If a potential or Recognized Environmental Concern (REC) is identified in the process of the Phase I ESA, a follow-up investigation or a Phase II ESA is generally recommended. I will go into the Phase II ESA process in a later post.

Regulatory FAQ
?????????Regulatory FAQ II
and
Definition of Terms

Those posts described the basic steps associated with investigation of your standard corner retail gas station. For this post, let’s assume that you own an industrial facility of some sort. Either you owned the property and leased it to a widget manufacturer or you are the widget manufacturer and you own the property were you do your work. For whatever reason, the decision has been made to close the widget factory and sell the property. To do so, you will have to decommission all the various parts of the facility. A vital step in this process is what is called the, “Hazardous Materials Inventory”. This process will identify everything from mercury switches in thermostats and PCBs in light ballasts to large storage tanks and make recommendations for the appropriate method(s) for their decommissioning.

Let’s just say that a portion of this facility was used as a steam cleaning area with floor drains that conveyed the wash-down water into the sanitary sewer. Before the wash-down water went into the sanitary sewer, it flowed through a three-stage clarifier to allow the solids to settle out. All of this is a very common feature in industrial facilities. The Hazardous Materials Inventory identified the use of chlorinated solvents, specifically TCE, during the 1970s in various parts of the property including the steam cleaning area. Based on these findings, the recommendations are to advance soil borings in the area of the steam cleaning area, the floor drains, and the three-stage clarifier. The data collected from this investigation will allow us to evaluate how much soil (if any) around of the steam cleaning area is impacted with TCE and / or anything that was being washed off the widgets that were being steam cleaned.

Can’t wait to hear the next part? What do we do? How much do we have to dig out? How much will it cost? How long will it take to do all the work? Well, it takes a couple weeks to get data back from the lab and write the report. Check back next month!

It appears as though these properties, predominantly in the outskirts of the populated areas of Southern California, are changing hands quite rapidly. While very little actual construction appears to be taking place right now, when the residential market returns to, “Normal” I would expect the people who hold this property will be able to reap tremendous rewards.

The environmental concerns of these properties are usually few since the larger properties tend to be on raw land, but we have come across a few that are on properties that were formally industrial properties or abandoned oil fields of some sort. These properties have additional requirements prior to development that many times makes the deal go sour because the purchase price is so low and there is no short-term return on investment to pay the costs of remediation.

The first quarter was strong for many banks, but this quarter appears to be a pretty difficult one so far for many of the lenders out there. Specifically, Citigroup and Bank of America were mentioned in many news articles over the past couple of days saying that both the Treasury and the Federal Reserve are making them raise additional capital to further stabilize their balance sheets. Some believe that Bank of America will be filing a rebuttal to the Federal Reserve and the Treasury, but no-one seems to know what that will consist of at this time. I guess we will hear in a couple of days, but I’m not going to get ready to write an offer anytime soon.

One thing is for certain, without the backing of the Federal Reserve and the Treasury, or at the very least until these questions are resolved, it will be very difficult for these banks to source the capital (from federal funds or otherwise) they need to originate new loans.

I hope you’re ready to write an all-cash offer or the seller is willing to carry the loan, the banks appear to have problems of their own right now.

• Superfund Hazardous Waste Cleanup: $800 million to clean up hazardous and toxic waste sites that threaten health and the environment. EPA has 1,255 sites on its National Priority List, selected based on a hazard ranking system. There are many Superfund sites ready for construction, but not funded due to budget shortfalls and over 600 sites with ongoing construction that could be accelerated.

• Leaking Underground Storage Tanks: $200 million for enforcement and cleanup of petroleum leaks from underground storage tanks at approximately 1,600 additional sites. There are an estimated 116,000 sites with the potential to contaminate important water supplies.

• Closed Military Bases: $300 million for cleanup activities at closed military installations allowing local communities to redevelop these properties for productive use. The Department estimates that there is a $3.5 billion environmental cleanup backlog at bases closed during previous BRAC rounds.

• Brownfields: $100 million for competitive grants for evaluation and cleanup of former industrial and commercial sites – turning them from problem properties to productive community use. Last year EPA was only able to fund 37% of Brownfields applications.

Federal, state and Local programs are already in place to receive these funds and have been lacking funding for some time now.  I would expect that the revitalization of these programs and this influx of funding will go a long way to making many redevelopment projects on impacted properties pencil out a lot more often.   These programs could also help alleviate some of the funding issues associated with obtaining a loan on impacted or Brownfield properties, whether that loan is for a purchase, a bridge loan, or a construction loan.

Additionally, a “Buy American” policy requires that iron and steel used in construction and repair projects funded under the bill be produced in the United States unless found to be prohibitively expensive.

Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey Reveals California Office Markets will Continue to Deteriorate Through 2011

Turning point in the Los Angeles and San Francisco markets expected in 2010

LOS ANGELES — In the wake of the recession and the freezing up of financial markets for office space development, developers and investors believe that office markets will worsen between now and 2011, according to the latest Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey and Index Research Project. The survey now includes the East Bay and Silicon Valley office markets in addition to Los Angeles, San Francisco, Orange County and San Diego.  The survey, conducted for the fourth time in two years, compares the panel’s forecast of the market three years hence with today’s market. “The unexpected autumnal freeze in commercial real estate credit markets and the precipitous drop in retail sales changed the outlook for new office projects dramatically,” said Jerry Nickelsburg, senior economist, UCLA Anderson Forecast, and author of the survey results report. “The dynamics in the Los Angeles and San Francisco markets indicate a turning point at the end of 2010.  For the Silicon Valley it appears that 2011 is a turning point, but the data is less clear.  For the balance of the markets, the surveys clearly indicate a longer term adjustment process.” For a copy of the latest Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and Index Research Project, please visit www.uclaforecast.com. The Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and Index Research Project polled a panel of California real estate professionals in the office space and investment market, and asked a series of questions on various aspects of the commercial real estate market. It was initiated by Allen Matkins in 2006, furtherance of their interest in improving the quality of current information and forecasts of commercial real estate. With the office market coverage now complete, the next survey will focus on the Industrial Space market at the June 2009 UCLA Anderson Forecast Conference.

Tesla Abandons Plan for Calif. Plant

Electric car maker will look for a new site after failing to secure loan.

By . Agence France-Presse

Tesla has scrapped plans to build an electric car plant in Silicon Valley, saying Jan. 31 that it will opt for an abandoned factory elsewhere in order to win a low-cost federal loan.

Tesla announced in October that the dismal economy had effectively slammed the door on its hope of getting $100 million in venture capital money to build a Model S sedan plant in San Jose.

Construction of the factory, about 20 minutes from Tesla’s headquarters in San Carlos, Calif. was scheduled to begin in mid-2009.

Tesla had picked an 89-acre lot on which to build a 500,000-square-foot plant to pump out four-door, all-electric sedans.

It would have been the first time the vacant lot was used for heavy industry.

Tesla is competing with other car makers for low-interest loan money the U.S. Department of Energy has available to fund development of “brownfield” sites, factories or plants no longer in use.

Tesla wants a $250 million loan to build a sedan plant.

“We cannot do anything that may jeopardize securing the federal loan,” said Tesla senior communications manager Rachel Konrad. “That’s one of the reasons we are now planning to develop on a brownfield site instead of the greenfield site in San Jose.”

Tesla is in “late-stage” negotiations with another site for its Model S sedan plant and expects to begin production in 2011 as originally planned, according to Konrad.

Tesla says that in March it will unveil a Model S car its Hawthorne, Calif., design studio.

The Model S car is a five-passenger sedan run by a lithium-ion battery pack that is expected to power the car for about 240 miles  per charge. The car has an estimated price of $60,000.Copyright, Agence France-Presse

Feb. 2, 2009

D.R. Horton Unloads California Parcels,
Signaling a Shift Amid Housing Slump

By MICHAEL CORKERY
October 3, 2008; Page B1

As it struggles through the housing crisis, home builder D.R. Horton Inc. is unloading land across California at big discounts.

Horton, the nation’s largest home builder by unit volume, is jettisoning thousands of house lots in far-flung areas, partly to reap the tax benefits from selling property at a loss.

Michael Corkery/The Wall Street Journal

D.R. Horton recently sold this undeveloped parcel in Chino Hills, Calif., a hard-hit housing market east of Los Angeles.

As builders try to survive one of the worst housing downturns in U.S. history, land buyers and brokers expect more such tax-motivated fire sales of undeveloped land this year. That could set a new low for land prices in California and other troubled housing markets. The sales also could indicate a shift for big builders: from developing huge swaths of land in the exurbs, to building smaller developments closer to metropolitan areas.

Horton two weeks ago sold about 2,000 house lots in Desert Hot Springs, a blue-collar community in the far reaches of Southern California’s Inland Empire, for $7.8 million, according to county records. William Shopoff, a land investor who bid unsuccessfully for the property, estimates Horton paid about $110 million for the land before spending to prepare the property for development by grading and installing infrastructure such as sewers.

Horton also recently sold a four-acre parcel in Escondido, near San Diego, for $4.4 million, about 25% of what it paid for the property in 2005, according to the county assessor.

Horton, based in Fort Worth, Texas, declined to comment for this article.

Buyers of some of Horton’s land in Southern California include a venture between Foremost Communities Inc. and Starwood Capital Group LLC, which together bought 250 house lots from the builder, according to a person familiar with the matter. The investors plan to hold the lots until the market recovers, this person said. A spokesperson for the venture didn’t return a call.

As new-home sales sank to a 17-year low, builders can no longer count on doubling their investments by buying undeveloped parcels, preparing the property and selling the homes on it. Horton, which built nearly 53,000 homes at the peak of the housing boom in 2006, has posted quarterly losses since the April-June quarter of last year.

The fire sales are a silver lining in those clouds. Tax law allows companies to apply losses from land and other asset sales to past profits and reap a tax refund. More sales are expected soon because the companies can apply losses only to profits earned as far back as two years and 2006 was the last profitable full year for most builders.

Horton told investors in June that it expects to receive a tax refund of $519 million over the next two years. At the end of last year, Lennar Corp. pocketed a $200 million tax refund after taking a 60% discount on its sale of 11,100 house lots to a joint venture it formed with Morgan Stanley.

“There’s going to be a rash of builders shedding assets,” said Tom Reimers, executive vice president of O’Donnell/Atkins, a real-estate advisory firm in Irvine, Calif. “It’s all tax-motivated.”

By dumping land, builders are chasing cash that allows them to keep current with lenders and pay overhead expenses.

Horton had $851.2 million in cash on hand at the end of its fiscal third quarter, June 30, up from $270 million at the end of last year, according to research firm Zelman & Associates. Horton owes about $210 million in annual interest payments, according to Zelman.

So far, most publicly traded home builders have managed to muddle through the housing mess. One reason is the builders’ financing arrangements. Many such large companies have long-term corporate debt that doesn’t come due for another year or two, giving them breathing room amid the credit crunch. The builders typically don’t need lender approval to keep building as long as they honor certain debt agreements at a corporate level.

Most closely held builders, on the other hand, use project-specific financing, in which they need a bank’s approval to start each new development. Lenders have completely cut off credit to most small builders, forcing many to file for bankruptcy protection. Analysts expect more than half of the nation’s small and midsize builders will fold during the housing downturn, which has already forced such private companies as Levitt & Sons of Fort Lauderdale, Fla., and Kimball Hill Homes of Rolling Meadows, Ill., to file for bankruptcy.

Still, big builders like Horton aren’t out of the woods. Horton has $585 million in debt that needs to be paid off in 2009, $362 million due in 2010 and $450 million in 2011, according to Zelman.

Horton’s recent land sales also could reflect an industry shift. Over the next few years, builders will likely build smaller developments closer to large metro areas, where house prices are expected to recover faster than in the far-flung regions. That contrasts with 2005, when builders bought massive parcels in California’s exurbs and earned big profits as land values skyrocketed during the housing boom.

Horton, for example, is interested in buying 50- to 150-lot parcels that are already developed and closer to certain cities in the San Francisco Bay area, says a person familiar with the company’s thinking.

“The builders are going to build in the better locations for the next few years, and live to see another day,” said Steve Reilly, a land broker with Prudential Realty in Danville, Calif. “The downside is they are never going to see the kind of margins when lots were doubling and tripling in value in the time it took to build a house.”

Geology of California/Book and Geologic Map of California by Robert M. Norris and Robert W. Webb