Rau Fastener

Mill Complex

Providence, Rhode Island

Introduction

Summer 2003 The Developer The Architect Reviving a Brownfield Tour the Site

Fall 2004 The Developer The Architect Tour the Site

Summer 2006 The Developer Tour the Site

The Numbers

Reviving a Brownfield: Two Views

Douglas Brown, principal at Durkee Brown Viveiros Werenfels Architects, is the lead architect for the Rau initiative.

View of three Rau buildings. The attached building in the foreground is the most contaminated structure on the site. The building will be demolished and the site turned into a parking lot.

The Rau Fastener project is a listed brownfield site with known and unknown environmental issues. Part of the development process involves doing a very careful exploratory site investigation and developing a plan for remediation and abatement of any of the environmental concerns.

In any older building, you have the known issues to deal with — lead paint, potential asbestos. But for an industrial site, it's important to understand what kind of manufacturing processes were performed there and to identify the potential materials and contaminants that might be left on the site.

As part of the brownfields grant received by Rau, an environmental engineering firm under contract with the EPA did additional testing. It was determined that some of the chemicals that were used in the plating process may have been released into the environment. Their concern is primarily focused on groundwater contamination and soil gases.

Now the good news from our perspective is that the plating process, which is the most worrisome part of the old operation, happens to have been conducted in an addition built in 1954 that we want to demolish. Our plan is to use that site as a parking lot, so it's not as if we'll be taking the plating rooms and converting them into apartments.

We want to do all of the demolition and abatement at the same time. This is less expensive and ensures that additional contaminants won't be released during the demolition process. It also means that when the project is bid for general construction, the contractors are just seeing the shell of the two historic buildings that they'll be working on. The strategy is to get the sharpest and most competitive bids with as much mystery as possible taken out of the process.

The biggest unknown for us is the final result of the groundwater-soils investigation and what we will have to do. It could be as little as nothing, or it could be that contaminated soil will have to be removed, additional monitoring done after the fact, or the site has to be capped.

Another Level of Complexity
A brownfield brings another level of complexity to a development. One of the biggest challenges is knowing how fast to move. You have to be extremely careful because you're testing on many fronts as you go along. It's so easy to get too far ahead of yourself and find out that a project is unfeasible because you don't qualify for historic tax credits or your environmental issue is much greater than you thought or one of your major funding sources didn't come through.

On the other hand, you need the momentum to make the project happen. No one wants to be the first one in as a funding source, but once it becomes apparent that there's some commitment to the project and that it's a good project, the rolling-stone phenomenon takes over and people start to jump on board. Then you gain momentum and it becomes exciting.

The whole process has been a real educational experience for us. One of the biggest stories here is that the complexity of these projects may scare people — especially nonprofit developers — away from them. So anything that can be done to streamline the process — particularly on the environmental side — would be welcomed. I think the environmental side is probably the thing that scares people away from these kinds of projects, especially nonprofit developers. There's no upfront money to deal with the environmental issues.

But I think more nonprofits will be trying to develop these sites. It comes down to being the first on the block and seeing some of them successfully redeveloped. The costs are always very difficult to estimate on these projects. The best approach is to look at comparable projects recently completed. You can take a lot of the mystery out of the project by simply looking at recent history.

Stephen M. Soler was an environmental consultant on the Rau initiative.

Interior view of a Rau building that will be turned into housing in phase one of the development.

Federal and state legislation provides the new owner of a brownfield property with liability protections. In 1995, the federal government passed legislation that provides protection for secure creditors and owners of tax liens or mortgages.

In 2002, President Bush signed the Liability Relief Act, which essentially provides protection for innocent land owners or people who are non-responsible parties — what are often referred to as PRPs.

This legislation provides protection at the federal and state levels. It simply says that the feds or the state won't come in and sue you for contamination that existed prior to your ownership of the property.

That's not to say that third parties won't sue you. As a result, we typically go to insurance carriers to buy environmental insurance policies that provide protection in three areas. One is liability protection, such as third-party claims; two is cost-overrun protection, which is often referred to as cost-cap policies; and the third is a secured-creditor policy in which lenders come to the table to finance the project. This essentially indemnifies the lender and provides him with protection on a loan. In the event of an environmental issue, the loan gets paid off by the insurance carrier. It's simply bonding on the loan.

More Protection for Nonprofits and Banks
Because of the legislation and funding available through the Federal Department of Housing and Urban Development (HUD), the Environmental Protection Agency (EPA), and other agencies, it's becoming a lot easier for non-profit developers to look at environmentally impaired real estate in cities and start to develop it.

They're also getting a comfort level on the liability concerns because there's been a tremendous number of lectures and conferences that address these liability issues. I also think attorneys are getting a better feel for how to address these issues. Bankers are also a lot more comfortable with what is out there.

Bankers understand that some of the risk has been taken out of the equation, which makes it a little easier for nonprofits, especially if they have a community lender on their board or are working with them and understand that the banks can finance these projects in a way that addresses the risk factor. More and more nonprofits are starting to develop brownfield sites.

The first step is to identify the property and say, "OK, this is something we'd like to take on as a challenge." The second step is to have a vision or plan for the reuse of that property. Once you've done some conceptual planning, you would then contact the EPA, which has targeted site-assessment dollars. It's a competitive program, but they will assess the property for you and tell you whether or not your plan will work. They'll also come up with a reasonable cost estimate for remediating that property and executing your plan.

Once you're armed with that information, you can start putting together your team. Without having that assessment, you would be flying blind. That assessment quantifies a significant amount of the risk involved and tells you what it's going to cost to clean it up. This will essentially tell you what your land cost will be for the development.

The EPA also has Brownfield Revolving Loan Fund dollars. You can apply for up to $1 million through either your state, municipal, or county government to clean up the site. The good news for nonprofits is that $600,000 of the $1 million is in the form of a loan, and approximately $400,000 would be in the form of a grant. If you're a for-profit developer, you don't get the grant component of the $1 million.

Once you have figured out what your environmental risk is and have quantified that, you can then start planning your project more appropriately. You bring in your team. Part of that team would be an environmental-engineering firm to act as a consultant during the process. The consultant will integrate the remediation with the redevelopment of the property so that you don't clean it up, try to build something, and then have to clean it up again; you clean it once as a function of your transaction.

The users of the site will want to make sure that there's no exposure to contamination. They'll make sure that an appropriate standard has been approached through the coordinated effort of the state agency in charge as well as the EPA. More often than not, the users will have their own consultants, both engineering and legal consultants, who will advise them on whether there is an exposure issue.

Stephen Soler was an environmental consultant on the Rau initiative.

The Clean Land Fund brought us in as consultants on the Rau project. After discussions with the management of the nonprofit, we showed them that the risks were not as great as perceived and that there were ways of addressing those risks through not-to-sue covenants negotiated with the state. This is the result of federal legislation passed by President Bush in January of 2002.

The cleanup will probably be done by an engineering firm; typically it's an engineering firm that is acceptable to the state where the property is located.

Brownfield legislation was actually originated by Senator Lincoln Chafee of Rhode Island. He raised the issue of having small-business liability relief, which evolved into what is widely viewed as brownfield legislation.

In layman's terms, this legislation allows small businesses of 100 employees or less to have liability protection based on their historic operations. But, more important, it provides codified protection for purchasers of environmentally impaired property that states that if you're not the responsible party — you didn't create the contamination and didn't add to it — then you're not liable for it.

You still have to clean up the property, but the government won't come in and sue you as a responsible party. That's pretty important, because that has been a huge roadblock for people who have been widely viewed as being on the hook, regardless of whether or not they created the contamination.

Pending within the most recent budget put forward by President Bush is legislation to provide a tax incentive for people who redevelop brownfields. It's known as the Brownfields Tax Incentive. This was passed by President Clinton in 1997 and has since been reauthorized. President Bush has elected to make this a permanent fixture.

This legislation provides the redevelopers of brownfields with tax benefits that, in effect, allow them to deduct the cost of remediation up front, versus having to capitalize it as would normally be done as part of a construction project. This provides a financial incentive for both for-profit and nonprofit developers. It's another tool that nonprofits can use to develop these sites.

I believe this legislation is going to sunset unless the new authorization gets carried forward. Rau would take advantage of this as a function of the syndicated component of the project. It will be factored into what those tax credits are worth.