Like a lot of older industrial properties, the former American Brass Foundry complex in Kenosha faced the prospect of a big environmental cleanup bill before the 29-acre site could be redeveloped.
That could have stalled the project. But the foundry’s owners and city officials took an unusual approach: They agreed to pay an environmental contractor more than $10 million, and the contractor agreed to take care of any cleanup needed — forever.
“We will take over for a fixed price,” said Michael Hill, a senior vice president at TRC Cos., the environmental contractor. “Your problems in perpetuity become our problems in perpetuity.”
It marks the first time TRC, based in Windsor, Conn., has brought its so-called “exit strategy” approach to Wisconsin. And it could signal the use of similar strategies to bring new life to other environmentally contaminated properties, known as brownfields, that are scattered throughout the Milwaukee area.
The uncertainty of brownfield cleanup costs, tied to the difficulty of determining what lies beneath the ground, can sometimes freeze even the most determined developers in their tracks.
Few investors want to sink millions of dollars into a project when the costs of removing contaminated soil or groundwater can unexpectedly increase — especially years later when a hidden problem pops up. As a result, former industrial properties within older cities that could be converted into business parks, offices, retail centers or housing lay fallow, while jobs and tax base go to the new suburban developments.
To spur redevelopment of the American Brass site, the foundry’s owner, former owner and the City of Kenosha have agreed to pay TRC $10.1 million to demolish the buildings and clean up all contamination — regardless of whether environmental problems are discovered today or 100 or more years from now.
In effect, the agreement shifts the financial risk of possible long-term cleanup costs away from the property’s previous owners and the City of Kenosha, which is buying the property, to TRC and the company’s insurer, New York-based American International Group Inc.
“They no longer have to worry about whether this is a $7 million [cleanup] site or a $20 million site,” Hill said. “They know for certain that this is a $10.1 million site.”
TRC is willing to take the risk because it has developed an expertise to accurately estimate long-term cleanup costs, Hill said. The publicly traded company is betting that its costs to demolish the buildings and clean up the properties will be below $10.1 million.
It also helps that TRC has done about 40 cleanup projects throughout the nation with the backing of American International Group.
In the American Brass project, the insurer will cover any unexpected costs beyond the $10.1 million for up to 30 years, Hill says. American International Group’s liability is limited to $15.7 million, he said.
TRC’s involvement will speed redevelopment of the former foundry, says Art Harrington, an attorney with Godfrey & Kahn, which represented the city.
The standard attempt to redevelop such a large brownfield — the buildings cover 893,000 square feet — would have been “very time-consuming,” Harrington said.
That’s because any prospective owner would be reluctant to buy the property, and take on the cleanup costs, without having the state Department of Natural Resources first provide assurances additional cleanup wouldn’t be needed.
In order to provide that assurance, the department usually requires an extensive study of the property to determine the extent of contamination. A study of the American Brass site could have taken years, Harrington says.
With additional expenses, the entire demolition and cleanup project will cost around $11 million. The city is providing $5 million, while $6 million is being provided by former American Brass owner Atlantic Richfield Co. and current owner Outokumpu Copper Kenosha Inc.
By agreeing to pay their share, Outokumpu, which closed the brass and copper foundry in 1997, and Atlantic Richfield are limiting their potential liability for cleaning up the site.
As a result, demolition of the buildings will begin this July. The Urban Land Institute, a Washington, D.C.-based real estate think tank, has been hired by the city to create a master plan of the site.
