OER’s Suite of Tools To Facilitate Brownfield Development

Back in mid-November, the New York City Office of Environmental Remediation (OER) participated in a brownfield conference sponsored by the Environmental Law Section of the New York State Bar Association.  In a series of presentations, OER provided an update on the various initiatives it has created to help facilitate the redevelopment of contaminated properties in New York City. This post reviews this impressive suite of tools that are now available to property owners, transacting parties and lenders.

Voluntary Cleanup Program (VCP)  The flagship program of OER is the VCP which can be used to address minimally-contaminated sites such as contaminated fill sites, the “e” program (discussed below) and oil spills that are confined to the property. OER has entered into a Memorandum of Understanding with the New York State Department of Environmental Conservation (NYSDEC) whereby NYSDEC has agreed to honor cleanups completed by OER under its VCP.

The NYC VCP is a popular tool for moderately contaminated sites because of the OER’s streamlined approach that allows sites to complete remediation fairly quickly. The NYCVCP is perhaps the nimblest remedial program in the country. OER staff is particularly responsive to the needs of applicants and will work hard to find a way to accommodate the construction schedule of an applicant.

Sites that are eligible for VCP are those where real property in NYC, redevelopment of which is complicated by presence or potential presence of detectable levels of contamination. Properties that are remediated through the NYC VCP receive a Notice of Completion, which includes New York City liability release, a statement from the NYSDEC has no further interest and does not plan to take enforcement or require remedial action for the property. Applicants also receive a NYC Green Property Certification that symbolizes the city’s confidence that the property is protective of public health and the environment.

In addition, applicants may be able to tap a modest suite of investigation/cleanup grant programs offered by OER that can help plug the funding gap caused by the need to perform remedial actions. Sites enrolled in the NYC VCP are eligible for the Brownfield Incentive Grants (BIG) Program which funds four types of grants including pre-enrollment investigation costs, remediation, technical assistance to non-profit developers of Preferred Community Development Projects and purchase of pollution liability insurance or cleanup cost cap insurance. BIG grants may also be used for the Hazardous Materials E-Designation and Restrictive Declaration Remediation programs.

Developers of properties that are have been assigned an “e” designation for hazardous materials should consider enrolling in the VCP to satisfy their “e” obligations. While the VCP has more robust public participation requirements than the “e” program, enrolling in the VCP will enable the applicant to be exempted from any hazardous waste program fees that could be assessed if soils or fill material excavated from the site have to be managed as hazardous wastes. These fees can be quite significant depending on the volume of hazardous waste that is generated and could actually rival the disposal costs in some instances.

Brownfield Jump Start Program– OER also recently embarked on a brownfield “jump start” program for affordable housing and certain industrial site expansion projects that were contemplating applying to the NYSDEC Brownfield Cleanup Program (BCP). For qualifying sites, OER will provide upfront refundable grants of up to $125,000 for investigation and $125,00 for site remediation costs.  The funds are repaid to OER after a project receives BCP tax credits.

Environmental Review and Assessment (ERA) Letters– One of the key challenges facing purchasers of contaminated property is that the landowner liability protections under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) and similar state laws are self-implementing.  While EPA may occasionally enter into a prospective purchaser agreement or issue a comfort letter, EPA and state environmental agencies do not have the resources to routinely review the thousands of phase 1 reports generated annually in commercial real estate or financing transactions. Thus, a purchaser will not know if it has qualified for one of these defenses until the purchaser has been sued or a defendant files a counterclaim in a contribution claim filed by the purchaser, and a court issues a final ruling.

To facilitate redevelopment, OER willing to issue several types of letters. The first known as ERA letters may be used where the presence contamination may complicate at real estate or financing transaction. OER will issue ERA letter where it determines that existing conditions at a property are protective of public health. OER does not anticipate issuing where contamination requires further action beyond that contemplated under the transaction to render a property protective for its intended use. To obtain an ERA letter, a party will meet with OER to discuss the nature of the transaction, prior and current site uses and operational history of the property, the proposed development, known site contamination, and how the ERA letter will facilitate the transaction.  As part of the process, OER will review available data on the property, including a Phase I and all Phase II reports, and compare the identified contamination against the state cleanup standards 6 NYCRR § 375 to determine if the existing or proposed property conditions are protective of the property’s future use. If as a result of this review OER determines further environmental investigation or remedial action is warranted, OER will consider issuing an ERA letter to identify those additional studies and remedial actions if requested by both parties

Acceptance Letters This type of letter is particularly useful when a phase 2 identifies contaminants above the NYSDEC standards but there are not any completed pathways because of the existence of a building foundation, paved surfaces, etc. OER will review phase 2 reports and if it agrees that no further action is required, OER will issue a letter indicating it accepts or agrees with the conclusions of the report.

Pre-Enrollment Comfort Letters– OER will also issue a pre-VCP enrollment “comfort letter.” Frequently, when a consultant recommends further sampling or cleanup, lenders may require a borrower to enroll in a voluntary cleanup program prior to the closing and require borrower to covenant to obtain a no further action letter from the appropriate regulatory agency. Unlike other remedial programs, the OER voluntary cleanup program does not accept applicants until after a site has been characterized and documented in a remedial investigation report. Thus, a borrower may not be able to actually enroll in the NYC VCP until after the closing.

To provide assurance to a lender, OER will issue a pre-enrollment letter indicating that the borrower is making progress towards acceptance into the OER VCP. OER interprets this sentence very broadly and will write letters to satisfy concern of lenders

Standstill Letters– OER has also developed a “standstill letter” which can be used when a seller seeks to sell property but environmental issues have complicated a transaction. In such a case, the seller can investigate site and develop a generic remedy with OER. The site would then be enrolled in VCP but would be “standstill” mode with no requirement to proceed with the remedy. It is hoped the existence of an approved remedy will provide comfort to a prospective purchaser and its lender since the buyer will be able to estimate the cleanup costs. After the purchaser acquires title, it can then implement the pre-approved remedy—provided the proposed reuse is consistent with the approved remedy.

Look-Back Letters All is not lost if you have learned about the NYCBCP after construction has started or is significantly completed. OER has developed a “look back” track where projects may be able to obtain liability protection if the remedial action conforms to the OER program requirements. However, “look back” applicants will not be eligible for the NYCBCP funding incentives.

Satisfying Environmental Review Haz Mat Requirements The OER VCP may also be used to satisfy requirements of the National Environmental Policy Act (NEPA), the State Environmental Quality Review Act (SEQRA), and City Environmental Review Quality Act (CEQRA) for projects being funded by the New York City Department of Housing Preservation and Development (HPD). The federal Department of Housing and Urban Development (HUD) has established regulations implementing NEPA  when HUD staff performs environmental reviews and when local governments assume HUD responsibility . In New York City, HPD has assumed responsibility for environmental review that would normally be performed by HUD.

All property proposed for use in HUD programs must be free of hazardous materials, contamination, toxic chemicals and gases, and radioactive substances where the hazard could affect the health and safety of occupants or conflict with the intended use of the property.   As a result, developers of affordable projects receiving funding from HUD or HPD often have to perform environmental reviews for the presence of hazardous materials to comply with NEPA

HPD must have an Environmental Assessment (EA) prepared to identify all potential environmental impacts, whether beneficial or adverse, and the conditions that would change as a result of the project.  Environmental reviews are generally conducted for new construction, major rehabilitation, leasing, acquisition and change in use under a range of HUD programs. The most common programs for which HPD performs environmental reviews are HUD’s HOME Investment Partnership Program (HOME). HPD utilizes federal HOME funds to finance the construction of new and rehabilitation of existing housing including vacant and occupied single room occupancy buildings (SRO), small homes (buildings with fewer than 12 units) and multi-family buildings. The reviews must be completed before the release of funds and acquisition of property.

As condition of the funding, the developer will be required to conduct a phase 1. If the phase 1 identifies Recognized Environmental Conditions (RECs), the developer will have to propose a phase 2 work plan for approval by New York City Department of Environmental Protection (DEP). Note that sometimes HUD or HPD may disagree with the phase 1 findings and require a Phase II even if the phase 1 did not identify RECs. If the investigation confirms the presence of contamination above applicable levels, the developer will have to prepare a remedial action plan (RAP) for review and approval by the DEP.

The existence of an approved the RAP enables HPD to issue a Notice of Finding of No Significant Impact (FONSI) certifying that the project will not have a significant impact on the environment and therefore will not require preparation of an Environmental Impact Statement (EIS). HPD will then also issue Notice of Intent to Request a Release of Funds (NOI/RROF). The developer would normally implement the RAP and submit a remedial action report to DEP for final approval.

The DEP approval will simply confirm that the developer has satisfactorily completed the RAP. The certification will not confer any liability protection under CERCLA or the state Environmental Conservation Law (ECL) nor provide contribution protection. Moreover, the HPD funding often does not cover remediation costs which can create a funding gap for a project that already has very tight margins.

When facing the prospect of implementing a remedial action, developers should consider enrolling the project in the NYCVCP. Developers can enter the NYCVCP even after DEP has approved a RAP. Often times, all that a developer will have to do is to convert the DEP-approved RAP into the template form used by OER. This is because both DEP and OER follow the NYSDEC remedial program requirements set forth at 6 NYCRR Part 375.

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