Although the sale of surplus federal property has been a practice of the federal government almost since its early years, nothing compares to the magnitude of federal divestitures of former Department of Defense (DOD) bases which began in earnest in the late 1980’s. From small parcel outposts to whole airstrip-dominated bases, the military has been transferring properties to local governments, more specifically "local reuse authorities" or LRAs, using the old "negotiated purchase" and more recent "Economic Development Conveyance" (EDC) and public benefit conveyance valuation methods.

Irregardless of the method of transfer, the consideration of environmental issues at the subject properties remains the same – How do environmental issues affect the value of the property? With round-the-clock use, intense equipment maintenance, vast fuel and weapons storage practices, military bases pose unique environmental problems for the LRAs. And while the military is often cooperative in the investigation and remediation of serious environmental contamination, development efforts by LRAs must proactively include environmental risk management considerations to achieve sustainable reuse of the property. Frenkel Environmental Risk Services offers expertise in developing environmental liability protection and cost-management programs to both assist LRAs in determining value for the conveyance as well as enhancing development by defining environmental issues that may otherwise hinder redevelopment.

Environmental Issue Scenarios and Solutions

• Valuation Issue:
  An LRA’s base reuse plan includes the costs to re mediate contamination onsite to residential standards at an estimated cost of $4 million. DOD estimates the costs 50% lower and there is a valuation discrepancy.

Solution:
The cost estimate difference represents the difference between the best case and worst case scenarios. By properly tailoring cost cap insurance, a fixed remediation cost is set while the risk of cost overruns is transferred to a well capitalized insurer.

• Wary Developers:
  One of the highest and best uses for this particular base is residential development. Otherwise eager to engage the development, developers are wary of possible lawsuits from residents stemming from residual contamination at the property.

  Solution:
  By offsetting this risk with the placement of tort liability insurance, the developers not only hedge future financial loss risk, but also placate their financiers after insurance underwriters deem development risks acceptable enough to insure.

• Financing Support:
  The costs to redevelop bases are rather large - requiring significant involvement of commercial and investment banks.

  Solution:
  By "securing" real estate value by insuring lenders against value loss and liability arising from environmental issues, the redevelopment authority leverages state and federal funds by making commercial financing easier to obtain for investors, occupants and developers.

• Community Support:
  One of the greatest hurdles to one base reuse plan is the surrounding community’s opposition to the industrial parcel plans – a part of the plan vital to the economics of the entire development. The community’s opposition is based upon potential air and water quality degradation from industrial operations.

  Solution:
  A mix of surety bonds for pollution prevention capitalization and insurance to fund for any damages incurred by the community prepares a risk financing solution that demonstrates the LRA’s concern and planning for the community’s welfare.

Frenkel Environmental Risk Services develops cost-effective environmental risk management programs for military base reuse stakeholders:

• Local Reuse Authority Directors and Officers protection, advisory services
• Development-wide environmental wrap-up coverage
• Existing contamination remediation cost definition and risk financing
• Developer, tenant and investor liability protection and cost definition
• Commercial lending practice environmental risk management programs