Illinois Real Estate – Redeveloping Environmentally-Impaired Properties

The acquisition and redevelopment of environmentally-impaired real estate was often made less attractive or plain unfeasible by burdensome costs, delays, and unknown legal risks resulting from the “one-size-fits-all” approach of early environmental regulations. Recognizing the shortcomings of this antiquated system, the State of Illinois enacted new environmental regulations in 1997 called the Tiered Approach to Corrective Action Objections, commonly referred to as “TACO”.

TACO provides a flexible, risk-based system for identifying, evaluating, and mitigating unacceptable risks of exposure to environmental contamination by allowing them to be evaluated relative to the existing and/or future use of the property, receptor sensitivity, exposure mechanisms, chemical-specific properties, and site-specific geological conditions. With the exception of highly contaminated properties, in lieu of performing costly and time-consuming remediation, TACO permits contamination to be managed in-place with the implementation of risk-based corrective actions designed to curtail unacceptable exposure risks. Risk-based corrective actions may include engineering controls (i.e., a physical mean, such as concrete or asphalt barriers designed to block contact with contaminated media) and/or institutional controls (i.e., deed restrictions designed to restrict activities that would result in exposure to contaminated media).

Within the real estate industry, TACO is most often invoked through the Illinois Environmental Protection Agency’s (EPA) voluntary Site Remediation Program, or SRP. The SRP provides real estate owners a user-friendly mechanism to work with the Illinois EPA to investigate, address, and ultimately obtain liability protection from environmental contamination. Upon the completion of the SRP, the Illinois EPA issues a No Further Remediation (NFR) Letter, which is recorded with the deed of the property, and serves to release the property owner from future responsibilities under the Illinois Environmental Protection Act, so long as the prescribed risk-based corrective actions are upheld and maintained.

With careful project planning and coordination, time and cost commitments associated with obtaining an NFR Letter through the SRP can be substantially offset and integrated into the redevelopment process. A hypothetical, yet typical chain-of-events that will occur during the acquisition and redevelopment of an environmentally-impacted property in Illinois is briefly outlined below.

First, prior to acquisition, the prospective purchaser is typically allotted a due diligence period to perform a Phase I Environmental Site Assessment (ESA). In addition to serving a specific function associated with federal environmental liability protections (which is beyond the scope of this discussion), the Phase I ESA enables the prospective purchaser and financial institutions to assess potential liabilities a property may carry due to known or suspected environmental impairment. During the Phase I ESA process, trained environmental consultants are deployed to identify and assess potential Recognized Environmental Conditions, also known as RECs, via review of existing public records and a visual reconnaissance of the subject property and surrounding area. For those reading the term “REC” for the first time, it is defined as: “the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property: (1) due to any release to the environment; (2) under conditions indicative of a release to the environment; or (3) under conditions that pose a material threat of a future release to the environment.”

Next, in situations where a REC is suspected but cannot be confirmed through non-intrusive means, the environmental consultant will often recommend a Limited Phase II Subsurface Investigation to be performed during the due diligence period. The Limited Phase II Subsurface Investigation involves the collection and laboratory analysis of soil, groundwater, and/or soil gas samples to assess the materiality of subsurface contamination. If any contaminants are found to be present, an assessment of the magnitude, nature, and extent will be loosely defined, and an endangerment assessment will be performed in accordance with methods prescribed by TACO. If detected contaminant concentrations present unacceptable exposure risks, the environmental consultant will often recommend they be mitigated through the SRP.

Following the Limited Subsurface Investigation, and with knowledge of the conceptual redevelopment plan, at this stage the environmental consultant should have enough information to formulate a general risk-based corrective action strategy necessary to complete the SRP and obtain an NFR Letter for the property. With a general strategy in place, cost estimates and schedules may be developed, which can be utilized to negotiate the purchase contract and also incorporated into the overall redevelopment plan.

Shortly after the property acquisition is finalized, and ideally well before the commencement of redevelopment activities, the environmental consultant enters the property into the SRP through a standard application process and performs a Supplemental Subsurface Investigation to build upon the results of the initial, Limited Phase II Subsurface Investigation. Following the supplemental investigation, the environmental consultant should have gathered sufficient environmental, geological, and hydrogeological data to fully define the nature and extent of subsurface contamination, complete contaminant fate and transport modeling, and otherwise fulfill all the data requirements of the SRP.

With the necessary data in-hand, the rest of the process typically involves reporting and exchanging correspondence with the Illinois EPA while the subject property undergoes redevelopment. In general, the environmental consultant produces a series of four SRP-mandated reports that document the methodologies and findings of the subsurface investigations, evaluate the exposure risks, assign site-specific environmental objectives appropriate for the future use of the property, propose risk-based corrective actions to mitigate unacceptable exposure risks, and document the implementation of said risk-based corrective actions. With the Illinois EPA’s approval of all four reports, the NFR Letter is issued, which typically occurs six to twelve months after entering a property into the SRP.

While the information presented here is by no means new, many in the real estate industry are not regularly exposed to the processes associated with successfully addressing environmentally-impaired properties. The goal of this and future content is to provide information on environmental and risk management topics and resources toward helping to demystify these processes. Armed with this knowledge and the appropriate planning and coordination, navigating modern environmental regulations and programs across the State of Illinois can be seamlessly incorporated into your real estate endeavors.

Illinois Real Estate – Redeveloping Environmentally-Impaired Properties

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