Disciplinary Team Exper.se

19 Kirsten Duey, Senior Engineer and Program Manager Apex Companies, LLC Managing Environmental Risk and Costs Technical Considerations Understand Project General Project Understanding Funding Mechanism and Availability Redevelopment Schedule and Plan Redevelopment Stakeholders Regulatory Drivers Identify/Remove Data Gaps Strong Technical Understanding Targeted Data Collection Balanced Approach Technical and Cost Risk Quantified/ Reduced Select Remedy that Merges with Development Plan Technically Robust Meets all Stakeholder Considerations Use of Site Specific Cleanup Goals and Deed Restrictions Proactive Regulatory Involvement Define Appropriate Contract Develop Baseline Cost Estimates Decision Tree Analysis and Probabilistic Cost Modeling Up front vs. Long-Term O&M Cost Development GFPR/Lump Sum/T&M

20 Project Examples 1. Guaranteed Fixed Price Project Groundwater Plume with Impacted Water Supply Well 2. Redevelopment Project Former Refinery

21 Project Example No. 1 Chlorinated groundwater plume commingled from two sources Under State regulatory oversight since early 1990s. ü Impacted downgradient public supply well ü Vapor intrusion concerns ü Years of data collection efforts ü No approved remedial strategy Tetrachloroethene Plume in Groundwater Highly visible with over a dozen participating parties Unknown future costs

22 Project Example No. 1 (continued) Contract strategy to cap participating party s financial risk ü Negotiation of Guaranteed Fixed Price Remediation Agreement (GFPR) ü Interim contracts during GFPR negotiations Technical strategy to mitigate environmental risk ü Mitigation of vapor intrusion concerns Vapor intrusion modeling and development of site-specific risk-based cleanup goals Soil Vapor Extraction and enhanced in-situ bioremediation (EISB) in source areas underneath operating strip malls ü Strategy to address plume migration toward public supply well EISB transects Wellhead treatment

23 Project Example No. 2 Redevelopment project 8 acre former refinery Petroleum impacts in soil and groundwater including LNAPL (free-phase petroleum product) Sitting vacant since late 1990s Originally approached Apex as GFPR project ü Data gap study needed Data gap study jointly funded by seller and potential buyer

24 Project Example No. 2 (continued) Data gap study using balanced approach Cost-to-Close GFPR exceeded buyer s available capital Alternative Remedial and Contracting Strategy Development ü Remedial approach tailored to reduce initial spending ü Fixed pricing for upfront costs. Remedial infrastructure installation prior to/during property redevelopment ü Ongoing low cost O&M with cash flow from property Risk-Based Remedial Strategy Capping of site with buildings, parking lots, pavement. Mi*ga*on of vapor intrusion concerns Engineering and Administra*ve Controls Protec*on of downgradient residen*al receptors

25 Key approaches to managing environmental risks and costs from a technical perspective Understand project! Use balanced data gap collection efforts Engage in up-front regulatory collaboration Develop technically robust and integrated remedial strategy ü Quantify potential exposures ü Interim remedial actions ü Institutional and administrative controls Consider contracting approaches to find the right fit

26 Outline of Topics Acquisition Objectives Identifying and Assessing Environmental Risks Drafting Provisions Essential to Contaminated Property Contracts Mitigating and Managing Environmental Risks 26

27 Mission Bay/Bayview-Hunters Point/Candlestick Point Developments 27

28 The San Francisco Shipyard 28

29 Voluntary Cleanup Projects Voluntary Cleanup projects: (clockwise from top left) Senior Apartments on former mine pit and brickyard in Denver, CO; abandoned hotel into supportive housing in Gallup, NM; vacant light manufacturing into affordable housing in Rock Hill, SC; student housing from former MGP site in Binghamton, NY. Source: State Brownfields and Voluntary Response Programs 2014, US EPA 29

30 Acquisition Objectives Minimize exposure to environmental risks Protect return on investment Maximize future marketability of property 30

31 Identifying and Assessing Environmental Risks Cleanup Costs Subsurface pollution conditions: soil, soil vapor, groundwater Indoor air quality Mold; asbestos-containing materials and lead-based paint Liability for cleanup costs under Federal and State Superfund Laws Current owners/operators of facility Former owners/operators of facility at the time of disposal Transporters to facility Arrangers for disposal at facility 31 Defenses/immunity to Superfund Liability Innocent landowners (ILO) Bona Fide Prospective Purchasers (landowners and lessees) (BFPP) Contiguous property owners (CPO) Secured creditor/lender

32 Identifying and Assessing Environmental Risks ILO, BFPP and CPO Obligations/Requirements Exercise appropriate care with respect to hazardous substances by taking reasonable steps to: Stop/prevent threatened or actual releases Limit/prevent exposure to releases Cooperate and provide access to regulators and parties performing remedial work Comply with agency information requests and provide legallyrequired notices Comply with land use and institutional controls Cannot be liable for response costs (BFPP, CPO) Cannot be affiliated with a party that is liable for response costs (BFPP, CPO) 32

33 Identifying and Assessing Environmental Risks Other Environmental Risks Tort Liability: Construction workers, adjacent landowners, invitees/tenants Diminished Value of Property: Sale, lease or financing Incrementally-increased construction costs Project delay costs Restrictions on future use/redevelopment of property Legal obligation to notify purchasers/tenants of contamination Vapor intrusion issues Natural Resource Damages (NRDs) claims Non-owned disposal site (e.g., landfill, recycling facility) liability 33

34 Identifying and Assessing Environmental Risks To qualify for Superfund defense/immunity, must perform All Appropriate Inquiries (AAI) Phase I Environmental Site Assessment compliant with 40 CFR Part 312 or ASTM E Consider Phase I plus issues (e.g., lead, asbestos, radon, mold, indoor air quality, wetlands, hazardous materials compliance evaluation) Environmental consultant retention Must satisfy AAI Environmental Professional qualifications Acceptable to investors, lenders? Who is retaining buyer or seller? 34

35 Drafting Provisions Essential to Contaminated Property Contracts Environmental due diligence provisions (e.g., timing, access, scope, confidentiality, agency communications) Environmental disclosures (e.g., statutorily-required notices, disclosed environmental documents, disclosed remedial measures/long-term obligations) Environmental reps and warranties (e.g., environmental condition of property, compliance history, regulatory violations, litigation) 35

36 Drafting Provisions Essential to Contaminated Property Contracts Environmental indemnities (e.g., from seller; from buyer; covering pre/post-closing contamination conditions, third party claims? Sunset provision?) Environmental release/covenant not to sue (How extensive?) Guarantees or other cost sharing commitments/ arrangements (With seller s parent? With other responsible parties?) Investigation and remedial commitments (Who performs? Pre- and post-closing commitments?) 36

37 Mitigating and Managing Environmental Risks Statutory defenses (ILO, BFPP, CPO) to Superfund liability Regulatory Actions: No Further Action, No Further Remedial Action, Reasonable Steps, or other regulatory liability-limiting commitments, prospective purchaser agreement, closure or comfort letters Environmental indemnities/remedial commitments and escrow of anticipated cleanup costs Managing hazardous substances/wastes encountered/ generated during site redevelopment activities (e.g., through use of Site/Soil/Risk Management Plan) Institutional and Engineering Controls (e.g., land use covenants/ deed restrictions; remedial caps; vapor barriers (new construction/retrofit); long-term O&M) Environmental Insurance 37

38 Resources US EPA Brownfields Select nonprofit and education sites Center for Creative Land Recycling Florida Brownfields Association Minnesota Brownfields Kansas State University TAB New Jersey Institute of Technology

39 Ques.ons For More Informa.on Brian Benn, Environmental Risk & Financial Solu.ons Kirsten Duey, Apex Companies, LLC Buzz Hines, Farella, Braun + Martel LLP rhines@vm.com

40 JOIN THE NEXT WEBINAR Developer math Wednesday June 21 2pm ET 11am PT Our speakers will discuss the development strengths and weaknesses of several brownfields sites urban metro, rural and big city. Learn how a developer tries to make lemonade out of lemons!

41 BE SURE TO ATTEND