25 May Commercial Real Estate in a Post-COVID Environment
Beyond a doubt, the effects of COVID-19 will reverberate throughout the world for years to come, changing how we live and conduct business in a post-COVID environment. ESA offers an environmental perspective on some changes to the commercial real estate (CRE) landscape that should be considered before you buy or sell and as you manage ongoing environmental projects.
The Changing Urban Landscape
The demand for retail space has been on a downward trend for some time, and the coronavirus quarantine is exacerbating this trend. Simultaneously, available industrial real estate has become scarce and highly coveted, in part because of ecommerce fulfillment requirements. Shelter-in-place mandates have driven the shift towards mass telecommuting, which could create a glut of empty office units. Some studies even suggest that reliance on mass transportation will decrease as larger corporate complexes are abandoned in favor of multiple smaller satellite offices in larger cities and their suburbs. Historically, larger cities have proven to be more economically resilient in downturn markets, making them a better bet for developers.
Brownfield Redevelopment
In these uncertain times, investors with an aversion to risk may hesitate to invest in new projects. However, for risk-tolerant investors, current macroeconomic conditions offer a rare opportunity to access interest rates at historic lows while increasing their ROI through wise investments that leverage these conditions.
A prime example is brownfield redevelopment. Due to their very nature, brownfield properties can often be acquired at deep discounts. With urban environments more economically stable in the long term, even with the current Covid-19 upheaval, data supports predictions that brownfield development will increase significantly as developers explore properties that were previously ignored. This trend could further be augmented by the financial inducements of the Opportunity Zone Program.
Extended Remediation Timeframes
COVID-19 has resulted in the extension of Superfund and NJDEP timelines. While these delays can frustrate buyers, sellers, developers, and contractors, it also provides time to explore alternate — and potentially more cost-effective — environmental remediation methods. For example, in-situ treatment could make sense depending upon the variables associated with your project. Now may be a good time to discuss alternative remedial methods with your environmental consultant.
While it is usually best for the seller to conduct remediation, doing so could inconvenience tenants or create other undesirable situations. Some property owners are unwilling to incur the expense and aggravation of conducting remediation and, instead, choose to sell their properties at deep discount. If you are contemplating buying or selling an environmentally impaired property, we urge you read Strategies for Selling Brownfield Properties and Strategies for Buying Brownfield Properties and contact ESA for assistance.
ISRA Triggers
In the wake of the current pandemic, some commercial and industrial operations will be forced to restructure or shut down entirely. These actions could trigger New Jersey’s Industrial Site Recovery Act (ISRA). ISRA can affect your ability to sell a property and must be taken seriously. Compliance will require, at the very least, a Preliminary Assessment investigation and possibly some form of financial assurance. Prudent responsible parties who know they are soon to trigger ISRA will begin the environmental process in advance of the triggering event. Doing so can save considerable time and money. For more information on this topic, read our article on How to Minimize the Cost and Aggravation of ISRA Compliance. We strongly urge you to consult with ESA if think your business may be forced to undergo ISRA compliance. The ISRA law requires industrial establishments to file within five days of a triggering event.
A Safer Environment for Staff and Customers
Several weeks into the pandemic, lockdown measures and the race for a vaccine continue. As the health industry works to keep the public safe, businesses are eager to reopen their doors responsibly and safely. And certain measures taken during the pandemic may become permanent standard practices as consumers adapt to the “new normal” with heightened awareness of their surroundings in a post-COVID world.
CRE owners and managers should critically evaluate their physical environments as well as staff and customer behavior protocols. Indoor air quality (IAQ) safety measures will address mold issues, vapor intrusion, HVAC systems, and recirculated air. Certified IAQ consultants can identify issues and provide practical solutions to improve the environment. And we should expect to see more “touchless” technology such as automatic doors, hands-free restroom fixtures, and hand sanitizer dispensers in public spaces.
Many businesses are also implementing a regular disinfection protocol that includes manual disinfection of high-touch surfaces and application of a biocide mist that retains effectiveness for up to 90 days. And social distancing will continue on a lesser scale, with offices potentially providing greater distances between employee desk spaces and staggered office hours for staff members.
A Word About the Clean Water Act and Groundwater Pollution
On April 23, the U.S. Supreme Court ruled that the Clean Water Act can be used to regulate pollution that travels through groundwater. In the short term, it is hard to say what the impact will be. At a minimum, for remediation projects, there may be an increased focus on the groundwater-to-surface water pathway. In the long term, there may be a need to obtain an NJPDES permit for groundwater flowing to surface water. The Court left the next steps up to EPA. If you are involved in a groundwater remediation project, ESA recommends that you speak with an environmental attorney to determine what, if any, effect this ruling will have on you.
Questions? Ask ESA
As the CRE industry rises to the challenge of COVID-19, it will no doubt experience lasting changes. And we believe the changes will ultimately be for the better. Meanwhile, ESA remains diligent in keeping our clients informed and protected. We urge you to contact us with your questions and concerns. We’re here for you.