Articles

Credit Crisis, Distressed Market Impacting Brownfield Sites, Redevelopment

[September 22, 2009]

When looking at challenges associated with the credit and liquidity crisis in the United States, it is anticipated commercial property loans will continue to default, resulting in an increasing number of nonperforming properties and potential brownfield properties, an environmental consultant told BNA Sept. 10.

Dean Jeffery Telego, President of Alexandria, Va.-based Risk Management Technologies Inc. and RTM Communications Inc., explained how challenging it is to obtain financing for commercial real estate deals in this tightened market. He said many of the larger lenders still have lockdowns on lending for new commercial or industrial transactions and, based on their clientele, are providing more expensive refinancing terms or onerous restrictions with loan extensions.

“Commercial property loans outstanding are estimated to be $3.3 trillion, of which $1.2 to $1.3 trillion are held by commercial banks. The balance is held by foreign real estate investors global REITs [real estate investment trusts], savings companies, life insurance companies, and pension funds. Of these numbers, between $700 billion to $800 billion in commercial loan refinancings/extensions will be maturing between the end of 2009 and 2013 and subject to loan defaults and foreclosures,” Telego told BNA.

New Brownfield Sites

The uncertainty in the commercial and industrial property marketplace has created gridlock in the various credit markets and liquidity lockdown for some of the super regional commercial banks for commercial and industrial property loan financings, according to Telego. As such, he said, commercial and industrial property owner defaults and workouts/restructurings and subsequent foreclosures are giving rise to an increasing number of nonperforming and brownfield-type sites around the country.

“Over the past year and a half, many brownfield transactions, private and public, have been abandoned, stalled, restructured, sold, or postponed indefinitely due to the difficult and ever-changing economic market conditions. With approximately 63,000 to 64,000 of the approximately one million brownfield sites, as defined by the Environmental Protection Agency, cleaned up, there have been tens of thousands of new brownfield sites created,” Telego said.

Opportunities to Be Realized

However, there are signs the market has hit “bottom,” he explained, and there are opportunities to be realized. Specifically, venture capital firms with no or limited legacy liabilities on their books are beginning to engage in the market as price expectations between buyers and sellers are starting to narrow, Telego said.

Citing the Midyear Capitol Markets Bulletin released earlier this month by Jones Lang LaSalle, he said the market is experiencing a gradual return of liquidity during the second half of 2009. True debt liquidity is expected to return to the market sometime mid-2010.

Telego also discussed a number of market drivers and emerging trends related to sustainability he believes are beginning give positive impetus to the marketplace. For example, he said, monetizing carbon assets in real estate transactions and applying the Capital Markets Partnership's green value scoring system (18 EDDG 35, 5/21/09) to deal with commercial buildings in retrofits and new buildings will bring value to collateral and “will help jump start the distressed real estate market.”

He also noted that creating landbanks (permanent open space) and placing renewable technologies on former Resource Conservation and Recovery Act and superfund sites is another way to return nonperforming sites to productive use. Telego also noted that the federal stimulus package included money earmarked for site assessment, cleanup, and subsidized energy technologies. The benefit of this approach, he explained, is the combination of “getting liability off the books and tax advantages/credits associated with bringing renewables onto these sites.”

New Standards

Telego also emphasized employing green and sustainable remediation standards and practices “can be a positive force to getting a lot of the mothballed sites off corporate balance sheets to get them back to productive use.” He noted EPA's recently released Green Remediation Strategy (see related story, p. 65) as well as efforts by organizations, such as ASTM International, ITRC, and SURF, to create standards and practices related to green and sustainable remediation (18 EDDG 59, 8/20/09).

Telego expressed some trepidation about how industry will be able to work with the various approaches taken, especially in light of EPA's participation in the creation of the ASTM standard. “There are barriers and impediments that may hinder the implementation of sustainable remediation such as a well-defined framework and agreed-upon metrics,” he said. While Telego thinks EPA's and SURF's efforts are positive and promising developments, he is concerned how the policies will be implemented within the current regulatory structure.

“Users of these standards and practices will be major corporations and municipal governments, and we need to make sure that the barriers and impediments of concern to their implementation do not inhibit the use of these best management practices and sustainable technologies.”

RTM is producing a conference in San Francisco Oct. 28-30 addressing sustainable property transactions. More information is available on the Web at http://www.rtmcomm.com.


Copyright 2009, The Bureau of National Affairs, Inc.