STATEMENT OF THE NATIONAL REALTY COMMITTEE
CLEAN-UP AND REDEVELOPMENT OF "BROWNFIELDS"
J. Peter Scherer, Vice Chairman
Environmental Policy Advisory Committee
National Realty Committee
March 4, 1997

Introduction

Thank you Chairman Smith. My name is Peter Scherer and I am a Senior Vice President with The Taubman Company. The Taubman Company is a national real estate company specializing in the development and management of regional shopping centers. I am speaking today on behalf of the National Realty Committee. NRC represents the nation's leading real estate owners, builders, managers, lenders and advisors. As such, the organization has focused extensively on the national policy issues associated with the redevelopment of our nation's brownfields properties.

Several weeks ago I was here in Washington and had the pleasure of meeting with Jeff Merrifield of the Chairman's staff and Scott Slesinger from Senator Lautenberg's office. I left that meeting encouraged and energized, and I am delighted to have the opportunity to share with you today some thoughts on what the real estate industry believes it will take to get our country's nonproductive, modestly contaminated and, therefore, hopelessly idle, real estate back into the nation's economic mainstream.

Two very positive legislative proposals, S. 8 and S. 18, include provisions which reflect a sophisticated understanding of how current law can best be modified to encourage brownfields cleanup and re-development. NRC is on record as supporting both these bills.

We are also on record as supporting the efforts made by EPA to foster brownfields development, and while these efforts are encouraging, much more can and should be done to achieve the economic and environmental objectives of S. 8 and S. 18. As the sponsors of these bills are aware and as EPA Administrator Browner has stated, changes to the Superfund law are required to achieve significant long-term impact in this area. Let me specifically mention some initiatives taken by EPA that the real estate industry applauds. But, at the risk of striking a more sober note, let me also explain why these well intentioned initiatives will ultimately fall short of their intended objectives.

During the past few years, the Administration has become more creative in its efforts to locate potential buyers for properties stigmatized by the specter of CERCLA liability. The Administration seems to have been motivated, in part at least, by the need to market its own growing inventory of brownfields, including those situated on former military installations. Certainly, in the course of pursuing that objective the government has gotten a taste of its own medicine. And, like the private sector, it seems to have learned that absent some new approaches to finding willing buyers for these kinds of sites, the properties will remain idle and, therefore, unproductive for the foreseeable future.

First of all, EPA has removed thousands of sites from the so-called CERCLIS list and has issued guidance encouraging regulators to consider realistic future land uses in determining the extent of cleanup activities. If it's known that a particular property will become a parking structure, then why force cleanup to the level required for a day-care facility? This is a common sense approach which the business community finds workable.

Second, EPA has issued guidance identifying the circumstances under which it will enter into prospective purchaser agreements. These agreements are intended to assure potential investors in contaminated sites that the properties in which they are investing will not become targets of a future enforcement action. Developers are willing to take risks, but there are simply too many other opportunities available for any successful developer to bet his balance sheet on a project with unlimited environmental downside. Not to mention the difficulty in obtaining financing!

Thirdly, on the issue of migrating ground water contamination, where land otherwise suitable for development is situated above an aquifer contaminated by external sources, EPA has issued guidance seeking to reassure owners or purchasers that they will not be targeted for cleanup actions. Again, an example of action on the Agency's part which reflects the fact that new money will not go into a project where the only certainty is uncertainty.

In each of these situations, EPA has set a course which my industry believes is absolutely in sync with the national policy objective of returning our country's brownfields to productive use. So why isn't this enough? Let me tell you -- specifically -- in 50 words or less. At the end of each guidance document is a disclaimer which reads as follows:

This policy does not constitute rulemaking by the Agency and is not intended and cannot be relied on to create a right or benefit, substantive or procedural, enforceable at law or in equity, by any person. Furthermore the Agency may take action at variance with this Policy.

As well intentioned as these policies may be, they fall short of providing the kind of certainty necessary to attract private-sector capital.

I come here today not asking for the creation of economic or financial incentives to encourage brownfields development. Rather, in this case, our industry is looking only for the removal of existing disincentives. We are looking for you to level out the playing field and, in doing so, create the kind of certainty that permits prudent investment and intelligent risk assumption. So what is it that we think is needed?

The recently adopted lender protections and the proposed protection for the new purchasers are certainly positive steps, but many brownfields will remain undeveloped unless Congress provides protection from federal and state enforcement actions for property owners who successfully participate in voluntary cleanup programs.

While recently enacted legislation protects financial institutions from undue liability under Superfund, lenders still have concerns about the value of the underlying collateral and the creditworthiness of their borrowers. If a property that undergoes a voluntary cleanup may be the subject of further federal and state enforcement action, a lender may consider the property inadequate for the loan. Moreover, if the borrower may be compelled to pay for the further cleanup after having completed a voluntary cleanup, even if the borrower is prepared to assume the risk, a lender may consider the borrower uncreditworthy and deny the loan. Thus, without some degree of predictability and certainty -- and without the promise of finality after a successful voluntary cleanup -- many well situated and otherwise prime brownfields will remain idle for want of willing and able developers and lenders.

A number of these concerns would be addressed in a meaningful way by a provision contained in both S. 8 and S. 18. This provision creates a new and eminently workable exemption for those who acquire property in need of some environmental remediation. The so-called "prospective purchaser" provision would look beyond the existing "innocent landowner" defense to address the troublesome (and not uncommon) scenario in which contamination is discovered during the course of pre-acquisition due diligence.

To utilize this kind of defense, purchasers would be required to undertake prescribed levels of environmental due diligence, including a site assessment in accordance with a standardized protocol. They would also need to take circumscribed steps to limit exposure to known contamination; and cooperate with those responsible for the cleanup. In return for meeting CERCLA's due diligence requirements, prospective purchasers could move forward and acquire property without fear of incurring the associated CERCLA liability.

Here's what happens in the real world: environmental due diligence becomes a feeding frenzy for everyone involved, particularly lawyers and consultants. And given the laws today, it's difficult to blame them. When do you stop peeling the onion? When will that consultant or lawyer provide, in writing, that all information is known or than there is no risk associated with proceeding? More samples, more tests, more lab results are recommended. More time, more money, more risk and uncertainty until ultimately the project dies. You hardly ever have all the information.

Successful business decisions are made when all necessary information is known. My point is that the various amendments to CERCLA I have referred today would (to a significant degree) replace the uncertainty that kills many deals with the type of stability, predictability and certainty needed for brownfields initiatives to succeed. Notably, EPA has endorsed this reform and there is no doubt its enactment would make a difference in the real world.

At the end of the day, our industry is asking for nothing more than the kind of certainty and predictability that other federal agencies are authorized to provide. We ask you to empower EPA to provide the equivalent of the "no further action" letters which can be obtained from the Securities and Exchange Commission, or the private letter rulings that the Internal Revenue Service regularly provides to parties concerned with the consequences of contemplated activities. Certainty inspires confidence, and with it, action.

These legislative proposals -- S. 8 and S. 18 -- form a good base upon which to work in this session of Congress to develop bipartisan reform of CERCLA. In addition, EPA's continued focus on administrative reforms should be encouraged. Agency reforms combined with legislative reform hold the promise of reducing the stigma associated with these properties by limiting the specter of federal liability.

The National Realty Committee remains committed to the enactment of policies that encourage reinvestment. Working with the other local and national stakeholders represented here today, our members will continue to help identify, analyze and advocate policies that will achieve the goals I believe we all share.

Thank you.