What do you do when you find a commercial property that has everything you’re looking for and you’ve started the process of buying it, but then through due diligence, you find it has environmental issues? It doesn’t have a nice ring to it for sure, but most properties that have desirable characteristics, are still valuable and very much worth the extra steps it may take to mitigate any environmental issue.
This was the case with the former Anoka West Pet Hospital in Ramsey, MN that started as a small animal veterinary practice in the 1970's and continued to grow until May 2016 when the owners decided to sell the property with the help of Marty Fisher, founder and broker at Premier Commercial Properties. The property, considered an ideal retail/office property in an ideal location with exceptional visibility, access to main roads, and zoning flexibility for office and retail uses was found to have environmental conditions when the owners completed the required Phase I Environmental Assessment for financing. Soil boring samples showed very low levels of arsenic contaminants in shallow soil on the east edge of the property, causing a delay in the sale.
Records Uncovered Train Derailment
During the Phase I Environmental Assessment completed by Carlson McCain, a review of all historical reports, fire insurance maps, and database searches for regulatory was done. The review discovered that in 1962, Burlington Northern Santa Fe (BNSF) had a train derailment which spilled a product containing arsenic. It contaminated the surrounding soil and entered the storm water pond on the north side of the adjoining land. They cleaned up the site and installed ground water monitoring wells, but they failed to clean up all of the contaminants in the adjacent land, which ended up becoming the pet hospital property.
“This incident predated a lot of the present day environmental rules and regulations,” says Wade Carlson, president/CEO at Carlson McCain, an environmental consultant for over 25 years who provides investigation and remediation for sale or lease property transactions with environmental issues. “Environmental rules were not common until the late 1980s, which was when the state and federal regulations were put in place. The pet hospital property has unique environmental challenges, but nothing that can’t be overcome with the right experts. It is unusual to have to get a third party to come back and do clean up after so many years have passed.”
Carlson McCain contacted BNSF Railway as well as the Minnesota Pollution Control Agency (MPCA) who is leveraging to get BNSF to complete clean-up of the site. The State is also requiring an environmental covenant be placed on the property deed which will remove the environmental stigma and any factors that would affect or limit the future sale or lease of the property and will maintain the property’s value. They entered the Voluntary Investigation and Cleanup Program (VIC) and received a “No Association Determination” from the MPCA.
What Has Changed in Minnesota Environmental Guidelines & Laws
"Because of new MPCA and EPA guidelines, almost all industrial properties and many other types of properties will be found to have some kind of contaminant depending on the use, age, and property location - especially north Minneapolis, the original industrial base in the Twin Cities," Fisher says. “Environmental conditions have become much bigger issues in commercial real estate and I am working hard to be proactive for the property owners, sellers, and buyers we serve. Environmental issues flagged in the last 24 months is more than the industry has ever seen.”
Carlson says, “MN state law only governs soil and ground water, but new guidance documents now also govern soil vapor. Recent Best Management Practice (BMP) for soil vapor mitigation is a work in progress and can create up to a 6-month delay. Carlson is working with banks and realtors through “brown bag training” events so they understand the issues and can help buyers and sellers. Vapor mitigation, as opposed to prolonged testing, speeds up the process so a transaction can proceed, thus eliminating any property stigma.”
Minnesota was one of the first state to address, through statutes, both the liability and technical issues associated with buying, selling or developing property contaminated by hazardous substances. Because of the potential for liability as an owner of property contaminated with hazardous substances, property owners and other participants in property transactions (buyers, developers and their financial institutions) frequently need to determine if the subject property is contaminated. For this reason, participants in property transactions often wish to seek the MPCA’s assessment of technical issues that are part of the investigation and cleanup of property.
An Experienced Real Estate Broker Helps Property Sellers & Buyers
The owners of the pet hospital initially contacted Marty to sell the property, but when contaminants and the MPCA and EPA covenants were found, no building or development could move forward. Upon recommendation from Marty, the owners hired Carlson McCain and began to mitigate the environmental issues to provide a clear path to purchase.
To create revenue for the building owners, Fisher worked out a lease agreement with an option to buy and is nearing completion of a lengthy process. He expects to close the sale of the building to the tenant by end of Summer 2018.
Michael Cook says, “Marty has a great reputation in the area. With our property, he has been completely involved through the entire process. He made exceptional recommendations that have proven invaluable. He does all of the work, keeps us informed, and communicates without coming across as sales-oriented. We see a cost savings by handling the lease through Premier Commercial Property. My hat is off to Marty. I highly recommend him based on the efforts. He is a very personable guy and genuinely looks out for both sides.”
"Marty is more than just a realtor,” Carlson says, “he is an advocate on behalf of the owner. He is a facilitator. He understands the process and what it will take and helps owners with realistic expectations. Not all realtors are as savvy as Marty on environmental."
Helpful Tips in Selling or Buying a Commercial Property with Potential Environmental Issues
To get financing, a Phase I Environmental Site Assessment is typically one of the requirements. Although it could potentially extend the time it takes to finalize a transaction, some things can be done ahead of time to help things go more smoothly and quickly.
- First, don’t abandon the property! Environmental issues have many levels and it is not the end all when such issues are discovered.
- Don’t let the sound of “environmental issues” discourage you. In the last few years the guidelines and laws have increased for properties and it may seem like a bad thing, but in reality, many environmental issues can be mitigated and overcome.
- Work with a broker who is knowledgeable about environmental issues, processes, agencies, and options you have. You need a realtor who understands the issues to help navigate the process as well as an environmental expert to perform the testing and make recommendations while working between the seller/buyer and MPCA.
- Waiting to handle issues can lead to more costs or delaying the transaction even longer.
- What to Know About the Environmental Process
- Typical Time Frame
- Phase I Environmental: 2-4 weeks
- Phase II environmental: 4-6 weeks
- Pros: completing the cleanup allows the property to be sold or leased
- Cons: delays transaction and could even cancel the transaction
- Typical Time Frame
- What are Considered Minor Environmental Issues: surface soil contamination. Example: vehicle repair
- What are Considered Extreme Environmental Issues: groundwater contamination due to leaking, flammable liquids, and waste trap. Example: Heavy industrial Properties.
More About Carlson McCain
Through offices in Blaine and Plymouth, Minnesota; and Bismarck, North Dakota, Carlson McCain provides comprehensive turnkey services for governmental, utility, private and industrial clients. Our teams of engineers, land surveyors, and scientists are dedicated to creating valuable solutions for our public and private sector clients. Expertise. Creativity. Ingenuity. Collaboration. And above all, Quality. Learn more at www.carlsonmccain.com
More About Premier Commercial Properties
Founded in 2001, Premier Commercial Properties in Coon Rapids, MN specializes in retail, office, multi-family housing, and industrial real estate in the Minneapolis north metro area. Our team of brokers and property managers are real estate professionals who bring a unique blend of expertise to your project whether you need to buy, sell, or lease a building as well as other commercial brokerage services, investment real estate, asset management, consulting, and property management. As a testament to their leadership, the Minneapolis / St. Paul Business Journal has listed Premier Commercial Properties as one of the top 25 Commercial Real Estate Brokerage Firms in Minnesota since 2006.