By Dean Jeffert Telego, Owner & President, RTM Communications, Inc.
Managing environmental and financial risk effectively is challenging for all types of corporate and real estate deals from the portfolio to one- off commercial or industrial property transactions. The environmental risk and liability concerns that arise, from Mergers & Acquisitions to the legacy liabilities associated with the redevelopment of brownfield sites require the use of bullet proof legal tactics, deal strategies that can bracket and or transfer the environmental risks, and the financial tools, such as environmental insurance to close the deal. In fact, one of the recent trends in corporate transactions is the terms return of capacity and appetite for calculated risk taking by the Property and Casualty (P&C) carriers. They are providing broader terms and creative manuscripting of environmental insurance such as Pollution Legal Liability (PLL) insurance, to leverage larger and more complex the transaction – whether the deal is a liability buyout or facilitating the closing of a brownfield transaction and its redevelopment. The transactions are larger in financial terms and the insurance coverage capacity provided is greater.
Real estate market trends are very favorable driving contaminated property transactions toward cleanup and sustainable redevelopment. Over the past several years, corporate surplus properties have been turning over, influenced by improved economic fundamentals. There is a surplus of corporate cash on the sidelines along with institutional and foreign sovereign monies looking for higher yields and investing in U.S. real property. Some focus on brownfield transactions where there are complex infill properties for affordable housing, waterfront, port terminal activity as well as big box store redevelopment. There is also wide spread construction that is replacing shuttered malls with high end vertical development.
That said, according to a Citizen Commercial Banking report, commercial and industrial property selling activity for 2017 is ramping up. But middle-market decision makers note that valuations may not hold for much longer coupled with unquantifiable economic uncertainty centered on deregulation and tax reform among other externalities, and these phenomenon are further driving market dynamics. The commercial lending markets have seen the slowest increase in construction lending since 2014. According to a February 8th 2017 Wall Street Journal article, some prominent real-estate investors are reducing their holdings and getting more selective about new deals due to their uncertainty about future market growth after eight years of a bull market. Asset managers at endowments and pension funds and some private-equity firms are selling more assets and shifting to less risky strategies. The demand for property may be starting to flag. Commercial real estate deal volume decreased by $58.3 billion or 11% in 2016 according to Real capital Analytics.
With this mixed news, how does this all portend for contaminated property and brownfield transactional business and site cleanups and redevelopment activities?
Infrastructure is key term to winning Trump administration’s support for brownfield cleanups and redevelopments. Couch the funding in terms of infrastructure development. With the past administration, there had been increase cooperation from regulators especially at the state level with the focus on risk-based cleanups and cooperation with the community toward redevelopment. With the Trump administration we are in a wait and see period relative to the impact to the brownfield cleanups and redevelopment activity that are historically supported by EPA grant monies. Under a proposal from the Office of management and Budget, the EPA could find its grants to states cut by as much as 30%. The impact of environmental deregulation and cutbacks in EPA appropriations and staff by 20% to 25% are proposals that would have a material effect on site investigations, cleanups and redevelopment activities leaving funding support to be sought from the private sector.
Environmental risk can impact the success of closing the transaction, valuation of the assets, and the transfer of legacy liabilities. It takes creative funding, the bracketing of environmental risk using rigorous and alternative due diligence and remedial alternatives, and deal structuring techniques grounded in risk management strategies to assure that the redevelopment or reuse or successful disposition of the surplus or stranded asset(s) can be successfully implemented.
This RTM conference zeroes in on the effect environmental risk has on deal flow and the management of commercial, industrial and government property types. We will get into the business tactics and strategies for reducing the uncertainty caused by environmental risk and closing the deals employing creative environmental risk financing and management approaches. The Conference will also delve into the enhanced value environmental insurance and liability management strategies are bringing to leveraging the M&A activity and the purchasing and disposition of corporate assets and contaminated real estate.
Key presentations will cover:
- Environmental liability management strategies for successfully transferring corporate surplus properties and closing M&A transactions,
- Emerging contaminants and new regulatory challenges confronting the financial services industries and property owners/developers,
- Accelerated transfer of redevelopment and legacy sites into beneficial reuse,
- Environmental and M&A Buyer – Side insurance leveraging private equity transactions,
- Creative application of public/private brownfield financings,
- Extreme weather, climate change and Green Bonds effect on commercial/industrial properties