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New Orleans has more potential brownfields than ever before, and the redevelopment of these underutilized environmental question marks could play an important role in how that city is reborn. But not for the reasons you might think.

No, contrary to what might be suspected, Hurricane Katrina's winds and flood didn't leave behind mass pollution in New Orleans. The Louisiana Department of Environmental Quality and the U.S. Environmental Protection Agency took a "massive amount" of samples to uncover this surprising fact, says Roger Gingles, the DEQ's brownfields coordinator.

But Katrina did leave behind more brownfields--commercial and retail properties, now vacant after the mass exodus, already tainted by normal business operations before the storm.

Auto shops, dry cleaners, gas stations, manufacturing plants--if they're abandoned or underused now, they have technically become brownfields.

"Katrina did not cause a lot of brownfields by contaminating New Orleans, but by devastating the city, causing business people to leave, it did create brownfields," Gingles says. "So we expect a lot of brownfields were created indirectly by Katrina."

Skeptics might question the EPA and DEQ's findings. Some might wonder if New Orleans is a mold-infested ruin. Gingles admits that there might be small environment issues that DEQ doesn't know about yet, as well as a few big issues like the Murphy Oil spill. But he and all other Louisiana officials cited in this piece stand behind the test results.

Try as they might, however, Louisiana officials could find it hard to shake the stigma.

"In a post-Katrina environment, where a lot was written about contamination," says David Bennink, managing director at Aon Environmental, "there's going to be a concern with a background level of contamination, for any developer looking to develop in that area."

Commercial real-estate buyers could be concerned with third-party liability claims down the road, from soil, groundwater or indoor air contamination, and the harm it could cause future tenants or shoppers. Lead, asbestos and, yes, mold would be major indoor concerns, he says.

But get this--remediating brownfields in today's New Orleans would be no different than such projects in any other urban city, says Bennink. So whether we're talking real or imagined pollution, the fast ball or the changeup, redevelopers can hit whatever's thrown at them.

Interested property buyers would follow the same brownfields process as always. They would do a "characterization" of their prospective site's pollution situation, inside and out, followed by an investigation into how those exposures could best be "put into a box" through cleanup and environmental insurance, the broker says.

The usual two types of environmental cover could provide the box: remediation cost cap for the initial cleanup; and a site-specific pollution policy to hedge against future issues, such as if a previously undiscovered oil spill gets discovered, or if third parties cry foul over such things as malevolent mold or seeping vapor inside the building.

FOUNDATIONS FOR REBUILDING

Wielding the proven tools of brownfields redevelopment, interested parties could also tap into state, regional and local officials in Louisiana who can provide additional resources and guidance.

By all accounts, the pre-Katrina brownfields programs at both the state and city level were solid. Add to their resources the Regional Planning Commission's brownfields program. Post-storm, the RPC is joined by the statewide Louisiana Brownfields Association, which together now work on outreach and on partnering interested redevelopers with available properties.

"A lot of it is just getting the word out and making people aware of what's available, so they know that this is available and what it entails and how it works," says Rebecca Otte, coordinator of the RPC's brownfields program.

The LBA serves as a one-stop resource on best practices and funding. Getting government money for a commercial brownfields project can be like "chasing a rabbit," says LBA president, Tyson Hackenberg, and his organization could help avoid the dizzying runaround.

Hackenberg estimates this funding could serve many recently vacated commercial properties. "I would guess a 10-fold increase in the number of sites that would be eligible for federal grant brownfields type funding," he says.

The brownfields department in the New Orleans Mayor's Office of Environmental Affairs is doing some of its own outreach. For instance, says the program's head, Nathan Champagne, his outfit just completed a survey of closed service stations throughout the city, which will be followed by a workshop for their owners and prospective buyers to inform them of available resources, such as federal money to do site assessments.

At the state level, the DEQ complements local activity with creative tools for brownfields buyers. For instance, says Gingles, the state has two new programs coming on-line. The first is a revolving loan program to provide below-market rates for brownfields cleanup. The DEQ also now offers prospective brownfields buyers a new investor tax credit--15 percent of the total site investigation costs, and 25 percent of the total cleanup costs.

"If he can get 25 percent of his cleanup costs back," Gingles says of a hypothetical buyer, "that might be just enough to tip a deal."

Another tool, the targeted brownfields assessment program, allows the DEQ to assist local communities in investigating a prospective property's pollution levels. Then the municipality can buy the site and sell it to a developer. In New Orleans, this program has helped to draw interest to Nathan Champagne's biggest brownfields--a 12-acre former incinerator plant. Champagne says he has parties interested in undertaking the $3 million to $4 million cleanup to transform the site into a much-needed recycling center.

"Our recyclables program is off the chart. There's really nothing since Katrina," says Champagne. "They'll make money, and the city will make money, because of the cleanup of the property."

Perhaps the most potent tool in the DEQ's box is its Voluntary Remediation Program, which provides incentives to draw private buyers into the brownfields process. Three years ago, says Gingles, 10 properties were in the VRP. Today there's 80 plus.

Peter Fontaine, co-chair of the energy, environmental and public utility group at law firm Cozen O'Connor, says that the VRP is very attractive because it gives developers a cap on their liability.

"You know that once you complete the process," the attorney says, "you will get what's called a 'release of liability' at the end. And so you're not caught in this moving target regulatory program with no end in sight. That's what really drives up costs."

A national home-improvement chain has tapped into the VRP, buying six square blocks on the "corner of two major thoroughfares" in downtown New Orleans, says Champagne. On the lot was an old metals plant, closed 10 to 15 years ago, which the developer has demolished and is now cleaning up.

BROWN TO GREEN?

To be honest, the success stories above--the home-improvement developer and recycling center--were both brownfields before the storm, which brings us back to the story's question marks. All the post-Katrina potential brownfields, the abandoned properties, are up in the air.

"A lot of them (owners) are just sitting on a property to see what's going to happen," says Champagne.

"It'll probably be in the next year or two that we'll really get to the point that people will see if they're staying or if they're leaving, and whether or not they want to keep their commercial property or they want to sell it," says Otte.

Owners are waiting in part on the Unified New Orleans Plan, the city's overarching recovery plan, says Champagne.

The plan is now being revised after a public-comment period, says Troy Henry, project manager of UNOP.

"It could move as quickly as I would say early May," Henry says. "It could drag on however long they (city officials) want."

Too much delay, though, could create a downward spiral, as old businesses won't return until they see if new businesses will open up, and new business won't come in until they see if the old commercial and retail sector can recover.

"For any developer, they still have to look at the issues, and will the economy support the economic development of the site," says Bennink. "You can't make a bad site good if the economics of the area don't allow it."

But the economics might allow it. As Otte explains, brownfields could in the very least help nonprofits and municipalities to rebuild "key" sections in and around New Orleans. Or the process could catch on with one or another large developer, and have even more impact.

"Somebody's brave enough, creative enough, that they see a property that other people may pass on, because it's contaminated or perceived to be contaminated, but they see they can make a deal on it," says Gingles.

"Some of the consultants, realtors and now bankers are getting wise to there's a way to do this property," he says.

Yes, some brave, creative private investors already are coming in.

Bennink reports of at least one big "win-win" private brownfields redevelopment project he's working on, details of which he cannot disclose.

"Developers are taking an increased interest," he does say, "and looking to reestablish and rebuild the hotel, retail and commercial sector.

"It's a great investment for the city," he adds, "by bringing more private investment in, which will spur more tourism, which will spur more commercial sector, which will spur more people to move back, which will spur the housing redevelopment."

That's a spiral in the other direction.

MATTHEW BRODSKY is associate editor of Risk & Insurance®.

May 1, 2007

Copyright 2007© LRP Publications