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In Focus: Be Aware - Siting and Permitting Issues for Industrial Real Estate

There has been a modest recovery for industrial real estate leasing and sales. In 2012 warehouse, distribution, and manufacturing space near ports, airports, and intermodal transportation hub areas is expected to be in demand. Brokers, buyers, developers, and tenants evaluating leasing or build-to-suit options for these "big-box" buildings need to be aware of environmental siting and permitting issues that come with the logistics hub territory. Here are a few issues to consider:

Fall 2012
  • Establish an environmental baseline - You need to identify and document your understanding of environmental, building, and asset contamination that is present at the property. The baseline is your defense against claims in the future as well as an important negotiating tool during purchase or lease of the property. Generally, the baseline can be established through an environmental site assessment.

  • Understand environmental regulatory compliance requirements and costs - Over time compliance with environmental regulatory requirements can have a significant impact on net operating income. It's important to compile a comprehensive inventory of all permit and regulatory requirements and the associated compliance tasks, implementation schedule, and costs. In a lease situation, determine and document who will be responsible for compliance with each requirement, the owner or operator.

  • Evaluate wastewater/storm water management - The regulation and management of industrial wastewater and storm water is becoming an increasingly difficult challenge. Federal and state law governs the discharge of both industrial wastewater and storm water including floor wash water, fleet wash water, roof drainage, and parking lot runoff. The discharge of virtually all industrial wastewater and storm water requires a permit. Therefore, it is important to estimate long-term compliance costs and inventory all sources that generate wastewater and storm water and the associated discharge points.

  • Identify threatened/endangered species habitats - Los Angeles International Airport spends $250,000 annually to preserve the coastal habitat of the El Segundo blue butterfly. It is prudent to conduct a habitat assessment during the due diligence of the property. This information will allow you to determine if threatened/endangered species habitats do exist at the property and prepare an environmental mitigation design plan that will keep you in compliance and help preserve your corporate reputation through conducting land development in an environmentally sensitive manner.

  • Understand brownfield grants and loans - Although attractive, the conditions for accepting brownfield grants, forgivable loans, tax credits, or other incentives need to be well understood upfront. The regulations required for the funding have many strings attached. For example, the federal tax deduction for remediation expenses may only be claimed in the year the property generates income, and the remediation contractor may need to comply with the Davis-Bacon Act, which increases expenses.

  • Evaluate subsurface risks - There are many underground risks that could significantly impact the design, construction, and operation of a facility. These hazards may include geotechnical conditions that increase construction costs, such as the presence of compressible organics or unsuitable fill materials, or environmental conditions that can increase design, construction, and operating costs. Also consider the risks and costs of groundwater or contaminated groundwater, unacceptable levels of radon, or the presence of volatile organic compounds (VOCs) below a building that increase the risk of contaminant vapor intrusion or impact development or renovation activities. By working with the design team, remediation alternatives can be incorporated into the construction methodology and final project design to minimize cleanup and long-term operational costs.

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