For a scrap recycling company, maintaining excess land in inventory can be a wise strategy if the land is adjacent to a growing central processing site into which scrap is fed for its final processing steps.
But in an era of mergers and acquisitions, some land held in inventory by scrap companies falls onto the other side of the ledger. It might be an acquired feeder yard or processing site that now sits idle, incurring property taxes and other expenses while hosting the specter of contaminated soil.
Most land management options are fairly well known to business owners and their advisors. One newer use for land, however, has developed as a result of environmental mandates devised at the federal level and enforced by government agencies.
MITIGATING CIRCUMSTANCES
Wetlands mitigation has become a familiar term—and one that is associated with regulatory burden—to real estate developers and business owners seeking to site a new facility and build on undeveloped land.
Ever since wetlands received their status as carefully protected areas, the developers of a number of building and highway projects have learned a lesson in mitigation. If part of a land parcel that is being developed is identified as wetlands by state environmental authorities, the developers of that site are either prohibited from building over the wetlands, or they can negotiate a mitigation solution. Mitigation essentially involves "creating" substitute wetlands that can serve the same hydrological and species breeding functions as occurred on the land that will be built over.
Although wetlands mitigation is the most common form of environmental mitigation, floodplains and forested lands are also land types that might call for the practice.
Finding an acceptable mitigation solution is a stumbling block that can stall a building project. One solution that is just starting to gain momentum is the development of "environmental land banks," also known as environmental credits.
Robert Agee of Natural Technologies LLC, Crofton, Md., has a background in the quarrying and aggregates industry. In a recent presentation to members of the National Aggregates Association, Silver Spring, Md., he outlined how the environmental land banking idea has been put to use by land owners in that industry.
Agee notes that the concept is applicable to any owner of idled land, including land that may require soil remediation. The concept has been put into practice and may become an increasingly successful way for real estate developers and other business owners to clear environmental roadblocks to their building projects. Agee notes that, at the same time, the creation of green spaces at former industrial sites can create positive public relations for the company involved.
The main reason that the notion of building up land banks will be helpful for industries such as the aggregates and scrap metal industries, Agee believes, is because existing regulations will become more intense. "New laws are likely to expand areas of environmental review and enforcement," he notes, mentioning "the Clean Water Act renewal and other regulatory and permit process changes."
The most common industry reaction to such changes, says Agee, is to "fight the existing regulatory process and view it as a nuisance. We can feel unfairly put upon and just avoid as much contact with regulators and the public as possible." The alternative, he says is to "look for new opportunities within the regulations."
BANKING ON THE FUTURE
Many of the reasons Agee has listed that make aggregates sites ideal for reclamation and land banking also apply to scrap recycling yards. Locations are often near waterways, making them easily convertible to wetlands. It is also an industry that has the heavy equipment and know-how to move large amounts of material, including soil. Land reclamation knowledge is also more readily obtainable than it used to be. The mining industry, in particular, has undertaken some major land reclamation projects in the past two decades. Depending on what part of the country a land owner is in, reclaimed land can be established for one of several purposes: • to serve as a wetlands • to be replanted for reforestation • to act as a plant and animal habitat. Each of the three types of mitigated lands might be needed in any part of the country, but real estate developers and state and county environmental officials are likely to know which type of land is currently or potentially in demand. "Match the product to the market," he states. The need for mitigation is tied to impact findings discovered in the permitting process. Agee defines impacts as "things you are allowed to do that will affect normally protected areas," which can include wetlands, flood plains, old growth forests and plant and wildlife habitats. Agee notes that preparing land for environmental land banking (also known as an environmental "credit") has its costs, including soil testing, project permitting and the costs of moving earth and possibly planting trees or native grasses. What results is a product that, in the right market, can yield an above-market land price if it is needed by a developer, business owner or highway project authority to offset a nearby environmental impact. A more intangible aspect to consider is that the reclaimed land can serve as a reminder to the community that the company that once operated there has been a good corporate citizen and environmental steward.ADDING UP THE NUMBERS
Repositioning a parcel of land as an environmental land bank can be done solely for public relations purposes. But for land owners taking a more bottom line approach, there are ways to determine if it is the fiscally prudent path to take. Agee advises land owners to think of environmentally banked land "in terms of a commodity; something to be made and sold." For scrap processors, that will not be a difficult part of the process. For those seeking the maximum financial return on the land, Agee notes that land owners need to "look at the reclamation plan to prevent interference with ongoing operations and other potential land uses, such as housing, golf and commercial development." Not all land parcels—or only portions of some—may prove suitable for land banking purposes. "Recognize that only portions of a site likely will be suitable for marketable environmental enhancement," says Agee. "Separate that portion of the property suitable for environmental enhancement." For those who under the gun to establish a mitigated site, the greatest single cost is typically for the land itself, and for executing a rapid transaction to acquire such land. That is why banked land can be considered "value-added" land, whether it is placed on the open market or whether an industrial land owning firm "banks" some of its own land to use against future impacts. As noted earlier, earth moving and successfully completing the permitting process are the other significant costs, and the equipment and know-how of scrap companies can probably help keep these costs down. How does Agee see the cost of banked land creation versus the potential sale price? "If planned properly, the cost for creating an environmental ‘product’ can be minimal, given that most of the earth-moving cost is part of operations and required reclamation," he says, noting that for land with contaminated soil to put on the market at all, testing, soil removal and re-testing will have to take place. While creating a wetlands may seem intimidating, in many cases it may require almost no effort at all. "In many instances," says Agee, "environmental products will come into being unless specific action is taken to prevent it, such as with reforestation and wetland plant growth." As with any real estate venture, "the market will determine the price," Agee remarks, but he adds that the price "will be influenced by regulatory requirements that tend to keep upward pressure on the price. Government regulations create the demand for an environmental product." And while land owners can hope that backing the right political party can help them improve their chances when it comes to establishing the regulatory climate, public opinion has not showed any signs of backing a more lax attitude toward polluters or toward habitat destruction. "It’s no good having a product if there’s no one to buy it," Agee says of banked land, but he is confident that the market to buy is building momentum. "Statutory emphasis is moving toward greater uses of environmental ‘banks.’ The demand is purely 100% created by government," he acknowledges—but government shows no signs of losing its influence to create that demand. "The future will very likely see an increase in demand for environmental products such as wetlands, reforested land, stream rehabilitation, open water reclamation, and water quality improvement activities," Agee remarks. "The purchase of environmental improvements in the form of mitigation credits created in advance of need is likely to become more stringent, not less." He notes that the current five-year plan for federal highway projects, the Transportation Equity Act for the 21st Century (TEA-21), includes funding for environmental improvements that may arise as the result of highway projects, and that the federal legislation endorses the establishment of land banks as a means of decreasing the length of delays that occur when environmental impacts are discovered. Industries that are uniquely situated to fill that need, according to Agee, are those that can incur low costs while reshaping land into a mitigation site for environmental needs. Agee is most familiar with the aggregates industry, and he says of its members, "no one can create environmental credits cheaper or with greater certainty, quality or reliability." He notes however, that other industries with multiple locations in proximity to or within growing metropolitan areas can be potential creators of banked environmental land credits. In examples from the aggregates industry that Agee has either witnessed or helped arrange, land that cost from $7,000 to $8,000 an acre to reclaim was sold for $52,000 to mitigate an environmental impact. "There are some pretty big spreads there, for engaging in a reclamation project that you’ll have to do anyway," Agee says of the profit margin that is obtainable. In regard to creating wetlands—in some parts of the country the type of land most likely to be in demand—Agee offers a word of warning for those in a rush. "You have to guarantee that you have achieved success," he notes in reference to ensuring that a parcel being offered as a wetland functions as one hydrologically and in terms of offering a habitat to species that live or breed in wetlands. In some states, the time span used as a measurement of that guarantee is five years. Environmental land banking is more than a concept, says Agee. Actual transactions have occurred and several more will take place in 2000. Among the examples of such transactions: -The developer of a residential subdivision created a 15-acre site near a pond that was sold as an environmental credit to another land owner. The residential developer was able to guarantee home owners that the land would remain undeveloped while also profiting from it. Agee says the cost to bring the land up to wetlands specifications should have been in the $10,000 per acre range, but instead cost $18,000 per acre because it was judged to be improperly graded the first time. The land was still sold at a profitable $54,000 per acre price. Recyclers may have similar opportunities when they shut down sites and reclaim the land to prepare it for re-sale. It is a chance to move beyond (often) grudging compliance with regulations and actually profit from the regulatory climate. "You have an opportunity to take what’s coming down the track, and create a profitable situation," he remarks. In an era when many business owners have difficulty viewing government intervention in a "win-win" context, the environmental land banking concept could offer one such scenario. RT The author is editor of Recycling Today and can be reached via e-mail at btaylor@recyclingtoday.com. Robert Agee of Natural Technologies LLC, 2126 Espey Court, Suite F, Crofton, Md., 21114,can also be reached via e-mail at bobagee@erols.com.
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