12 Strategies to Manage Environmental Risks on Impacted Real Estate

Finding the balance between economic development and environmental protection has always been a challenge. It costs money to properly dispose of waste. It costs money to properly manage environmental risks. And in a society that is prone to occasional economic recession, the pressure to minimize costs can be strong enough to prevent appropriate environmental risk management strategies.

There must be a balance. And one key to that balance is to truly understand the significance of the actual risk being faced. Some lower-risk properties can be managed using a phased approach, screening techniques, and appropriate examination of potential environmental concerns. Those cases may not require lengthy research evaluation processes. For example, extensive regulatory-file research for a parcel located five miles from any other developed property may not be necessary. Likewise, extensive historical research on a property that can be proven as “forever wild” based on a review of historical aerial photography may be a waste of time and money.

There are other risk management considerations that do not involve potential exposure scenarios, but instead are purely economic decisions. There are many property owners with extensive liabilities, for whom selling the property—with its inherent liabilities—may be the only economical option. They may not have the cash to comply, so they must sell or face FDEP enforcement.  There are investment opportunities for those prepared to relieve them of liability. (“Buy/clean up/sell” possibilities exist throughout the entire state of Florida!)

The conditions and variables defining the environmental risks of a property/transaction include:

  • financial objectives
  • investor’s risk tolerance
  • extent of contamination
  • third-party liability
  • potential for government funding
  • potential for contaminant migration
  • site geochemistry
  • potential for natural attenuation, to name a few.

The Florida Petroleum Restoration Program, environmental insurance, risk-based corrective action, the Florida Dry Cleaning Solvent Contamination Cleanup Program, the Brownfields Redevelopment Act, and creative remedial strategies are all tools on the environmental manager’s workbench.  

Some general strategies for managing environmental risks (in no particular order) are:

  1. restrictive covenants
  2. conditional No Further Action
  3. indemnification
  4. sell “as is”
  5. minimize third-party liability
  6. seller-funded assessments
  7. impaired property tax reduction 
  8. PRP-funded advanced cleanup
  9. compliance auditing
  10. performance-based contracting
  11. monitoring of natural attenuation
  12. Brownfield designation

Environmental issues are not new to commercial real estate, but the strategies to manage the risks have evolved over the last 30 years, allowing transactions that previously faded away to now remain vibrant until closing. Careful investors have the opportunity to minimize the impact and maximize the benefit. 

By Jon Ascher, senior project manager, and Steve Hilfiker, president, of Environmental Risk Management, Inc. (ERMI).  Based in Ft. Myers since 1999, ERMI is available to provide expertise in consulting and remediation, including the various state-funded cleanup programs and redevelopment initiatives that may be available, to help landowners, developers, and prospective purchasers accomplish their goals.  Please feel free to contact us at 239-415-6406 or info@ermi.net.