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Watersbend: appraising a brownfield redevelopment project. (Features).



Abstract

This paper examines issues affecting the appraisal of a brownfield See greenfield.  apartment property in Austin, Texas. These issues include the contamination that forced the property's evacuation, its eventual remediation, the creation of the legal framework permitting its reoccupation, market acceptance of its safety, and ongoing stigma risks. The authors describe the research and methodology needed to quantify the risks of owning a brownfield property. They conclude that complicated and long-term redevelopment projects such as this one can be successfully and profitably redeveloped while suffering only a modest post-remediation stigma.

**********

One of the most notorious events in the real estate history of Austin, Texas The recorded history of Austin, Texas began with the first permanent settlement of the area in 1835. In the late 19th century, the establishment of several universities in the city made Austin a center of education. , took place in 1991 when approximately 1,000 tenants were forced to evacuate e·vac·u·ate
v.
1. To empty or remove the contents of.

2. To excrete or discharge waste matter, especially of the bowels.
 on forty-eight hours notice from the Watersbend apartment complex. State environmental officials had discovered that potentially explosive levels of methane had seeped into ground-floor units overlaying a former municipal landfill. Eight years passed before the property accepted new tenants. During that time, the property was looted loot  
n.
1. Valuables pillaged in time of war; spoils.

2. Stolen goods.

3. Informal Goods illicitly obtained, as by bribery.

4.
, new legislation was enacted to facilitate its remediation, and millions were spent on its rehabilitation rehabilitation: see physical therapy. .

Watersbend is one of the most unusual but ultimately successful brownfield redevelopment cases in Texas. This property was appraised just prior to its reopening, and the appraisal required research of the property's history, laws that expedited its remediation, the potential for tenant resistance, and environmental risks that could affect its value. This article discusses the complete history of the property: the bizarre circumstances of its construction, evacuation, and abandonment; its lengthy and groundbreaking remediation project; the recently enacted laws that permitted its rehabilitation; its reopening and market acceptance; and the multiple risks affecting its value then, now, and into the future. The authors believe the property suffers from a small but definite residual stigma, but on the whole its redevelopment is a resounding re·sound  
v. re·sound·ed, re·sound·ing, re·sounds

v.intr.
1. To be filled with sound; reverberate: The schoolyard resounded with the laughter of children.

2.
 success that could serve as a model for other brownfield sites.

The impact of contamination on real estate is established in several articles. In 1991, Peter Patchin, MAI MAI Mail (File Name Extension)
MAI Multilateral Agreement on Investment
MAI Maius (Latin: May)
MAI Ministerul Administratiei si Internelor (Romanian) 
, in "Contaminated contaminated,
v 1. made radioactive by the addition of small quantities of radioactive material.
2. made contaminated by adding infective or radiographic materials.
3. an infective surface or object.
 Properties Stigma Revisited," noted the development of data proving the existence of stigma in contaminated properties. (1) Patchin described stigma as a "negative intangible" caused by fear of hidden cleanup costs and public liability, lack of mortgageability, and the trouble factor, defined as monetary compensation for going to the "trouble of making a necessary improvement to a contaminated property.

In 1992, Bill Mundy Dr. Bill Mundy is widely recognized as one of the leading authorities in real estate appraisal in the United States[1]. Formerly the Land Economist for Weyerhaueser Corporation, in 1976 he founded Mundy Associates, now known as Greenfield Advisors. , MAI, PhD, discussed how contamination affects property value over time in his article "The Impact of Hazardous Materials on Property Value." (2) He maintains that property damages are manifested in lost income, utility, and marketability. In the early stage when uncertainty is highest, loss in value is greatest as a result of loss in marketability caused by "disclosure requirement by the sales agent or seller, required disclosure statements, concern on the part of the lender, and appraiser A person selected or appointed by a competent authority or an interested party to evaluate the financial worth of property.

Appraisers are frequently appointed in probate and condemnation proceedings and are also used by banks and real estate concerns to determine the market
 uncertainty." Damages decrease as the situation is understood and uncertainty is lessened. Mundy also describes residual stigma as "the difference between cured value and full market value," noting that cured value may never reach unimpaired Adj. 1. unimpaired - not damaged or diminished in any respect; "his speech remained unimpaired"
undamaged - not harmed or spoiled; sound

uninjured - not injured physically or mentally
 value because of public perception of health risks.

A more recent article, "Post-Repair Diminution in Value diminution in value n. in the event of a breach of contract, the decrease in value of property due to the failure to construct something exactly as specified in the contract.  from Geotechnical Problems" by Michael V
For the Filipino comedian of similar name, see Michael V..


Michael V the Caulker or Kalaphates (Greek: Μιχαήλ Ε΄ Καλαφάτης,
. Sanders addresses the case studies approach and its applicability to estimating damages to properties affected by contamination and construction defects. (3) Sanders states that "the measurement of residual loss in value or stigma best employs the use of case studies." He further states that "case study properties need not be in the same area as the subject property, and data limitations usually necessitate searching a broader geographical area. While the circumstances surrounding the loss in value may be similar, properties selected for case studies are in many cases not directly comparable to the subject."

Robert Simons, PhD, discusses brownfields and their redevelopment in several articles and books listed in the bibliography. In his book Turning Brownfields into Greenbacks, Simons notes that the primary obstacles to brownfield redevelopment are the cost of cleanup and liability. (4) Regarding the cost of cleanup, he describes a relatively common situation in which the "net price of urban land [the cost of purchasing and remediating the land] possibly contaminated by a prior use would be higher than a comparable suburban property on virgin farmland." He also notes that the "strict, joint, and several liability" clauses of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA CERCLA Comprehensive Environmental Response, Compensation, and Liability Act (aka SuperFund) ) and Superfund Amendments and Reauthorization Act (SARA Sara or Sarah, in the Bible, wife of Abraham and mother of Isaac. With Rebekah, Rachel, and Leah, she was one of the four Hebrew matriarchs. Her name was originally Sarai [Heb.,=princess]. ) have impeded the involvement of developers and lenders in remediation of contaminated property.

In this article, rather than discuss brownfields or contaminated properties in general, we will describe in detail the evolution of a single brownfield property.

The History of Watersbend Apartments, 1984-1994

Watersbend is located on U.S. Highway 183 in northeast Austin along a creek. Improvements were constructed in 1984 at a cost of $13 million during a period of economic prosperity and unprecedented real estate construction in Austin. Watersbend was originally a 358-unit, garden-style complex of average-quality construction consisting of 25 buildings with wood frames on concrete slabs and a combination of brick and cedar siding. Amenities included two swimming pools, a clubhouse, and laundry rooms. The primary tenants were college students and middle-class families.

By the late 1980s, the Austin real estate market had collapsed. New tax rules, a slowing statewide economy overdependent on oil, and a glut glut pronounced as rut, slut Vox populi An excess of a service or skilled labor in a particular area. See Physician glut.  of recently completed projects pushed the citywide apartment occupancy level below 80%. Watersbend suffered through this downturn along with other properties in Austin. At the turn of the decade, Watersbend and similar properties achieved a 90% occupancy level, albeit with rent levels well below those attainable in the period of 1984-1986.

Landfill Discovery and Tenant Evacuation

By 1991-1992, approximately 1,000 people called Watersbend home. Unbeknownst to residents, however, Watersbend was constructed over a closed municipal, solid-waste landfill. Reportedly, Travis County used the site and surrounding area as a county landfill from 1950-1960, and then the City of Austin used it as a landfill from 1960-1968. From 1966-1968, the city used much of the subject site for filling purposes, including most of the area where the apartment buildings would be constructed.

Two reports published prior to the construction of Watersbend described the landfill, but on the whole, recordkeeping on municipal landfills during this time was poor, and information regarding the landfill's boundaries, types and amounts of waste accepted, and environmental controls is sketchy and vague. Still, in the early 1980s, the project builder convinced the City of Austin that construction of the apartments over a closed landfill would not pose an undue health risk. The builder and architect asserted that the fireplace chimneys would properly ventilate ventilate,
v 1. to provide with fresh air.
v 2. to provide the lungs with air from the atmosphere.
v 3. to open, to free, as in to openly express one's feelings.
 residual methane gas emitted from the closed landfill. Absurd as that seems, the builder must have offered his explanation very persuasively because the apartments were completed within three years.

In 1991, environmental consultants performed the first known Phase I Environmental Site Assessment A Phase I Environmental Site Assessment is a report prepared for a real estate holding which identifies potential or existing environmental contamination liabilities. The analysis, often called a Phase I ESA  specific to Watersbend. The study revealed high concentrations of methane in two subsurface sub·sur·face  
adj.
Of, relating to, or situated in an area beneath a surface, especially the surface of the earth or of a body of water.

Adj. 1.
 areas beneath the apartments. The report also raised concerns about structural settling, health problems caused by methane-gas migration into the apartment units, and leachate contamination of Walnut Creek Walnut Creek, residential city (1990 pop. 60,569), Contra Costa co., W Calif., in the San Francisco Bay area; inc. 1914. It is the trade and shipping center of an extensive agricultural area where walnuts are among the major product. .

The following year, officials with the Texas Natural Resource Conservation Commission (TNRCC TNRCC Texas Natural Resource Conservation Commission ) discovered unacceptably high levels of methane in several first-floor units. Because methane is odorless o·dor·less  
adj.
Having no odor.



odor·less·ly adv.

o
 and colorless col·or·less  
adj.
1. Lacking color.

2. Weak in color; pallid.

3. Lacking animation, variety, or distinction; dull. See Synonyms at dull.
, the tenants could not have detected it themselves. While the risk of explosion was very low, the results of an explosion obviously would have been catastrophic. Within two days, state and local authorities forced the complete evacuation of the complex. This action received widespread publicity and exacerbated an already tight rental market.

In an instant, Watersbend became an insoluble insoluble /in·sol·u·ble/ (in-sol´u-b'l) not susceptible of being dissolved.

in·sol·u·ble
adj.
Not soluble.
 liability to its owners. They defaulted on the loan, but the primary lienholder initially declined to foreclose fore·close  
v. fore·closed, fore·clos·ing, fore·clos·es

v.tr.
1.
a. To deprive (a mortgagor) of the right to redeem mortgaged property, as when payments have not been made.

b.
 on the property because it was unwilling to assume the risks of ownership. The property eventually became a foster child of the unwilling American taxpayer as a holding of the Resolution Trust Corporation (RTC See real time clock. ).

The RTC's stewardship of Watersbend could best be described as indifferent. With security consisting of nothing more than a hastily constructed chain-link fence, the property was repeatedly vandalized and inhabited by squatters. Thieves stole most of the water heaters, appliances, carpet, and even doors and fireplaces. Vandals set some buildings on fire. Water damage from neglect and poor building design irreparably ir·rep·a·ra·ble  
adj.
Impossible to repair, rectify, or amend: irreparable harm; irreparable damages.



[Middle English, from Old French, from Latin
 damaged many of the exterior walkways. As reported by the subsequent owner, the City of Austin used the property to train firefighters and in one case deliberately set one building ablaze, a SWAT team conducted exercises on the property. Both parties apparently believed they had clearance to destroy government property; whether they did is doubtful. In fact, the property had already been sold to a private developer when these incidents occurred. The developer received undisclosed compensation for the trespasses and damages.

Watersbend Purchased

In 1994, Limited Liability Corporation purchased Watersbend "as is" from the RTC for $1 million, or just $2,793 per unit. This sale price was drastically lower than prices of similar complexes built during the same period, as described in Table 1. If not for its evacuation and other problems, Watersbend probably could have sold for a price within the range of these comparable sales. In fact, Watersbend sold at a discount of 85%--90% compared to these properties.

These comparable transactions involved private parties, but at the time the RTC and other receivers were a dominant force in Austin real estate. Sales of similar properties from banks and the RTC ranged from $13,000-$15,000 per unit, indicating Watersbend sold for a discount of 79%-81% even when compared to properties with disadvantageous dis·ad·van·ta·geous  
adj.
Detrimental; unfavorable.



dis·advan·ta
 selling conditions.

To further illustrate the severity of the landfill's impact on the property, Table 2 describes five sales of apartment complexes that needed major rehabilitation and had a very low occupancy level.

These properties were chosen more for similarities in condition and vacancy than for similarities in age, size or location, but they effectively demonstrate the magnitude of the environmental problems beyond mere reconstruction. Watersbend sold at a discount of 13%-48% per unit compared to several cider, vacant or near-vacant apartments needing less extensive rehabilitation than Watersbend would ultimately require. Its sale price of $2,793 per apartment unit was roughly equivalent to the price of vacant land during 1994, indicative of a 100% loss in the contributory value Contributory Value

A real estate term that refers to the contribution a particular component has to the value of the whole property.

Notes:
For example, the pool in the backyard has a contributory value of $10,000.
See also: Real Estate
 of the improvements just ten years after their construction.

The Remediation of Watersbend Apartments, 1994-1999

The new owners faced an unusual obstacle in remediating Watersbend: the legal framework for doing so didn't exist. The State of Texas had few regulations specifically relating to relating to relate prepconcernant

relating to relate prepbezüglich +gen, mit Bezug auf +acc 
 the use of land over a closed landfill. "Brownfield" legislation and awareness were in their infancy, and existing laws covering environmentally challenged properties tended to be compulsory and punitive. Two measures were needed to spur the redevelopment of the property: the Voluntary Cleanup Program and Subchapter T, Chapter 330 of the Texas Administrative Code.

Voluntary Cleanup Program

The Voluntary Cleanup Program (VCP VCP Verband Christlicher Pfadfinderinnen und Pfadfinder (German Scouts)
VCP VMware Certified Professional
VCP Voluntary Cleanup Program
VCP Virtual Control Panel
VCP Video Cassette Player
VCP Vietnamese Communist Party
) is the primary program of Brownfield Redevelopment Initiative in Texas. According to according to
prep.
1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

3.
 the Texas Natural Resources Conservation Commission (TNRCC), the VCP "provides incentives for properties with real and perceived contamination [brownfields] to be investigated, cleaned, and redeveloped. An additional benefit is the sparing of outlying rural, 'greenfields.'" (5) The VCP was intended to be more proactive than punitive and provided a clearer, more streamlined approach to remediation than existing programs such as the State and Federal Superfund.

In brief, the owners of property in the VCP program must submit an application with an Environmental Site Assessment detailing the type and extent of contamination. Then the applicant and TNRCC must agree on the remediation process, and the applicant must pay all TNRCC oversight costs. After completion of the cleanup, the owner receives a Certificate of Completion from the TNRCC, stating that all non-responsible parties are released from all liability to the state for cleanup of areas covered by the certificate. Sites already under an enforcement order or pending legal action are not eligible for the VCP. More information about the VCP is available at <http://www.tnrcc.state.tx.us./permitting/trrp.htm>.

Subchapter T

In addition to the VCP, the Texas Legislature The Texas Legislature is the state legislature of the U.S. state of Texas. The legislature meets at the Texas State Capitol in Austin. In Texas, the Legislature is considered the most powerful branch of state government because of its aggressive use of the power of the purse to  amended the state's Solid Waste Disposal Act, and the TNRCC enacted Subchapter T, Chapter 330 of the Texas Administrative Code in 1995. Both were written specifically with Watersbend in mind, and Watersbend became the pilot project for these statutes.

Subchapter T "establishes standards for the use and development of land over closed municipal solid waste landfills [and establishes] practical requirements while maintaining strict standards for human health and safety and environmental protection." (6) This statute does not cover hazardous wastes.

Subchapter T provides the TNRCC with authority to administer a permit program for construction of enclosed structures over a landfill, establish requirements related to their construction, establish procedures for conducting soil tests to determine the existence of a landfill, and provide notice to tenants of the landfill's existence.

In general, any permanent, enclosed structure within 1,000 feet of a waste disposal area must be designed and constructed to prevent gas migration- that is, the buildup build·up also build-up  
n.
1. The act or process of amassing or increasing: a military buildup; a buildup of tension during the strike.

2.
 of potentially explosive gases such as methane. The primary structural controls consist of layers of low gas permeability between the slab and the subgrade sub·grade  
n.
The level layer of rock or earth upon which the foundation of a road or railway is laid.
 and a gas ventilation system ventilation system Public health An air system designed to maintain negative pressure and exhaust air properly, to minimize the spread of TB and other respiratory pathogens in a health care facility  to prevent buildup. Also required is a Site Operating Plan and a Structured Gas Monitoring Plan prepared by a professional engineer. The property owner must register the site in the county deed records, and the owner cannot lease property over a landfill without a permit from the TNRCC. Any waste excavated during redevelopment of the property must be disposed of in an approved landfill.

Owners are not obligated to investigate the existence of a landfill, but once known to them (whether by research or accident), they must immediately inform all tenants. The permit process is required regardless of the age of the landfill, although owners can suspend monitoring requirements if they can demonstrate no potential for gas migration. More information about Subchapter T is available at <http://www.tnrcc.state.tx.us/permitting/ wasteperm/mswperm/clseduse.html>.

The Remediation Process

In 1995, the owners of Watersbend presented a Comprehensive Assessment/Remediation Plan (CARP) to the TNRCC and submitted their application to the TNRCC's Voluntary Cleanup Program. The CARP and a Site Investigation Report were completed in 1996. The owners subsequently received approval to design a Remedial Action Work Plan A Remedial action work plan is defined by the U.S. Environmental Protection Agency as an engineering-based environmental design plan for remediation related site-work for environmental restoration projects. Typical plan contents  (RAWP RAWP Remedial Action Work Plan ) consisting of three major components: a semiactive ventilation system consisting of 108 wells placed in ten clusters throughout the property, an active gas-extraction system in the subslab of each building that would prevent methane buildup in the apartment units, and a surface drainage-control system to prevent exposure to landfill leachate. Also, each apartment unit was provided a hard-wired, active gas monitor/alarm.

These three components cost just under $1.4 million, and the annual monitoring and maintenance cost was slightly under $40,000. In 1998, the TNRCC issued a conditional Certificate of Completion requiring the owners to monitor methane levels and operate a methane-gas recovery system for as long as minimum concentration levels are detected, estimated at the time to be fourteen years.

Concurrent with the Remedial Action Work Plan were slab leveling, repair of slab and beam cracks, provision of better drainage for foundations, rebuilding a retaining wall, and construction of a new retaining wall along Walnut Creek. These improvements were primarily related to the requirements of Subchapter T.

Three of Watersbend's 25 apartment buildings were deemed unfit for redevelopment and were demolished. Redevelopment of the remaining apartments took place in two phases during 1998 and 1999 and included new roofs, doors, windows, flooring, plumbing fixtures, and appliances. The demolition of the three buildings reduced the number of leasable units from 358 to 290.

Our firm was hired to appraise appraise v. to professionally evaluate the value of property including real estate, jewelry, antique furniture, securities, or in certain cases the loss of value (or cost of replacement) due to damage.  the property in early 1999 while remediation was underway and before any units were leased. We evaluated the risks and liabilities associated with the project and their effect on value, including:

The comprehensive redevelopment cost, including environmental remediation, was $9.5 million, or about $32,750 per unit. Until 1999, the owners paid for all remediation costs out-of-pocket. In 1999, the owners received a construction loan, but they had to provide personal guarantees and other real estate holdings as collateral.

Appraisal issues: Assessment of Market Acceptance, Ownership Risk, and Stigma

* Lack of market acceptance. Potential tenants, once notified of the property's history and ongoing monitoring as required by law, might refuse to live there;

* Legal compliance to the regulations of Chapter 330, Subchapter T of the Texas Administrative Code as described previously;

* Operation and maintenance of the active-gas extraction system and the semiactive-gas-extraction system as required by the conditional Certificate of Completion of the VCP;

* A $5 million insurance policy at a cost of $8,400 per year for five years. The policy covers legal expenses and pays off the primary lien in case of serious environmental problems during the life of the policy;

* The risk of future soil subsidence subsidence, lowering of a portion of the earth's crust. The subsidence of land areas over time has resulted in submergence by shallow seas (see oceans). Land subsidence can occur naturally or through human activity.  that could necessitate expensive repairs and maintenance;

* Watersbend's location amidst a larger brownfield area; and

* Other facets of stigma such as deed recordation of contamination (as required by Subchapter T and the risk reduction rules of the Voluntary Cleanup Program), the potential of third-party litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.

When a person begins a civil lawsuit, the person enters into a process called litigation.
 instigated by adjacent property owners, and lender reluctance to fund additional loans due to the unique nature of the contamination and the remediation project.

Our task was to quantify those risks. Regarding the question of market acceptance, we researched similar situations including an apartment complex in southeast Austin. The property was also constructed over a landfill and had methane-buildup problems. While its remediation was not of the scale of Watersbend, the tangible signs that could affect its occupancy--a gas ventilation system, monitors, and in-unit alarms--were there. This property did not suffer any noticeable resistance from the market, and its occupancy and rent levels were equivalent to citywide rates. Our research of this property and other remediated dwellings indicated that a properly remediated property with active monitoring and other safeguards in place should not suffer more than minimal tenant resistance.

Still, the other risks and environmental liabilities were substantial. Even after completion of the remediation project, knowledgeable purchasers would demand a discount on this property in order to justify the investment risks and potential market resistance. These are defined by Randall Bell, MAI, in his book Real Estate Damages: An Analysis of Detrimental Conditions, as "the risk... associated with the ongoing stage of a detrimental condition analysis [including] the reluctance on the part of the real estate market to buy a property that has historically been damaged or tainted taint  
v. taint·ed, taint·ing, taints

v.tr.
1. To affect with or as if with a disease.

2. To affect with decay or putrefaction; spoil. See Synonyms at contaminate.

3.
. Sometimes called stigma." (7)

The Case Studies Approach

Our firm quantified the discount with several case studies, that involved research of similar contaminated sales and remediated properties. The discount in each case study depended on the type and extent of contamination, the use of the property, the amount of governmental involvement, the extent of the remediation when sold, and whether the purchaser was indemnified by the seller or another party responsible for liabilities related to the contamination. In most cases, the discounts were quantified by comparison of the sale of the contaminated property with sales of unimpaired properties with similar physical characteristics and locations. Less frequently, comparison of the eventual sale price to an earlier contracted price with no disclosure or knowledge of contamination or lengthy marketing delays was the basis for the discount.

Each case study was rated for its similarity to Watersbend. Case studies with more severe contamination and less favorable circumstances were rated "higher," properties with relatively minor contamination and minor post-remediation stigma were rated "lower," and properties most similar to the subject were rated "even." The case studies are summarized in Table 3.

Case Studies 3, 4, and 5 were rated even and had a discount range of 10%-21%. These sites sold post-remediation or with only a minor threat of future contamination. Like Watersbend, two of the three sites were in the Voluntary Cleanup Program. Case Study 4 was the most similar to Watersbend; it involved an old landfill, was in the same stage of remediation before redevelopment, and required a similar amount of initial reinvestment Reinvestment

Using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash.

1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares.
 capital. Case Study 8, although also involving a site analogous to a landfill, was rated higher because the materials were hazardous and the impact on properties surrounding the landfill was much greater when compared to Watersbend.

From these case studies, we estimated that the market value of Watersbend was 15% less than its unimpaired value. The quantified financial liabilities comprised approximately one-third (5%) of the discount, with the remaining two-thirds (10%) attributable to the other risks described in the bulleted list at the beginning of this section.

Watersbend Reopens

After rehabilitation and remediation were partially completed at Watersbend, the complex was renamed "Salado at Walnut Creek" to avoid the negative association with the "Watersbend" moniker (1) A name, title or alias. See alias.

(2) A COM object that is used to create instances of other objects. Monikers save programmers time when coding various types of COM-based functions such as linking one document to another (OLE). See COM and OLE.
. In September 1999, leasing began on 110 rehabilitated units, while rehabilitation continued on the remaining 180 units. Pursuant to Subchapter T, leasing agents informed potential tenants in writing that the property was once used as a municipal solid waste landfill and that structural controls were in place to minimize the dangers posed by the former landfill.

According to the leasing manager at Salado at Walnut Creek, the complex received little resistance from potential tenants due to the written disclosure, despite local media coverage of the reopening that was skeptical, if not acutely unfavorable. In truth, some of the lack of resistance could be attributed to the condition of Austin's apartment market, which was experiencing historically high levels of rent and occupancy. Arguably ar·gu·a·ble  
adj.
1. Open to argument: an arguable question, still unresolved.

2. That can be argued plausibly; defensible in argument: three arguable points of law.
, a weaker market might have produced more resistance because potential tenants would have more available housing options. The inference is that brownfield redevelopment projects need a strong economic climate to overcome the multiple risks involved.

Approximately 100 of the 110 available units were leased between September and October 1999 while remediation approached completion on the remaining units. By February 2000, 70% of the full 290 units were occupied or pre-leased. By July 2000, when redevelopment was completed and all 290 units were available for leasing, the complex attained a 94% occupancy rate. As of 2001, the project's occupancy was near 95%, equivalent to citywide averages, and the units leased for rates at the upper end of the range of competitive properties.

Conclusion

After the remediation was complete and the property was fully leased, additional appraisals have confirmed that the residual stigma has diminished to [+ or -] 10%. This ownership risk, small but still present, makes the property slightly less attractive to potential investors despite the healthy rent and occupancy levels because of ongoing legal requirements of Subchapter T and the VCP, annual expenditures for environmental monitoring costs for at least another twelve years, and deed recordation and disclosure requirements. Also, the property may be hurt more than comparable apartments in the event of a market downturn because much of the property's success is tied to the strong economic climate in which it reopened. Nevertheless, we concluded that the property value exceeds its redevelopment costs, and extensive redevelopment may make it more valuable today than projects of comparable age and construction.

As of late 2001, the stigma of ownership risks is slight and declining. In the spring of 2001, the property owners secured a new, permanent loan requiring an environmental insurance policy covering additional pollution conditions. These conditions could cause loss of use and legal expenses for defense of any third party lawsuits stemming from residual contamination Contamination which remains after steps have been taken to remove it. These steps may consist of nothing more than allowing the contamination to decay normally.  at the property; however, this policy does not cover loss in market value. The cost of this insurance policy (amortized over ten years), combined with the ongoing environmental monitoring costs, reduces the net annual operating income Operating Income

The profit realized from a business' own operations.

Notes:
This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit.
 by three to four percent and is a large, tangible component of the residual property stigma. Over time, the stigma should continue to decrease, although it may never reach zero. This unusual brownfield redevelopment project should serve as a model to numerous parties: to developers needing a framework to remediate and market contaminated properties, to municipal planners pursuing creative solutions to increase the local tax base, and to appraisers seeking insights into post-remediation property values and stigma.
Table 1

Comparison of Watersbend Sale to Sales of Unimpaired Apartment Complexes

Apartment    Date of  Year          SF/   Monthly
Complex       Sale    Built  Units  Unit  Rent/SF  Occupation %

Watersbend   Jan-94   1984    358   707     NA           0%
Shadow Wood  Jul-93   1984    240   735    0.68         99%
Villas of
La Costa     Feb-93   1979    204   780    0.68        100%
Stony Creek
Landing      Apr-94   1982    420   750    0.66         95%
Chevy Chase
Downs        Apr-94   1985    240   678    0.72         95%
Wildcreek    Apr-94   1984    232   663    0.68         92%

Apartment       Sale     Price/
Complex        Price      Unit

Watersbend   $1,000,000  $2,793
Shadow Wood   6,000,000  25,000
Villas of
La Costa      4,250,000  20,833
Stony Creek
Landing      11,200,000  26,667
Chevy Chase
Downs         5,275,000  21,979
Wildcreek     4,425,000  19,073
Table 2

Comparison of Waterbend Sale to Sales of Apartment Complexes in Need of
Major Rehabilitation

Apartment        Date of  Year                   Occupation     Sale
Complex           Sale    Built  Units  SF/Unit      %         Price

Watersbend       Jan-94   1984    358     707        0%      $1,000,000
2506 Manor Road  Jan-93   1971    102     360        0%         455,000


Greentree        Aug-93   1973    124     869        0%         400,000

South Shore      May-91   1963,   145     732        0%         778,000
                          1973


Riverpark        Jan-91   1968-   490     873       23%       1,690,000
                          1972

Estrada          Nov-92   1968    310     839       30%       1,600,000



Apartment        Price/
Complex           Unit   Notes

Watersbend       $2,793  Subject property
2506 Manor Road  4,461   Former affordable housing
                          project; abandoned,
                          100% vacant
Greentree        3,226   Vacant for five years; $6,000/
                          unit rehabilitation
South Shore      5,366   $10,000-$12,000/unit
                          rehabilitation including
                          asbestos and gas line leaks
                          which closed the property
Riverpark        3,449   $7,100/unit in rehabilitation/
                          repairs: appliances, flooring,
                          paint, exterior fences, roofs
Estrada          5,161   Bank sale; water damage
                          from roof/window leaks,
                          only 33% inhabitable
Table 3

Contaminated Case Studies



#  Location     Property Type             Waste Type

1  Austin, TX   Thousands of              Gasoline and other
                  residences and           petroleum products
                  businesses surrounding
                  a petroleum storage
                  facility
2 Austin, TX    Motel and conference      Asbestos, petroleum
                 center                    hydrocarbons


3  Austin, TX   9.3-acre vacant           Hydrocarbons from
                 commercial lot near       crude oil spill
                 former gas station        off-site


4  Dallas, TX   18.6-acre vacant          Municipal solid waste
                 commercial tract          from old landfill


5  Houston, TX  1.5-acre vacant           Benzene, lead,
                 downtown lot              phthlate


6  Houston, TX  Apartment complex         Gasoline, petroleum
                 next to gasoline          hydrocarbons
                 service station



7  Keller, TX   22-acre, multiuse         Petroleum
                 property on former        hydrocarbons and
                 gas station site          heavy metals in soils

8  Houston, TX  Housing subdivision       Creosote, heavy
                 near Superfund            metals, sludges,
                 Site (chemical waste      petroleum
                 storage facility)         hydrocarbons




                             Severity of Contamination
                 Amount of   and Post-Remediatlon Situa
#  Location      Discount    tion Compared to Watersbend

1  Austin, TX      25.0%     HIGHER: Legal action against oil
                             companies; contamination of air,
                             soil and groundwater; 14-year
                             remediation timetable

2 Austin, TX       28.0%     HIGHER: Contaminated by on-site
                              asbestos and hydrocarbons from
                              offsite source; no hydrocarbon
                              remediation has occurred
3  Austin, TX     13.5%;     EVEN: Contamination on adjacent
                16.0%-21.0%   site; discount caused by testing
                              costs, marketing delays, and
                              marketing delays, and future
                              monitoring costs
4  Dallas, TX     10%-20%    EVEN: Circumstances very similar
                              to subject property; future
                              buildings require gas-extraction
                              systems
5  Houston, TX     20.0%     EVEN: Property in Voluntary Cleanup
                              Program; discount consisted of
                              escrow against potential future
                              liabilities
6  Houston, TX     33.3%     HIGHER: Sale price negotiated
                              before full extent of
                              contamination service station
                              was known; risk of off-site
                              migration and other contamination
                              issues
7  Keller, TX      25.8%     HIGHER: Probable greater extent of
                              contamination with no pre-sale
                              remediation; fallout of prior
                              contract
8  Houston, TX  33.0%-50.0%  HIGHER: Properties near a
                              Superfund Site with extensive
                              public disclosure; remediation
                              alternatives included
                              incineration, natural attenuation,
                              excavation and removal of soils


Internet Links

TNRCC Brownfield Redevelopment Initiative Home Page: <http://www.tnrcc.state.tx.us./permitting/remed/vcp/brownfields.html. >.

TNRCC Voluntary Cleanup Program (includes links to Texas VCP News, guidance publications, Applications and Agreement forms, and examples of Certificates of Completion): <http:/www.tnrcc.state.tx.us./permitting/remed/vcp index.html>.

TNRCC Risk Reduction Program (for the VCP): <http://www.tnrcc.state.tx.us./permitting/ trrp.htm>.

EPA EPA eicosapentaenoic acid.

EPA
abbr.
eicosapentaenoic acid


EPA,
n.pr See acid, eicosapentaenoic.

EPA,
n.
 Region 6 Brownfield Program: <http://www.epa.gov/ earth1r6/6sf/bfpages/sfbfhome.htm>.

City of Austin Brownfield Redevelopment Program: <http://www.ci.austin.tx.us/watershed/brownfields.htm>.

City of Dallas Brownfield Redevelopment Program: <http://www.dallascityhall.com/dallas/html/brownfields_.html>.

City of Fort Worth Economic Redevelopment Program: <http://ci.fort-worth.tx.us/dem/brownfields.htm>.

City of Houston Brownfield Redevelopment Program: <http://www.gcr1.com/epa/pilotcities/default.cfm?ObjID=114>.

City of San Antonio San Antonio (săn ăntō`nēō, əntōn`), city (1990 pop. 935,933), seat of Bexar co., S central Tex., at the source of the San Antonio River; inc. 1837.  Brownfield Assessment Pilot: <http://www.epa.gov/swerosps/bf/html-doc/sananton.htm>.

Brownfield News: <http://www.brownfieldnews.com/>.

(1.) Peter Patchin, "Contaminated Properties Stigma Revisted," The Appraisal Journal (April 1991): 162-172.

(2.) Bill Mundy, MAI, PhD, "The Impact of Hazardous Materials on Property Value," The Appraisal Journal (April 1992): 155-162.

(3.) Michael V. Sanders, "Post-Repair Diminution in Value from Geotechnical Problems, The Appraisal Journal (January 1966): 59-66.

(4.) Robert Simons, PhD, Turning Brown fields into Greenbacks, Urban Land Institute (1998).

(5.) <http://www.tnrcc.state.tx.us./permitting/remed/vcp/brownfields.html> .

(6.) <http://www.tnrcc.state.tx.us/permitting/wasteperm/mswperm/clsdinfo.p df>

(7.) Randall Bell, Real Estate Damages: An Analysis of Detrimental conditions (Chicago: Appraisal Institute The Appraisal Institute (Institute), headquartered in Chicago, Illinois, is an international association of professional real estate appraisers.[1] It was founded in January 1991 when the American Institute of Real Estate Appraisers (AIREA) and the , 1999).

References

Avens, Scott B. "The Valuation of Defective Properties: A Common Sense Approach." The Appraisal Journal (1997).

Bell, Randall MAI. "Real Estate Damages: An Analysis of Detrimental Conditions." The Appraisal Institute (1999).

Mundy, Bill. "Stigma and Value." The Appraisal Journal (January 1992): 7-13.

Mundy, Bill. "The Impact of Hazardous Materials on Property Value." The Appraisal Journal (April 1992): 155-162.

Mundy, Bill. "The Impact of Hazardous and Toxic Material on Property Value: Revisited." The Appraisal Journal (October 1992): 463-471.

Patchin, Peter. "Contaminated Properties Stigma Revisited." The Appraisal Journal (April 1991): 162-172.

Patchin, Peter. "The Valuation of Contaminated Properties." Real Estate Issues (Fall/Winter 1991): 50-54.

Rinaldi, A. "Contaminated Properties--Valuation Solutions." The Appraisal Journal (July 1991): 377-381.

Sanders, M. "Post-Repair Diminution in Value from Geotechnical Problems." The Appraisal Journal (January 1996): 59-66.

Simons, Robert. Turning Brownfields Into Greenbacks. (Washington, D.C.: Urban Land Institute, 1998).

Simons, Robert, and Heidi G. Robertson. "Deed Restrictions and Other Institutional Controls as Tools to Encourage Brownfield Redevelopment." Environmental Law and Practice (Summer 1999).

Simons, Robert, and Paul Syms. "Contaminated Land: Do Property Registers Do More Harm Than Good? An Analysis of the UK and USA Approaches to Public Management of Brownfields." (Land Contamination and Reclamation UK, 1999).

Simons, Robert. "How Many Brownfield Sites are There?" Journal of Public Works public works
pl.n.
Construction projects, such as highways or dams, financed by public funds and constructed by a government for the benefit or use of the general public.

Noun 1.
 Management and Policy (2:3, 1998).

Simons, Robert, and Michael Leccese. "Brass Mill Mall: Bringing New life to a Brownfield Site in Waterbury; Connecticut." Urban Land (June 1998).

Simons, Robert, and Don Iannone. "Supply and Demand for Brownfields in Great Lakes Great Lakes, group of five freshwater lakes, central North America, creating a natural border between the United States and Canada and forming the largest body of freshwater in the world, with a combined surface area of c.95,000 sq mi (246,050 sq km).  Cities." Urban Land (June 1997).

Simons, Robert. "Financing Environmentally Contaminated Land in the Great Lakes Empowerment Zones." Economic Development Commentary (Fall 1996).

Rudy R. Robinson, Ill, MAI, is the president of Austin Valuation Consultants, Inc., in Austin, Texas. Mr. Robinson specializes in appraising environmentally contaminated properties, especially for litigation purposes. He has been published twice in The Appraisal Journal and is a frequent guest speaker at real estate conferences and seminars. He graduated from the University of Texas at Austin “University of Texas” redirects here. For other system schools, see University of Texas System.
The University of Texas at Austin (often referred to as The University of Texas, UT Austin, UT, or Texas
 with a bachelor of arts.

Contact: RRR See Required Rate of Return. @austinval.com.

Scott R. Lucas is a former senior associate for Austin Valuation Consultants. He is a graduate of the University of Texas at Austin with a bachelor's degree in real estate and urban land development.

Contact: SRL 1. SRL - Bharat Jayaraman.

["Towards a Broader Basis for Logic Programming", B. Jayaraman, TR CS Dept, SUNY Buffalo, 1990].
2. SRL - Schema Representation language.
3. SRL - Structured Robot Language.

C. Blume & W. Jacob, U Karlsruhe.
@texas.net.

Garland G. Resberry is a senior associate for Austin Valuation Consultants. He graduated from the University of Texas at Austin with a bachelor's degree in finance.

Contact: rasberry@austinval.com.
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Title Annotation:real estate
Author:Robinson, Rudy R.; Lucas, Scott R.; Rasberry, Garland G.
Publication:Appraisal Journal
Article Type:Statistical Data Included
Geographic Code:1USA
Date:Jul 1, 2002
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