Industri-Plex Finance Case Study

The Industri-Plex Superfund site provides an illustration of the strategies used to redevelop a nationally ranked hazardous waste site. This case study is part of a series that examines the liability and financial obstacles to redevelopment. It presents successful tactics to overcome these obstacles and provides insight into the redevelopment needs of developers, lenders, insurers, potentially responsible parties, and other stakeholders.

Site History

The 245-acre Industri-Plex Superfund site is located in a commercial and industrial area of Woburn, Massachusetts, 12 miles north of Boston. From 1853 to 1969, a succession of manufacturers at the site produced chemicals, insecticides, munitions, and glue products made from raw and chrome-tanned animal hides. As a result of these activities, large waste piles of animal hides remained. Soil at the site was contaminated with lead, arsenic, and chromium, and the groundwater beneath portions of the site was contaminated with benzene, toluene, and arsenic. Since 1969, a variety of industrial and commercial establishments have occupied portions of the site. 

Redevelopment Background

In the late 1960s, the Mark Phillip Trust (MPT) purchased the 245-acre property and began building roads and developing parcels of the property to sell for commercial and industrial uses. In the late 1970s, the buried animal hides were uncovered during excavation operations and stockpiled. As a result, a rotting, acrid smell was released from the pile, affecting 13,000 local residents living within two miles of the site. Local communities were extremely upset over what became known as the "Woburn Odor" and alerted the state and federal agencies. In 1980, EPA issued a cease and desist order against the MPT, which prevented MPT from excavating, disturbing buried animal hide waste, and filling in wetlands. At the time of the order, MPT still owned approximately 120 acres of undeveloped land remaining on the property. In 1983, the site was added to EPA's list of hazardous waste sites needing cleanup.

Of the 245-acre site, approximately 110 acres contained contaminated soils that required remediation. Approximately 60 acres, some of which required remediation, were actively being used for commercial businesses, such as warehousing and distribution. In 1986, EPA chose a remedy for the site, which included constructing protective covers over most of the 110 acres. In 1989, as part of a settlement agreement with EPA, the Massachusetts Department of Environmental Protection (DEP) and the other Potentially Responsible Parties (PRPs), MPT transferred title to its 120 acres to a "Custodial Trust." This property had an appraised value of $6.5 - $10 million dollars. The "Custodial Trust" was created by EPA, Massachusetts DEP, and the other PRPs in the Consent Decree to hold title to, manage, and sell the 120 acres. At the time of the settlement, none of the PRPs were willing to hold title to this land. The Custodial Trust is described on page three of this case study. 

Obstacles to Redevelopment

Superfund Redevelopment. The single most significant obstacle to redevelopment is the liability that a party potentially faces if it buys property at a Superfund site. Under Superfund, any current owner of property at a Superfund site may have responsibility for performing or paying for part or all of the remediation, which at the Industri-Plex site, cost over $70 million. Superfund gives both the EPA and private parties who perform the remediation the right to seek remediation costs from parties connected to the contamination at the site, including the current owner of the property. This potential liability for a share of the remediation costs, deterred interested parties from becoming involved with redevelopment at the site until EPA provided a means of protection from Superfund liability by entering into a Prospective Purchaser Agreement (PPA). PPAs are described on page four of this case study.

Superfund Stigma. Stigma, which may be due to an exaggeration of the actual risk or liability, is often a formidable hurdle for a developer, lender, or insurer to overcome at Superfund sites. At the Industri-Plex site, stakeholders were concerned with the negative perception associated with owning or operating a business at a Superfund site. In order to attract quality developers, involved parties must be resourceful, inventive, and determined enough to address the actual health and safety conditions at the site and the underlying causes of the stigma, so that unchallenged perceptions do not ripen into alarm and cause a potential stakeholder to avoid a property that is potentially well suited for redevelopment.

Association with Wells G&H Site. At Industri-Plex, the stigma was compounded by a negative association with another Woburn Superfund site, Wells G&H, a mile down the road. Members of the Woburn community alleged that contamination from the Wells G&H site had caused a cluster of childhood leukemia in its neighborhood, and several families brought a lengthy law suit against two companies who owned the facilities suspected of being the source of the contamination. The Wells G&H site had a negative effect on public perception of Superfund sites in general, and on the nearby Industri-Plex site, in particular. These perceptions made redevelopment less attractive to prospective developers. 

Lack of Clear Property Title. As part of the settlement for the remediation costs for the site, MPT transferred its interest in the 120 acres of undeveloped property to the Custodial Trust. Unfortunately, clear title to the MPT property was obscured by many liens and other cumbersome title obstructions. These obstructions were costly to resolve and made the property less appealing to developers. 

Strategies for Successful Redevelopment

Consent Decree. In 1989, EPA and the Massachusetts DEP reached a settlement with 25 current and former property owners and operators at the Industri-Plex Superfund site. The parties to the settlement formed a Remedial Trust to clean-up the site. The Consent Decree contained three quite innovative provisions. First, it established redevelopment as an explicit goal, in addition to the remediation of the site to protect human health and the environment. EPA, Massachusetts DEP, and the settling parties recognized that existing businesses were operating on the site, that more than 120 acres of undeveloped land remained on the site, and that the community and local businesses wanted development to occur after remediation. As a result, EPA and Massachusetts DEP permitted the parties implementing the remedy to choose among a number of alternative protective covers, each of which provided adequate protection for people and the environment. This flexibility allowed the parties to maximize the redevelopment potential of each parcel of the property. Second, the Consent Decree provided a framework for innovative institutional controls, which are legal restrictions on the use of the property, to be established on each parcel. These institutional controls were designed to ensure that the effectiveness of the remedy would be maintained, and that the property owners would have the most practical use of their property consistent with the remedy. Third, the parties to the Consent Decree (EPA, Massachusetts DEP, and the PRPs) also established a Custodial Trust to hold title to, manage, and sell the remaining 120 acres of undeveloped land. 

Remedial Trust. The Remedial Trust was established in the 1989 Consent Decree and consisted of the 25 current and former property owners, including the two primary responsible parties, Solutia, Inc. (formerly Monsanto Chemical Company) and Stauffer Management Company (formerly Stauffer Chemical Company). Solutia and Stauffer were responsible for 95% of the liability at the site, and governed the Remedial Trust. The Remedial Trust was responsible for ensuring that EPA's remedy was adequately funded, constructed, and maintained under EPA oversight. 

Because the Remedial Trust was a beneficiary to the sale proceeds of the 120 undeveloped acres, it strongly supported the redevelopment efforts at the site. The Remedial Trust removed an important obstacle to the assembly of the parcel for the regional transportation center by negotiating an agreement with a property owner who was reluctant to transfer its property to the Trust. Under this agreement, the Remedial Trust paid $500,000 toward the developer's share of the remediation costs, and the property owner transferred the parcel to the Trust. The Remedial Trust negotiated an agreement with three state transportation agencies that bought a portion of the site to upgrade the design of the planned protective cover with an alternative protective cover that would allow the construction of a regional transportation center. This alternative protective cover has an average thickness of 48 inches, instead of the originally planned 16 inches, to allow future excavations without coming into contact with contaminated soil. The Remedial Trust and EPA agreed to modify and delay the remediation schedule to accommodate the design and construction of this alternative cover. The Remedial Trust was also responsible for funding the operations of the Custodial Trust through an interest free loan, which is to be repaid upon the sale of the 120 acres of undeveloped land; actively promoted the redevelopment of the site by providing a $500,000 interest free loan to the Custodial Trust for the design of a new Interstate 93 Interchange, which was to be built by the Massachusetts Highway Department; and advanced funds through other interest-free loans to the Custodial Trust for expenses related to the sale of various parcels of property.

Custodial Trust. Under the Consent Decree, the purpose of the Custodial Trust is to: take title to approximately 120 acres of land; manage and secure the property; sell off as much land as could be sold, and transfer all unsaleable land into a long-term perpetual trust; distribute the sale proceeds to the three designated beneficiaries of the custodial trust - the City of Woburn (for unpaid real estate taxes); the Remedial Trust (PRPs) to help defray the cost of the remedy; and the EPA and MA DEP for past costs and for additional studies and activities relating to further site remediation.

As a part of the Consent Decree, the insolvent owner and developer, MPT, transferred the title to all of its remaining holdings at the site (120 acres of undeveloped land appraised at $6.5 - $10 million dollars) to the Custodial Trust, which then managed the property and sold its developable portions. Since the sale proceeds would be distributed to the beneficiaries (City of Woburn, Remedial Trust, EPA, and the Massachusetts DEP), they were all motivated to work together in the pursuit of land sales and redevelopment. 

The Custodial Trust helped to integrate the concerns of everyone involved and served as an advocate for redevelopment. Among other activities, the Custodial Trust coordinated with the Remedial Trust for the construction of a regional transportation center; structured a Memorandum of Understanding with the Massachusetts Highway Department in which the Remedial Trust would fund the engineering design of the I-93 Interchange in exchange for the Highway Department's expeditious construction of the interchange; assisted the City of Woburn in preparing various economic grants to extend and improve surrounding access roads; supported two rezoning initiatives; negotiated purchase and sale agreements; and worked to obtain community support for the redevelopment of the site. These combined efforts ultimately made it easier for developers to buy and use various parcels on the property. 

State's Infrastructure Commitment.  The state contributed $30 million in infrastructure improvements. Three state transportation agencies (Massachusetts Bay Transportation Authority, Massachusetts Port Authority, and Massachusetts Highway Department) took title to 40 acres for the regional transportation center. The facility will serve several different modes of transportation, including commuter rail service, park and ride bus service, and airport shuttle service. In addition, the Massachusetts Highway Department is building the I-93 Interchange, which will provide direct access to the regional transportation center and improve traffic conditions on nearby highways and streets.

City's Infrastructure Commitment.  The City of Woburn strongly supported all aspects of the site's redevelopment. The city acquired a $3.1 million economic grant from the Commonwealth of Massachusetts to extend a public road through the site and improve the public roads surrounding the site. The city also supported the developers' permitting process and rezoned a portion of the site for retail use. 

Coordination of Remediation and Redevelopment Plans.  The Trusts and other parties conducted redevelopment planning during the remediation design and construction processes, rather than wait until the remediation was complete. This coordination facilitated the construction of a protective cover on part of the site that allowed for the construction of the regional transportation center over it. The initial remedy design called for a 16-inch thick protective cover over this part of the site. To accommodate the new facility, the thickness was increased to 48 inches. The $3.5 million additional cost for this work was paid by the three state transportation agencies.

Regulator Flexibility on Remedial Design and Construction.  EPA and the Massachusetts DEP, which provided oversight of the remediation and redevelopment, were flexible in allowing modifications to remedy designs and remedy construction schedules to accommodate redevelopment. The agencies also worked closely with the various stakeholders and their contractors to address Superfund liability, evaluate the potential impacts of design and construction activities on the remedy, and help develop acceptable work plans and health and safety plans. These efforts facilitated the timely completion of construction. EPA also served as a neutral entity to help resolve occasional disputes among parties. 

Prospective Purchaser Agreements.  A Prospective Purchaser Agreement ( PPA) is an agreement between EPA and a new owner and/or new tenant operating on the property. The PPA gives the owner and/or tenant both a covenant not to sue for any Superfund claims from EPA and protection against Superfund liability claims by any private parties. The PPA protection covers all contamination existing on the property at the time of the agreement. The owner or tenant also can, with approval from EPA, assign or transfer the PPA protections to subsequent owners or tenants. At the Industri-Plex site, the key provisions of the PPA are incorporated into the standard leases. These features of the PPA serve to remove potential impediments to future property transfers. 

PPAs are extremely useful tools for promoting redevelopment by eliminating the concerns about Superfund liability that otherwise would deter interest in owning or operating a business at a Superfund site. The experiences at the Industri-Plex site show how useful PPAs are to promoting redevelopment. From 1983, when the Industri-Plex site was listed on the National Priorities List, until 1995, no property at the Industri-Plex site was sold. In late 1994, EPA published a draft proposal for a PPA and, at the beginning of 1995, a company approached EPA with a request for a PPA as part of the purchase of a three-acre parcel of the Industri-Plex site. In 1996, the company purchased the parcel for $775,000. That purchase was the first of a continuing series of redevelopment activities at the Industri-Plex site. 

In 1997, EPA entered into a second PPA with three state agencies for a regional transportation center. EPA entered into a third PPA in 1998 with Dayton Hudson Corporation in connection with its purchase of property for a retail shopping center. In 1999, EPA signed a fourth PPA with an affiliate of NDNE, for the parcel to be used for an office park, and extended the protection of that PPA to include Genuity, Inc., NDNE's major tenant leasing space at the office park. In early 2000, EPA entered into a fifth PPA with a school bus transportation company in connection with its purchase of a 2-acre parcel for approximately $1.2 million. The acquisition of the 10 acres for the new I-93 interchange did not involve a PPA. The Massachusetts Highway Department acquired the property through eminent domain, and, under the Superfund Statute, the state agency is protected from Superfund liability if the parcel is acquired through eminent domain. Except for the later parcel, all the developers and purchasers at the Industri-Plex site required a PPA as a condition of their participation. 

Institutional Controls.  The Consent Decree set out a framework for institutional controls that preserve the effectiveness of the remediation in order to protect human health and the environment, and, to the extent feasible, permit the most beneficial uses of the site. EPA and Massachusetts DEP have prepared a draft of the institutional controls consistent with the Consent Decree requirements. The institutional controls are quite innovative, as they focus on regulating "how to" conduct certain activities, rather than merely prohibiting specified practices. While these institutional controls are still in draft, they have been extremely useful to property owners, developers, and contractors preparing to excavate and build in areas of the site that have a protective cover. For example, the new property owners have prepared work plans and health and safety plans for areas on their properties where they may encounter contamination or expect to excavate into the protective covers. The work plans and Human Health & Ecological Risk plans outline how the work will proceed, how contaminated soils and groundwater are to be managed and disposed, and how to properly reinstate the cover, to ensure that the protection of human health and the environment is maintained.

Insurance. The closings for Dayton-Hudson and NDNE did not involve insurance beyond traditional business coverage. The parties decided that environmental liability insurance available at the time was too expensive for the amount of coverage provided. 

Redevelopment Financing.  Dayton-Hudson self-financed the $11.5 million purchase price for the approximately 30 acres for its retail center. About 19 acres of this land were buildable. Real estate developer NDNE, operating through a limited liability company as its nominee (a contractual device often used in major deals to protect the confidentiality of the parties), paid $2.5 million for 20 of its 50 acres. A condition of the purchase agreement was that NDNE would convey some of the land to the city for right-of-way and road construction, leaving an estimated 8 to 10 acres of the parcel available for the proposed office park and hotel complex. The NDNE partners self-financed the full purchase price, though they would have preferred a traditional financing arrangement in which the property is used to secure a loan. Later, Fleet Bank, a well-known regional bank in Boston, provided a $2.5 million post-closing loan to the NDNE partners to allow them to re-coup their purchase price. On December 15, 1999, NDNE closed on the remaining 30-acres. The $2.1 million purchase price was financed with a conventional land loan from a local Boston bank. Genuity is self-financing the improvements to this property to build the office park. The hotel is being financed with conventional financing from a bank.

Prior to receiving the PPA, Fleet was reluctant to offer the loan, even though the bank did not enter the chain of title. Once the PPA was approved, Fleet granted the loan at normal commercial rates. The most important factors that persuaded Fleet to issue the loan included the existence of liability limiting mechanisms such as the PPA, which includes a covenant not to sue, and NDNE's long-standing business relationship with Fleet.

Community Benefits

Local Commercial Development. Most of the planned facilities, including the retail shopping complex, 600,000 square foot office park, I-93 Interchange, new public road and improvements to existing roads, are scheduled to be completed and operational by the fall of 2000. The new state-of-the-art regional transportation center will follow in the winter of 2001 and the 120-room hotel is anticipated later on in 2001. The redevelopment project is also stimulating a broader redevelopment in the surrounding area, including between 345,000 and one million square feet of office and light manufacturing space immediately to the north and west of the site, 170,000 square feet of retail space to the south, and 850,000 square feet of office space to the east. 

Improved Transportation Facilities. The new transportation facilities will provide direct access to the site and increase transportation efficiency in the area. The intermodal regional transportation center will provide a commuter rail, airport shuttle bus service, and park-and-ride facilities. Combined with the new public roads and highway interchange, the transportation center will remove an estimated 2,400 cars from the highway, and improve air quality as a result of reduced automobile emissions. 

Increased Jobs and Revenue. It is estimated that redevelopment of the Industri-Plex site will likely result in up to 12,000 full-time jobs by 2010. The payroll from these jobs will likely add hundreds of millions of dollars to the local economy.

Public Revenues.  The estimated real estate tax revenues from the development will be about $3 million annually. The income associated with the permanent jobs will result in over $26 million in state income taxes, and up to $14 million in state sales taxes resulting from expected purchases in the local economy. Revenues from the planned retail center and hotel complex will result in additional sales tax revenues.

Creation of Value.  The remediation and redevelopment has transformed a troubled property into a more useful resource for the community. The development is expected to have positive effects on the values of other commercial properties, as well as residential properties, in the area.

Improved Aesthetics and Civil Pride. The cleanup and redevelopment projects have substantially improved the visual appeal of the local landscape and contributed to an increase in civic pride.

Summary of Key Success Factors

• Custodial Trust. The trust, whose primary purpose is to manage and sell the property, played a key role in numerous aspects of the redevelopment projects. It took title to the property, managed and secured the property, sold off most of the land, helped integrate the concerns of all parties involved, and served as a development advocate. These activities helped enhance the value of the property and attract quality development projects.
   
• Prospective Purchaser Agreements (PPAs). The PPA's increased the attractiveness of this property to prospective developers by removing a major obstacle to development, the Superfund liability concerns of buyers and lenders. All the property purchasers considered the PPAs critical to their participation.
   
• Infrastructure Improvements. The commitment of the state and city to build transportation facilities and improve access roads were crucial to attracting high quality development to the site.
   
• Stakeholders' Commitment. All involved parties, including the City of Woburn, local community, state transportation agencies, Massachusetts DEP, EPA, Remedial Trust, Custodial Trust, developers, and purchasers were committed to the redevelopment of the Industri-Plex Superfund site. Their resolve and dedication led to the successful development of the site.
   
• Coordination of Redevelopment and Remediation. Because the parties planned to build a regional transportation center, they were able to change the design of the protective cover to allow it to support the planned facility while maintaining its ability to protect people and the environment. The $3.5 million additional cost for this work was paid by the three state transportation agencies. If they had waited until after the remedy was completed, the additional work on the cover would have cost considerably more and taken longer.
   
• Economic Timing. Since the property was marketed during a period of economic expansion, (late 1990s), it was probably easier to sell than it would be in a less healthy economy.