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UFTO Note - Brownfields -- Environmentally Impaired Properties,
                   Liabilities or Assets?     25 Mar 1997

(Here is the first section of that note.)

With recent changes in the legal and regulatory treatment, properties that may be contaminated with industrial waste can hold significant bottom-line opportunities for forward thinking corporations.

Many companies must create reserves for environmental liabilities, and must disclose them to shareholders.  These liabilities depress shareholder value, distract management from its profit-making mission, and represent uncertainty in the company's value which can impact merger or acquisition negotiations.

However, if well managed, these liabilities can be the source of significant gains.  Long-held reserves can be liquidated, if liabilities are properly transferred to others.  Thus, long-forgotten assets can be turned into profitable ventures.

Many utilities have properties such as former manufactured gas sites, transformer yards, and fuel storage facilities.  In the old scheme of things (regulated monopoly, rate of return), it may have been OK to hold them in limbo, at worst paying for required remediation efforts (ultimately recovered in rates).  Now, however, with industry restructuring and competition, utilities have strong incentives to manage these holdings more aggressively, and prepare themselves and their balance sheets for what lies ahead.

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 He's continued this work since, and at my request he prepared this note for me to pass along to you.  I'd encourage you to send it on to whoever in your company might be involved in managing the disposition of environmentally troubled properties.

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September 20, 1999

I am working with a large, well-funded, main-line investment corporation which is interested in the immediate acquisition and management of environmentally troubled real estate. They are a sophisticated group with quite substantial assets and strong environmental expertise. Their goal is to take on full responsibility for environmental liabilities of their corporate clients and they have the wherewithal to do so. In addition, they are creative: in some cases they have purchased real estate, stripped and retained the environmental liabilities and sold the property back to the original owner who, as the result of the process, is no longer responsible for nor has to be concerned with the environmental issues. To protect their sellers they have put together programs which have included sizable reserves/escrow accounts, contractual protections and well-crafted environmental liability insurance programs from highly-rated insurance companies. In the past few years, they have successfully acquired properties and liabilities from a number of Fortune 100 companies.

Although there are a number of groups that have created similar programs, this group is probably unique for three reasons: first, they are specialists in this area with a strong and successful track record; second, they have a very large asset and investment base and are willing to stand behind the acquisition of environmental liability; and third, they have developed excellent manuscripted insurance programs that provide greater protection than policies currently commercially available.

I would be happy to provide additional information and references.

Edward A. Firestone,  Environmental Consultant & Attorney
    Palo Alto CA,  650-327-6686,   efirestone@aol.com