2005 Standard for Environmental Assessments Will No Longer be Recognized by USEPA After October 2015

The United States Environmental Protection Agency (“EPA”) took its final step to phase out ASTM E1527-05, the standard for conducting Phase I Environmental Site Assessments utilized by environmental professionals and parties since 2005. Starting October 16, 2015, environmental professionals and parties must use the updated 2013 version of the standard, ASTM E1527-13, or the Federal rule, when conducting Phase I Environmental Site Assessments to potentially qualify for the liability defenses available under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA” a.k.a. “Superfund”). These liability defenses are often essential when acquiring property in real estate or mergers and acquisitions deals.

Final Rule

 

A final rule published in the Federal Register on October 6, 2014, amended the EPA’s “all appropriate inquiries” (“AAI”) rule under the Superfund by removing recognition of the 2005 standard. As noted above, the final rule will take effect on October 16, 2015, which the EPA believes will give parties enough time to become familiar with, and implement, the 2013 version of the standard. This final EPA rule is the most recent, and likely the last, step in the process of adopting the 2013 standard for conducting environmental assessments and removing use of the 2005 standard

 

The final rule can be found at this link: http://www.gpo.gov/fdsys/pkg/FR-2014-10-06/pdf/2014-23399.pdf

 

Affected Parties

 

Several parties and industries will be affected by this final rule including: Real Estate, Insurance, Banking and Investment, Environmental Consulting Services, State and Federal Governments, and parties seeking brownfield funding and/or protection from Superfund liability.

 

The rule does not, and will not, impact parties who acquire(d) properties between November 1, 2005 and October 16, 2015 (final rule effective date) and used the 2005 ASTM Standard to comply with the AAI rule

 

What Does it All Mean?  

 

If your company or organization is looking to hire an environmental professional to conduct a Phase I Environmental Site Assessment, be sure that the chosen environmental professional is using the most up to date standard for conducting that assessment, ASTM E1527-13. 

 

Along those same lines, it will be important to understand the differences between the new and old standard to ensure that your Phase I Environmental Site Assessment addresses the topics needed to establish your AAI defense. The major differences between the new and old standard are: (1) newly defined and revised terms; (2) a new requirement to assess possible indoor air quality impacts from vapor intrusion pathways; and, (3) changed requirements for the evaluation of past releases of hazardous substances.

 

Simply put, if your company or organization is in the process of reviewing environmental reports for either the purchase or sale of property, including Phase I Environmental Site Assessments, particular attention should be paid to the standards utilized by the environmental professional and cited in the environmental reports.

Parking as a Scarce Resource

In the 2011 book The High Cost of Free Parking Professor Donald Shoup thoughfully walks the reader through the history of parking in the United States into the present situation in which we find ourselves.  Everyone wants a free parking space; but as Professor Shoup explains, there is no such thing as a 'free" parking space.  Parking is a resource which should be treated like any commodity and priced accordingly.

The concept of "dynamic" pricing (ala airline seats and hotel rooms) should be applied to street and off street parking according to Professor Shoup.  He calls this "performance" parking.  He argues that street parking should be high enough to keep one or two curb spaces open during most times.  This will prevent the circling the block syndrome and create efficiencies.  San Francisco has adopted such a model in their SF Park program.  Take a look at their website for details. 

If parking costs rise and become an efficient economic model as opposed to a subsidized one less time will be spent looking for parking and ridership of public transportation will increase, thereby creating better economic benefits for that public resource. 

Professor Shoup advocates for the removal of parking requirements in our new development zoning codes and return meter revenue to the neighborhoods which generate the same.

According to Collier's International 2012 Parking Rate Survey  (a copy of  which can be downloaded by clicking on the link) identifies Cincinnati's parking costs as relatively low as compared to other major metropolitan areas. 

A concertive effort must ne made by city governments, transportation officials and developers to reverse to expectations and effects of "free" parking.

Clean Ohio Fund Brownfield Program Update

The Clean Ohio Fund, Ohio's brownfield redevelopment program is still alive and being administered by the JobsOhio

According to the JobsOhio website, the Clean Ohio Fund is accepting applications for the redevelopment of Ohio brownfield sites. See below for a summary.

 

Clean Ohio funding requests are now being accepted by JobsOhio and the JobsOhio Network. To make a request, please contact the network partner in your region.

Requests will be evaluated on a project’s job creation and economic benefits. JobsOhio will refer its recommendations to the Director of the Ohio Developmental Services Agency or Clean Ohio Council for

review and potential approval.

Clean Ohio funding assists public agencies in acquiring property, demolishing structures, conducting environmental cleanup, and improving infrastructure.

The JobsOhio Network

NORTHWEST REGION

Regional Growth Partnership (419) 252-2700

WESTERN REGION

Dayton Development Coalition

(800) 241-2469

SOUTHWEST REGION

Cincinnati USA Partnership (513) 579-3100

NORTHEAST REGION

Team NEO/Cleveland+ (216) 363-5400

CENTRAL REGION

Columbus 2020 (614) 225-6063

SOUTHEAST REGION

Appalachian Partnership for Economic Growth

(740) 753-5359

Patricia (Pat) Beard

Clean Ohio Brownfield liaison

614-300-1363

 

 

 

Cross Laminated Timber: Will It Sell in the US ?

Cross laminated timber or CLT, was developed in Austria in the 1990's as a structural wood building product engineered to replace steel and concrete in building construction. 

What is CLT ? It is laminated sheets of wood glued together much like plywood only thicker and much stronger. 

Why use CLT ? It is a renewal forest product which absorbs CO2 and can be recycled when its original purpose has been retired.

The New York Times reported on the background and use of CLT last week. Popular in Europe, in use in Austrialia, CLT is just starting to be recognized in the United States.  Innovative Timber Solutions, LLC  is marketing CLT products now in the US.  Below is one of their instructive videos on how CLT is produced and can be used.  It may be worth considering as a componant in your next project.

 

 

Smart Buildings Done Easy !

Take an old technology which has not seen any real updates in decades, make it internet connected and add a few semiconductors (to make it smart) and radically change the way offices and homes consume energy !  That is what the Nest Learning Thermostat promises to do. See the video below.

 

Financing Renewable Energy: Protect the Planet, Boost your ROI

Protecting this planet’s natural resources for future generations is a moral obligation; unfortunately, moral obligations do not pay the bills.  Coal is a nonrenewable resource that causes pollution. But it’s cheap. Renewable energy is often a more expensive alternative to using coal, oil, or natural gas to produce energy. Recognizing that renewable energy must be financially viable for individuals and businesses to shift away from nonrenewable sources, the Federal Government has bridged the financial gap by implementing a 30% tax credit for renewable energy projects. As an additional incentive, for 2011 only, installers can opt for a grant instead of a tax credit, and the Federal Government will simply cut a check to the installer for the eligible expenses. Eligible projects include solar power, wind energy, biomass, among other types of renewable energy.Coupling the renewable energy tax credit with other federal and state incentives, people have the opportunity to dramatically reduce the break-even period for renewable energy equipment and increase the profit potential. One example is new market tax credit, which offers installers the opportunity to obtain an additional 39% tax credit. Not all projects are eligible for both credits, but utilizing them together for eligible projects will substantially improve an installer’s return on investment. Because of these benefits, tax laws play an important role in financing renewable energy projects.

Renewable energy projects pay for themselves in a couple of ways. First, the projects will produce “free” energy for the user. Once the equipment is in place, the only cost for the energy will be maintenance expenses to keep it in good repair. Alternatively, installers that do not want to use the renewable energy can enter into Power Purchase Agreements (PPA) with other users for the sale of the renewable energy. An example of this scenario is an entity that owns solar panels leasing roof space to install the solar panels and then selling the energy produced by the solar panels to the owner of the building pursuant to a PPA. Since PPAs often last from five to fifteen years, they create the equivalent of an annuity for the installer.

 

Second, renewable energy produces an intangible, transferable benefit called a Renewable Energy Credit (REC). A REC represents the environmental benefits of 1 megawatt hour of electricity that can be sold to Ohio utilities and service companies, which can satisfy their legal requirement to produce certain amounts of renewable energy by purchasing RECs. RECs are thus a second source of revenue from renewable energy projects.  

                                                                                                                                                                        

While many people recognize the value of renewable energy, cost remains an important consideration in choosing a source of electricity. Tax credits are a powerful tool to enable people to have the best of both worlds: higher profits and a healthier planet.

Green Leasing Unveiled - Part II

In Part I of our series on the particulars of Green Leasing, we discussed Lease Term and Operating Expenses. Now we turn to a robust area for implementing sustainable processes between Landlords and Tenants:

Interior Alterations and Repairs

 

A typical commercial lease will have two separate sections, one on maintenance and repairs, and one on tenant improvements. The green leasing concern is the same in each – what requirements or incentives can be inserted in the Lease to assure that any changes to the premises live up to the parties’ expectations surrounding sustainability and energy efficiency?

 

First, the lease must deal with the minor, day-to-day changes that after move-in are typically the responsibility of the tenant. The perfect example here is lighting. As the landlord, does your third party rating agency require that you maintain certain forms of lighting? If you’re LEED-certified, it likely does. LEED for Commercial Interiors awards points for the percent reduction in lighting power below certain standards. If the tenant were to insert lighting that was not motion sensitive, for example, your lighting power reduction would be reduced and your LEED level of certification jeopardized. A simple insertion in the appropriate lease section requiring tenant to comply with landlord’s sustainability practices and any third-party rating system can give landlord some control of tenant’s actions in this area.

 

Second are those more major renovations undertaken by a tenant. Here, the lease needs to assure landlord and tenant cooperate and communicate to either (a) maintain any sustainable systems or third party ratings already employed for the project; or (b) for an initial build-out, agree on a level of sustainability or certification that is reasonable and desirable for each party. One major concern at this level is the contractors employed by tenant – a green lease should spell out that any professional engaged for tenant’s work must be LEED qualified (or a similar certification assuring the contractor is familiar with sustainable design). The lease may go so far as to specify the specific level of LEED certification to be sought for the interior design, although such a section would need sufficient caveats and waivers to assure neither party was accepting undue risk if the desired certification was not achieved.

Marcellus Shale: The Next Gas and Oil Boom ?

If you thought the earth beneath your feet was solid; think again.  Land owners and energy industry prospectors are busy in Eastern Ohio, West Virginia, New York and Pennsylvania looking for pockets of natural gas embedded in the Marcellus Shale buried deep beneath the surface.  Named for the town where it all started, Marcellus, New York, a once difficult shale to drill has been transformed by advances in drilling technologies making it possible to drill and capture the natural gas deposits hidden within.  A virtual natural gas rush has ensued and energy companies are leasing mineral and subsurface rights from land owners throughout the Marcellus Shale region.  

As we all know "there is no free lunch."  The technique used to force the natural gas out of the shale and up to the surface is called "fracking."  It is a process by which water, chemicals and sand are pumped into the earth.  In the process, claims of contamination of the underground water resources are being raised.  Be vigilant and do not just sign the form lease the energy company presents to you.  Make sure you give attention to the potential damage and future costs the drilling can cause.  Everyone is entitled to benefit, including the environment !

Value of Walkability

According to walkscore.com a walkable neighborhood has:

1)  A center: Walkable neighborhoods have a center, whether it's a main street or a public space.

2)  People:  Enough people for businesses to flourish and for public transit to run frequently

3)  Mixed income, mixed use:  Affordable housing located near businesses.

4)  Parks and public space:  Plenty of public places to gather and play.

5)  Pedestrian design:  Buildings are close to the street, parking lots relegated to the back.

6)  Schools and workplaces:  Close enough that most residents can walk from their homes.

7)  Complete streets:  Streets designed for bicyclists, pedestrians, and transit.

As we wrote previously in our post titled "Trends We Are Watching", car dependency costs dearly and households which eliminate one car can increase their mortgage carry capacity by approximately $100,000. In order to shed a car in a typical two car family, public transportation options must be practical and convenient. Walkable neighborhoods have more density than typical suburbs and are usually closer to the urban core of a city or region. Cottage homes and neighborhoods which are built on in fill sites in mature neighborhoods can bring residents into or retain existing residents as they transition between phases of their lives. Businesses locate where their customers are located. 

 

Check out walkscore.com to see what your project's walk score. 

Green Leasing Unveiled - Part 1

As the movement to increase energy efficiency and create sustainable operations has swept across the real estate industry, more and more commercial tenants and property owners are expressing interest in “green leasing.”

What, exactly, is a “green lease?” 

 

To be sure there is no form green lease; rather the term describes the evolution from a traditional, split incentive triple-net commercial lease to a lease that aligns incentives so that landlord and tenant are collectively pursuing goals of energy efficiency and sustainable practices. Typically, a green lease will include measuring criteria or rules that implement all or portions of ratings systems such as Energy Star® and the U.S. Green Building Council’s LEED™ program. 

 

This post is the first in a series examining in detail some of the changes one may see when using a green lease. Today’s topics: Lease term and operating expenses.

 


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USGBC AND ITS FOUNDERS SUED OVER THE LEED™ GREEN BUILDING RATINGS SYSTEM

A federal lawsuit in New York that involves Racketeer Influenced Corrupt Organizations Act ("RICO") claims is one of the latest developments in the United States Green Building Council's ("USGBC") development and administration of the LEED™ building ratings system.  The lawsuit appears highly contentious to say the least.  Plaintiffs Henry Gifford and Gifford Fuel Saving, Inc. initiated a class action lawsuit against USGBC, USGBC's founders (David Gottfried and Richard Fedrizzi), and the designer (Rob Watson) of the Leadership in Energy and Environmental Design ("LEED™") green building ratings system.  The alleged class members include consumers and taxpayers whose dollars have been used to obtain LEED™ certification. 

 

The lawsuit paints LEED™ as a farce that is not based on supportable science.  Plaintiffs set forth six claims: (1) violation of the Sherman Antitrust Act for an alleged fraudulent monopoly of the green building market; (2) violation of the Lanham Act for alleged unfair competition by deceptive marketing; (3) deceptive trade practices and (4) false advertising for alleged misrepresentations and concealments in advertising; (5) RICO claims for defendants' alleged deceptive scheme; and (6) unjust enrichment for alleged fraudulently induced profits.  

 

We will update the blog as we receive more information concerning this lawsuit.    

Chinese Drywall Developments

To follow up on a series of prior posts, the Internal Revenue Service will now allow taxpayers with defective drywall to deduct the cost of repairs and replacement of damaged appliances in the year in which the loss occurred.  In Revenue Procedure 2010-36, the IRS has, however, imposed certain restrictions which include that the losses are not compensated by insurance or other parties and the taxpayer must itemize their federal returns to claim the deductions (which are allowed only on amounts that exceed $500 and ten percent of the taxpayer’s gross income for the year).

A taxpayer can claim the full tax break, provided they have no pending claims for reimbursement (and do not intend to file for any). For those taxpayers with pending claims, a loss for 75% of the unreimbursed amount can be claimed.

 

In related news, the importers, manufacturers and distributors of Knauff Plasterboard Tianjin drywall have entered into a settlement with over 300 homeowners in four states. The Agreement, approved by a New Orleans federal judge, will cause Knauff and related firms to remove and replace the company’s drywall, the electrical wiring, gas tubing and appliances, as well as paying relocation expenses while the homes are being repaired (which repairs are expected to take several months to complete). The cost of such repairs is estimated to be about $150,000 for a 2,500 square foot home. This settlement (a product of a special committee appointed by a federal judge) is seen as a possible model for the resolution of other pending state and federal lawsuits. 

 

One area to watch going forward, however, is the possibility of additional claims regarding health concerns. The settlement does not preclude future suits concerning potential adverse health effects of the drywall on residents, as the parties agreed to table that issue to resolve the home repair aspects of the lawsuits.

Contractors, Landlords, and Property Managers Must Take Care to Comply with New Lead Paint Regulations

Pursuant to a new rule passed by the Environmental Protection Agency, all contractors, landlords, and property managers performing or hiring for painting projects that disturb lead-based paint must now become "lead-safe" certified before performing work on houses built before 1978.  The new requirement also applies to weatherization projects, and to schools, day care facilities, or other commercial properties occupied by children.  "Lead-safe" certification is meant to minimize potential airborne contamination from dust or seepage into surrounding soil form debris. 
 
A "lead-safe" certified professional is required for work that disturbs six square feet or more of painted surfaces indoors, or twenty square feet of painted surfaces outdoors.  The "lead-safe" certified professional must be physically present at the site where the work is taking place, and proof of certification is required to be presented to the home owner or property owner upon request.  "Lead-safe" certification is achieved through demonstrated knowledge of lead-safe procedures, like testing of dust contaminants, and cleaning and disposal of lead-based paint.  Certification typically requires an eight-hour EPA training course. 
 
For more information, visit:  http://www.epa.gov/lead/pubs/renovation.htm

Get Informed: Green Building is Here to Stay

Green building is quickly becoming the "norm" across America, and those who are not familiar with it could be missing important opportunities in today's construction climate.  The United States Green Building Council ("USGBC") is a non-profit community of leaders working to make green buildings available to everyone.   USGBC developed the Leadership in Energy and Environmental Design ("LEED") process for green building.  LEED  is an internationally recognized green building certification system, providing third-party verification that a building or community was designed or built using strategies aimed at improving performance across metrics for green building: energy savings, water efficiency, CO2 emissions reduction, improved indoor environmental air quality, and stewardship. 

 
Before considering whether to "go green" on a given project or to bid a public job that is required to be LEED certified, owners/developers, architects, and contractors alike should conduct a "cost-benefit" analysis.  Many projects "pay for themselves" through tax credits and cost-savings throughout the life of the green building, but it is a delicate, niche process with slim margins.  Perhaps the most prominent difference between conventional construction and green building is the integrative approach, which is required for LEED certification.  Conventional construction is a linear process: first, there is an owner/developer with an idea, the architect then designs the idea, and the contractors follow the architect's plans to construct the idea.  With green building's integrative approach, all major players get together during the pre-design phase of a project to discuss the level of LEED certification they can achieve (LEED Certified, LEED Silver, LEED Gold, or LEED Platinum) and how they can best work with one-another to achieve or surpass that goal. 
 
The integrative approach to green building is a special process that poses its own considerations.  These considerations can be spelled-out in AIA contracts with special provisions requiring "green meetings."  Although every green project is different, "green meetings" are excellent starting blocks for obtaining LEED  certification.  For more information on green building, go to www.usgbc.org; for more information regarding "green meetings," go to http://www.aia.org/aiaucmp/groups/aia/documents/pdf/aiab082635.pdf.      

 

Supreme Court Rules Beach Additions Not Compensable Takings

Truckloads of sand will begin cascading across hurricane-battered beaches along the Destin and Walton County shorelines, thanks to a recent 8-0 decision by the Supreme Court. Coastal homeowners originally sued Florida arguing that the Beach Erosion Control Program (BECP) would cause the value of their homes to decline, turning their “oceanfront” property into “ocean view” property. Much to the dismay of residents, the Court ruled that the state may extend the eroded shorelines without compensating the homeowners for loss of private property.

The homeowners in Stop the Beach Renourishment v. Florida Department of Environmental Protection (#08-1151) claimed that widening the beach without compensating the residents amounted to an unlawful taking of private property for public use. Although residents believed their land was unlawfully taken, a state law permits Florida to add sand to eroding beaches. Under this law, the state is permitted to increase the size of the beach and claim ownership of the new addition. All eight justices (Justice Stevens recused himself, likely because he owns oceanfront property in Ft. Lauderdale which is also under consideration for a BECP project) agreed that such action did not constitute a compensable taking.  Justice Scalia, writing for the Court, noted that the case turned on two Florida property law principles:  “First, the State as owner of the submerged land adjacent to littoral property has the right to fill that land, so long as it does not interfere with the rights of the public and of littoral landowners. Second, if an avulsion exposes land seaward of littoral property that had previously been submerged, that land belongs to the State even if it interrupts the littoral owner’s contact with the water.” The Court concluded that since “the Florida Supreme Court’s decision did not contravene the established property rights of the petitioner’s members, Florida [did not violate] the Fifth and Fourteenth Amendments.”   

Doug Kendall, spokesman for the Constitutional Accountability Center, agreed with the decision, stating that “the Court’s ruling supports Florida’s efforts to restore eroded beaches and preserves the ability of state and local governments to respond to changing environmental conditions. It is crucially important that the government have the authority to step in to protect our beaches and coastal communities.”

While some may see this as an extension of recent Supreme Court decisions -- ala Kelo -- expanding the right of government to take private property for public use, Stop the Beach is actually a unique case that will likely have little impact on future takings jurisprudence.  It arose from distinctive circumstances addressing littoral property under a Florida statute permitting erosion control actions by the state.  And when Scalia sides with the state in a takings case, you can be sure the scope of victory is limited.

ODOD Announces Start of "Making Efficiency Work" Funding

The Ohio Department of Development has announced the availability of $8,000,000 in grant funding for qualifying energy efficiency projects undertaken at existing multi-family, commercial, and institutional buildings. The goal of the program is to encourage the installation of energy efficiency equipment that will measurably improve the energy efficiency of existing multi-family, commercial, and institutional buildings. The program is competitive, and awards will range from $125,000 to $1,000,000 per project. The funds available under this program were originally allocated to Ohio under the American Recovery and Reinvestment Act of 2009

Individuals and businesses within Ohio may apply for funding, although government agencies, individual residential building owners and schools are generally not eligible.  Applicants must have match funding equal to at least 50% of the total project cost. Additionally, projects should demonstrate job creation or retention through: (1) retrofit or installation hours; (2) new jobs directly created through the project; or (3) retention of existing jobs at the site. 

 

Funds may be used on energy efficiency improvements such as:

 

·        Insulation

·        LED Lighting

·        Energy Efficient Lighting Technologies

·        Efficiency Equipment

·        HVAC Upgrades

·        Weather Sealing

·        ENERGY STAR Appliances

·        Replacement of Windows and Doors

·        Installation of Geothermal Heat Pumps

·        Energy Audits/Commissioning/Retro-commissioning

·        Retrofits with Green Energy Techniques

·        Above Energy Code Pilot Projects

 

Applications for funding are filed in two stages. First, the applicant must submit a project summary on the http://recovery.ohio.gov website by April 23, 2010. Next, a complete proposal must be submitted to ODOD by April 30, 2010. Grants are to be announced around May 28, 2010.

 

 

A Fuel Cell for the Rest of US

Recently, 60 Minutes aired a story about Bloom Energy, a Silicon Valley  alternative energy start-up, which has developed fuel cell technology capable of taking us off of the electrical grid.  The video speaks for itself so watch it below.  As you watch it, think about how technology such as this will transform the real estate industry.  Besides the reductions in electric costs, how power is brought into a facility or development changes with this technology.  Green energy/alternative energy is only going to make us all better at what we do !

 


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New "Green" Landscape Ratings Established

The Leadership in Energy and Environmental Design (LEED) certification by the U.S. Green Building Council is a certification program for the design, construction and operation of commercial and residential “green” buildings. Although the LEED certification program includes a neighborhood design component, one area not specifically addressed by LEED is landscape design. In an effort to establish a standard for landscape design comparable to the LEED certification for buildings, the Sustainable Sites Initiative—a partnership of the American Society of Landscape Architects, the Lady Bird Johnson Wildflower Center at The University of Texas at Austin and the United States Botanic Garden in conjunction with a diverse group of stakeholder organizations—recently published the first set of national guidelines and performance benchmarks for sustainable land design, construction and maintenance. 

The ratings system works on a 250-point scale, based on achieving 15 prerequisites and a certain percentage of credit points. Achievement of 40% of the possible points equals a one-star level and achievement of 80% of the points equals the maximum four-star level. Points can be achieved for using vegetation to minimize building cooling requirements, providing opportunities for outdoor physical activity, and rehabilitating lost streams, wetlands and shorelines. 

 

Owners interested in minimizing their environmental impact and implementing sustainable design principles now have specific guidelines on how to do so with respect not only to their building, but the surrounding site as well.         

Developing an EXIT (Sign) Strategy

That EXIT sign illuminating over the door could contain a radioactive gas called tritium, subjecting it to regulation by the Nuclear Regulatory Commission (NRC) or one of the Agreement States. The Agreement States have assumed limited regulatory jurisdiction over the use of radioactive materials.  

NRC estimates that more than 2 million tritium EXIT signs are currently in use in the United States. To determine whether your sign contains tritium, first look for a label that mentions tritium (H-3), displays the three-bladed radiation warning symbol, and states “Caution-Radioactive Materials.” If you cannot find the label, then turn off all the lights in the vicinity of the sign. The glow of tritium is green.

 

Tritium EXIT signs are considered “generally licensed devices” because they are inherently safe enough to be handled or used by anyone with no radiation training. The owner of the sign is considered a “general licensee.” The general licensee must designate an individual responsible for complying with the regulatory requirements.

 

A general licensee using tritium EXIT signs must comply with certain requirements regarding use and transfer of the signs. Additionally, when it is time to dispose of the EXIT sign, the signs must not be thrown in the general trash. Although tritium EXIT signs pose little or no threat to public health and safety, damaged or broken signs could cause mild radioactive contamination requiring expensive clean-up.  So it is important that the signs be properly disposed. Failure to comply with any of the requirements may subject the owner to civil penalties.  One more item for the transaction checklist and one more issue to address in agreements of sale and purchase !

Chinese Drywall Has Damaged Their Homes and Health, Some U.S. Homeowners Claim, but Can They Make the Chinese Manufacturers Pay?

We have been following the continuing saga of the homeowners affected by Chinese drywall used mainly throughout Florida, Louisiana and Virginia when U.S. supplies ran low. According to affected homeowners, the Chinese drywall emits a gas that causes health problems such as headaches and nosebleeds, erodes metal and electrical fixtures, and leaves a foul rotten egg odor throughout the home. The only known remedy—removing and replacing all the Chinese drywall in the home—is costly and to this point has not been covered by insurance. Unable to sell the property, and unable to live in it, some owners have been forced into temporary housing and bankruptcy, the New York Times reports. 

Homeowners have filed hundreds of lawsuits against the Chinese companies that manufactured the drywall. These lawsuits, however, face a number of significant hurdles. For one thing, much of the drywall is simply stamped “Made in China,” with no indication of the specific manufacturer. Even when the manufacturer is known, many of them have gone out of business or refuse to respond to the lawsuits. China does not enforce civil judgments from U.S. courts and international court is costly and time-consuming. Some lawyers have proposed creative solutions to the problem, such as seizing the ships that transported the drywall to the U.S., but it’s not clear that any court would approve that remedy.   

 

The affected homeowners may have other avenues for a successful resolution outside of the legal process, however. Congress ordered the Consumer Products Safety Commission to conduct a study of the Chinese drywall. That study, while finding that the Chinese drywall had higher levels of sulfur and strontium than U.S. drywall, was unable to make a connection between those higher levels and the health and other problems experienced by U.S. homeowners. Further testing to establish a connection is under way. The chairwoman of the Consumer Products Safety Commission met recently with Chinese officials and discussed the drywall issue with the hope of reaching some agreement to help U.S. homeowners. Whether political pressure results in any substantial relief for U.S. homeowners remains to be seen.

Proposed Revisions to Ohio's Oil and Gas Law

Currently pending before the Ohio General Assembly is Senate Bill 165, which would significantly revise Ohio’s regulation of oil and gas drilling. Senator Tom Niehaus introduced the bill to increase the safety and regulation of drilling in Ohio, including concerns related to drilling in urbanized areas. To address these concerns, SB 165 requires, among other things, compliance with mandated well construction techniques, revises the application process and eligibility requirements, and gives the Chief of the ODNR Division of Mineral Resource Management increased enforcement authority. 

Well Construction Requirements

 

The new well construction requirements were proposed in response to an incident in Bainbridge Township, Geauga County. Due to faulty well construction, gas had infiltrated the aquifer and caused severe damage to one house and impacted twenty water wells. ODNR concluded that the primary cement job on the well production casing was deficient.

 

SB 165 eliminates all existing statutory provisions related to well construction and states that a well must be constructed in a manner that is approved by the Chief as specified in the permit, using materials that comply with industry standards for the type and depth of the well and the anticipated fluid pressures that are associated with the well. The bill also contains language specifically protecting all underground sources of drinking water. The bill authorizes the Chief to adopt rules that are consistent with the statutory well construction standards, for evaluating the quality of well construction materials and for completing remedial cementing.

 

Application Process and Eligibility Requirements

 

SB 165 proposes to revise portions of the law related to application for a permit to drill a well. For example, if the well will be drilled in an urbanized area, the application must contain a sworn statement that the applicant has provided notice by regular mail to the owner of each parcel of real property that is located within 500 feet of the surface location of the well, excluding any parcel of real property that is included in the drilling unit. In addition to terms related to safety, location and fencing, permits issued under the proposed rule will also include terms related to noise mitigation.

Some of the bill’s most significant revisions pertain to the mandatory pooling process. Under the proposed law, an applicant seeking mandatory pooling must pay a $5,000 fee. The bill also prohibits a person from submitting more than five applications for mandatory pooling orders per year unless the Chief approves additional applications. 

 

Chief’s Enforcement Authority

 

Current law requires the Chief to enforce the Oil and Gas Law and the rules, permits and orders issued pursuant to them. SB 165 takes this one step further and authorizes the Chief to issue a citation to an owner for a violation of any law, rule, permit or order. The citation may be a compliance notice or an administrative order. The Chief may also initiate an enforcement action for a material and substantial violation. If the owner fails to comply with a prior enforcement action, the Chief may issue a suspension order.

 

This article is intended to provide only a sample of the changes proposed by SB 165. For all the changes proposed please refer to the text of SB 165.

Environmental Check-Up

When it comes to taking care of our own health, all too often we rely upon reactive maintenance. For example, you ignore your doctor’s warnings and continue to eat fast food and fail to exercise on a semi-regular basis. You had the chance to help control the situation with some basic preventive maintenance, but you were too busy working and focused on more immediate issues. Now, crisis strikes suddenly in the form of a heart attack. Assuming you survive, you are now left with complicated reactive maintenance, hoping to repair the damage that has already been done. But could this have been avoided with simple preventive maintenance?

Often, the answer is yes. The same holds true for the environmental health of a commercial landlord’s property investments. If you choose to look the other way while your tenants operate your property, environmental issues could be like ticking time bombs waiting to explode into a full scale emergency. The problem is simple. It is the tenant, not the landlord, that has physical control of your property. Yes, your lease agreement requires the tenant to comply with environmental laws, but what if they don’t and their failure is not immediately obvious? It could be years and years before the contamination is discovered by a Phase I analysis conducted by a potential buyer of your property. By that time, the old tenant may be out of business or impossible to locate, not to mention you just lost your sale and may be stuck with the costly clean-up expenses.

 

So what can be reasonably done to help prevent this from happening? One potential solution is what has come to be known as a Tenant Environmental Evaluation, or “TEE”. A TEE is a simple process handled by your environmental consultant that evaluates a new tenant’s expected use, periodically monitors that use throughout the lease term, and supervises the tenant’s exit from the property upon lease expiration to ensure all equipment and chemicals are properly removed. It is not nearly as involved, exhaustive, or costly as a Phase I since you are monitoring real time activities, not investigating past covered-up abuses. When it comes to your real property investments, the best advice and practice is to be proactive, not reactive. After all, a simple change to your diet beats a quadruple bypass any day!

The Lake Erie Shoreline, Landowner Rights, and the Public Trust - Round 2

In December 2007, a Lake County Common Pleas Court judge issued a landmark decision holding, among other things, that an owner of real estate that touches Lake Erie owns title extending as far as the water’s edge. State ex rel. Merrill v. Ohio Dept. of Natural Resources (2007), Lake County Common Pleas Case No. 04CV001080. Lake County is one of eight Ohio counties which contain Lake Erie shoreline.

On August 21, 2009, the Court of Appeals for the Eleventh Appellate District affirmed that holding in State ex rel. Merrill v. Ohio Dept. of Natural Resources, 2009-Ohio-4256. In particular, the Court of Appeals determined “that the waters and submerged bed of Lake Erie when under such waters is controlled by the state and held in public trust, while the littoral owner takes fee only to the water’s edge.” 2009-Ohio-4256 at ¶129. The Court of Appeals reasoned that “[t]he water’s edge provides a readily discernible boundary for both the public and littoral landowners.” 2009-Ohio-4256 at ¶128. The actual water’s edge, or shoreline, is the line of contact of a body of water and the land between the high and low water marks. 2009-Ohio-4256 at ¶¶97 and 127. 

 

In reaching its decision, the Court of Appeals reviewed appeals by environmental organizations representing members who make recreational use of the shores of Lake Erie, and cross-appeals by individual landowners and a non-profit corporation representing owners of littoral property on Lake Erie. In an interesting twist, the Court of Appeals found that the attorney general lacked the authority to pursue an appeal on his own behalf and ordered the state of Ohio’s assignments of error and briefs stricken.

 

The Court of Appeals did vacate that part of the trial court’s decision whereby the trial court attempted to reform any deed granting to its owner land extending lakeward of the water’s edge. The Court of Appeals found the issue of reforming the deeds was not before the trial court and, therefore, the parties had not been afforded the opportunity to argue their positions. 2009-Ohio-4256 at ¶103.

 

Any party wishing to appeal the decision must file a notice of appeal to the Supreme Court within 45 days from the entry of the Court of Appeal’s judgment.

Another ASTM Standard Satisfies All Appropriate Inquiries under CERCLA

US EPA has amended the Standards and Practices for All Appropriate Inquiries (“AAI”) to acknowledge another ASTM standard can be used to satisfy the AAI requirement for the landowner defenses to liability under Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) – innocent landowners, bona fide prospective purchasers, and continuous property owners. In addition to ASTM International Standard E1527-05, you can now use, when applicable, ASTM International Standard E2247-08 entitled Standard Practice for Environmental Site Assessments:  Phase I Environmental Site Assessment Process for Forestland or Rural Property (“ASTM E2247-08”).

 

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HUD Green Retrofit

In the past, we have spoken about grants and loans available through the Ohio Department of Development for advanced energy residential projects, such as solar and wind energy installation.  Federal funding is also available for residential energy-reduction projects through The American Recovery and Reinvestment Act of 2009 (ARRA).  A total of $250 Million from ARRA was allocated to HUD for its Assisted Housing Green Retrofit Program (GRP).  Under GRP, HUD is offering up to $15,000 per residential unit for projects that reduce energy costs, reduce water use, and improve indoor environmental quality.  HUD expects to fund about 25,000 units (approximately 300-350 properties), with an average $10,000 provided to each unit.

Beginning June 15, 2009, HUD is accepting applications for GRP funding on a first come, first served basis, and subject to allocations for project categories, geographic location and owner/affiliate concentration.  HUD may offer either a Green Retrofit Grant or a Green Retrofit Loan repayable from a share of surplus cash and from sale and refinancing proceeds.  The performance period for completing all Green Retrofits will generally be twelve (12) months, but in no event may it exceed twenty-four (24) months.  The program requirements differ depending on the type of project-based assistance contract and depending on the owner entity (nonprofit or for profit).

The properties eligible to receive GRP funding are the following: Section 202 funded properties that have at least 32 units; Section 811 funded properties that have at least 8 units; properties receiving assistance pursuant to Section 8 with USDA Section 515 loans and which have at least 20 units; and all other Section 8 funded properties having at least 72 units.

 

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Lawsuits Begin over Defective Chinese Drywall

Imagine purchasing a brand new home, only to discover it has a persistent rotten egg smell. On top of that, your new appliances mysteriously stop working and the home’s copper wiring turns black. It sounds like a nightmare, but for those in Florida and other southern states whose homes contain defective Chinese drywall, it is reality.

Although it now seems a distant memory, there was a time not long ago when new homes were being constructed across the country at a record pace. This housing boom, combined with the need to repair damage from severe hurricanes in Florida, created unprecedented demand for building materials such as drywall. When domestic sources of drywall ran low around 2005, some contractors and builders, particularly in Florida, began using drywall imported from China. It has been estimated that enough Chinese drywall for 60,000 homes was imported to the U.S.   

Unfortunately for the owners of the homes containing the Chinese drywall, it emits sulfur gas that corrodes copper and gives off a rotten egg smell. Attorneys for the affected homeowners also allege that the gas causes respiratory and other health problems, though the manufacturers of the drywall contend that it does not.

Class action lawsuits have been filed against builders and drywall manufacturers in a number of southern states. So far, it does not appear that any Chinese drywall made it as far as Ohio, although one Columbus-based builder, M/I Homes, has been named as a defendant in a lawsuit concerning homes it built in Florida.

Though certain builders have stepped up and voluntarily replaced the defective Chinese drywall in some homes, others are unwilling or financially unable to do so, frustrating owners who have already seen their property values plummet due to the mortgage crises. It remains to be seen whether these owners will receive any relief as a result of the lawsuits.

Potential Effect of Climate Change Regulation on Real Estate Development

Recent activity in Washington, D.C. suggests that the federal government is moving one step closer to regulating greenhouse gas emissions.  US EPA has determined that greenhouse gas emissions are pollutants that endanger the public’s health and welfare.  US EPA’s endangerment finding could lead to regulation of greenhouse gas emissions under the Clean Air Act.  Alternatively, a new cap-and-trade bill has been introduced, which would remove greenhouse gases from regulation under the Clean Air Act, but would require a reduction in greenhouse gas emissions of 85% from 2005 levels by 2050. 

What does the potential regulation of greenhouse gases mean for real estate development? 

INCREASED ENERGY COSTS !

Energy-utility companies will be greatly impacted by regulation of greenhouse gases.  Particularly, in Ohio and other Midwest states, where electricity production is almost entirely dependent upon coal-burning, reducing greenhouse gas emissions could be quite costly.  Moody’s has estimated that consumer electricity costs will rise between 15-30% as a result of any cap-and-trade regulation.

With the expectation of increased energy costs, real estate developers should look to energy-efficient building systems or alternative energy sources as ways to reduce these costs.  The Ohio Department of Development and the Ohio Air Quality Development Authority offer grants to help offset some of the initial costs for installing alternative energy sources.  Additionally, tax credits are available for certain projects.

If you would like to learn more about potential climate change regulation and Ohio funding for alternative energy projects, these topics will be presented at the CREW of Greater Cincinnati 2009 Midwest Regional Conference.  The conference will take place April 23-25, 2009 at the Cincinnati Hilton Netherland Plaza.  Other topics presented at the Conference include:  "Successful Urban Renaissance Developments"; "Diversity by Design: Successful Inclusion Projects"; "Case Studies in Brownfield Redevelopment"; and "Capital Markets -- Effects from Washington Decision Making".  

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U.S. EPA Proposes Mandatory Reporting of Greenhouse Gases

 

U.S. EPA took the first big step toward regulation of carbon dioxide and other greenhouse gases this week when it proposed a national system in which major sources would be required to report their greenhouse gas emissions.  Knowing the amount of greenhouse gases emitted by the major sources will aid the federal government in developing climate change regulations, particularly the reduction of greenhouse gas emissions under a cap and trade program.  EPA Administrator Lisa P. Jackson explained, “Through this new reporting, we will have comprehensive and accurate data about the production of greenhouse gases. This is a critical step toward helping us better protect our health and environment.” 

According to U.S. EPA, approximately 13,000 facilities, accounting for about 85 percent to 90 percent of greenhouse gases emitted in the United States, would be covered under the proposed rule.  The reporting requirements would apply to the following facilities:

 

  • Suppliers of fossil fuels and industrial chemicals;
  • Manufacturers of motor vehicles and engines; and
  • Large direct emitters of greenhouse gases with emissions equal to or greater than a threshold of 25,000 metric tons per year.

 The first annual report would be submitted to U.S. EPA in 2011 for greenhouse gases emitted during calendar year 2010, except for vehicle and engine manufacturers, which would begin reporting for model year 2011.  Facilities self-certify their emissions data to U.S. EPA, who would then verify the emissions.  Facilities must maintain all records that may be required by U.S. EPA to verify the emissions data.  Failure to comply with the rule would be a violation of the Clean Air Act.

 If you believe that your facility is subject to the national reporting system or if you are not certain whether your facility emits more than 25,000 metric tons of greenhouse gases a year, you should begin evaluating your facility’s greenhouse gas emissions now before the proposed start date of January 1, 2010.  If you implement a plan for measuring and recording greenhouse gas emissions now, you will have the remainder of 2009 to perfect the process before it becomes mandatory and subject to U.S. EPA enforcement.

Once the proposed rule is published in the federal registrar, parties will have only 60 days to submit comments.  U.S. EPA will have to finalize the rule by the end of this year if it will be requiring companies to start calculating and recording their greenhouse gas emissions next year.  We can assist you in understanding the requirements of the proposed rule and submitting comments to U.S. EPA.

 

The CRO Program: Landowner and Lender Responsibility when a Regulated Facility Closes

On January 27, 2009, the front page of the Columbus Dispatch read, “44,000 Jobs Gone.”Other articles report of companies shuttering their facilities or filing bankruptcy. As one affected employee interviewed for the Dispatch article succinctly stated, “It’s scary.” And it’s no less scary for landowners and lenders dealing with properties that have been abandoned.  Landowners whose tenants have abandoned their facilities are trying to recover past rent due and expenses related to cleaning up the equipment, products and chemicals remaining at the facility. Banks are foreclosing on property or are working within the bankruptcy court to recover their money. 

Landowners and first mortgage lenders in these situations should also be aware that they may be subject to environmental clean-up obligations under the Cessation of Regulated Operations (“CRO”) program. CRO was created to protect the public against exposure or pollution from hazardous chemicals left at abandoned facilities. CRO requires the owner or operator of the facility to secure the facility from trespass or vandalism and to comply with 30-day and 90-day deadlines in removing regulated substances and reporting on the progress. If the owner or operator of the facility fails to perform its CRO obligations, then the landowner or first mortgage holder may be responsible to perform certain CRO activities. 

 

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Who Knew Being Green Could Be So Easy !

Recently at the January monthly Real Estate Roundtable breakfast sponsored by the University of Cincinnati, I was introduced to a fascinating new concept – the Roof Lease. Featured speaker Mike Phillips, President of Cincinnati based national real estate developer Phillips Edison Company, mentioned that Roof Leases are starting to spring up across the country. The basic concept is that in exchange for 15 – 20 years of guaranteed income (or in other words, payment for electricity generated from solar panels installed on the roof) a solar energy provider installs and maintains solar panels (generally with the help of grant money) on the roof of your shopping center. Once installed, the solar panels are capable of generating sufficient electricity to power the entire shopping center and provide a number of direct benefits for the landlord. These benefits include the ability to market as a green center featuring controlled electricity costs for tenants, reduced common area electric costs for itself, and the potential of becoming eligible for certain energy related tax credits. As an added benefit, solar panels can be easily hidden from sight; so there are no aesthetic concerns nor is their addition to an existing center likely to run afoul of antiquated zoning code height restrictions.

As a side note, if anyone knows about emerging trends in the shopping center world, it should be Mike Phillips. His company owns more than 240 properties across the county and his popularity was evidenced by the largest turnout by far of any UC Real Estate Roundtable breakfast in recent memory. 

Financing for LEED-Certified Buildings

If you are building new or renovating an existing building, you may have considered trying to obtain LEED certification for your project but decided after analyzing the cost that it was not within your budget. Well now, thanks to the Ohio Bipartisan Job Stimulus Plan (HB 554), LEED-certified projects may be eligible to receive funding. A little-known agency in Ohio has been tasked with reviewing and approving grants and loans under the Advanced Energy portion of HB 554. With $150 million in funding available over the next three years, this little-known agency, the Ohio Air Quality Development Authority (OAQDA), could become your next funding source.

The $150 million has been divided into two parts: $66 million for clean coal technology projects and $84 million for non-coal related projects (to be distributed in three $28 million annual appropriations). The projects eligible for non-coal related funding include various projects such as fuel cells, increased efficiency in electricity generation, advanced solid waste or construction and demolition debris conversion technologies, and renewable energy resources (wind, solar, etc.). Another category includes, “Any technologies, products, activities or management practices or strategies that reduce or support the reduction of energy consumption or support the production of clean renewable energy.” 

 

At a recent presentation given by Kimberly Gibson, Assistant to the Energy Advisor at OAQDA, Ms. Gibson noted that “green” building projects may be eligible to receive a grant or loan under this last category. Constructing or renovating your building to be green would reduce the building’s energy consumption, the requirement of this last category. Inclusion within one of the categories is not the only requirement. When determining whether to approve a grant or loan, OAQDA also evaluates whether the project will result in new jobs, will assist Ohio manufacturing, and whether the project is adequately funded.