#GregoryWilliamsMAI - FRG Consultants

The Price of Contamination

An Ohio village of less than 5,000 people became the epicenter of an EPA disaster. On February 3^rd (2023) a Norfolk Southern train with 150 cars derailed on the outskirts of East Palestine, Ohio. East Palestine is approximately 90 miles from metro Cleveland and 50 miles from metro Pittsburgh. Eleven cars containing hazardous materials were a part of the derailment. The EPA along with multiple local, state and national offices immediately began working to remove the contaminated soil and water.

The US is averaging a hazardous material spill on land and waterways every day and a half impacting residents, natural resources, and property values. This statistic does not consider intended and naturally occurring contaminations from mineral extraction, flooding, illegal dumping, and agricultural chemical use.

Contaminated property can pose significant health, financial, and legal risks. Working with experienced professionals, including environmental consultants, attorneys, and appraisers, can help to develop a comprehensive plan for remediation and minimize the impact of the contamination. Although the EPA and federal government are tracking contaminants to humans, the impact of depreciation to property values before and after remediation are not specifically quantified and can affect the use and development of the property.

Valuing contaminated property can be a complex process that requires a specialized understanding of environmental regulations, remediation costs, and market conditions.

The cost approach considers the cost of cleaning up the contamination and restoring the property to a usable condition.
The sales comparison approach compares the contaminated property to similar properties that have sold in the same market. The appraiser adjusts the sale prices of comparable properties based on the extent and type of contamination and other factors, such as location and property condition, to estimate the value of the contaminated property.
The income approach is used for income-producing properties, whereby the appraiser estimates the potential income that the property could generate if it were not contaminated, and then subtracts the costs of remediation and other expenses to arrive at an estimated value.

In addition to these three approaches, appraisers may also consider other factors, such as the property’s zoning, development potential, and legal liabilities, when valuing contaminated property. Valuing contaminated property can be challenging due to the complexity and uncertainty involved in estimating remediation costs and other factors. Thus, it’s important to work with an appraiser who has experience and expertise in valuing contaminated properties.

FRG’s appraisers have extensive experience valuing contaminated properties, as well as completing due diligence. For almost ten years, FRG has assisted the state of Ohio in identifying the owners of abandoned underground storage tanks (e.g. fuel tanks) who are responsible for removal of the tanks and as needed remediation efforts.

So, remember, if you buy contaminated property, you might be responsible for the remediation of the property. The extent and type of remediation required will depend on the nature and extent of the contamination, as well as any regulatory requirements. Be informed and seek professional help before you buy.

Multifamily Housing: What to Expect in 2021

The COVID-19 pandemic is impacting every aspect of our economy. First it was the hospitality and travel industry; then retail; and now it is the real estate sector, more specifically multifamily housing.

According the to the United States Postal Service since the start of the pandemic ~16M people have moved. Some people are moving back in with their parents and others are moving to rural co-living spaces. CoStar data shows that many are moving to the suburbs where rents are holding, while rents are falling in urban and downtown areas.

All of this pandemic moving is having adverse effects on the multifamily housing (MFH) market. Overall multifamily transactions have sharply declined due in part to the difficulty of securing site visits and inspections to complete transactions; lenders pulling back from debt and equity; and a growing uncertainty in the underwriting of future cashflows for income producing properties. In addition, landlords are increasing their payment leniency requests of banks as the federal eviction moratorium significantly reduces their income available to cover loan payments. As a result, financial lenders are starting to place MFH properties into their highest-risk categories.

In addition, we are experiencing an investment shift. MFH investors are moving from the urban core to inner ring suburbs. According to commercial real estate research firm Yardi Matrix since the start of the pandemic apartments sales in midwestern urban areas declined 41% while the decline is not as steep in the suburbs at 26%.

Exploring and Inspecting Properties

To effectively complete a commercial appraisal or multifamily housing rent comparability study we are required to conduct a thorough exterior and interior inspection of subject properties. COVID-19 has presented challenges but has not stopped the FRG team from completing comprehensive site inspections.

In the late Spring, as the country began to slowly re-open our client requests increased. FRG team members often take multi-day trips many times via air travel to complete site inspections. In early June, FRG had a client commitment requiring an inspection of a property on the border of the states of Wisconsin and Michigan. Having previously completed projects in the same area, I knew the fastest route to the site was via a one-hour direct flight from Cleveland to Milwaukee and 2.5-hour car drive north of Mitchell Airport to the site.

As I explored this travel option, I found direct flights were no longer available. As well, my preferred airline only had two flights leaving each day with Milwaukee as the destination. And the available flights had a total travel time of almost six hours. Further, both flights would require an overnight stay in Milwaukee.

I needed to find another travel option.

I considered driving and discovered a one-way trip to the site from Cleveland would be a ten-hour drive. Further, this option would require an overnight hotel stay. At that time, many hotels, especially those in rural areas were struggling with remaining open and offered few amenities. Thus, I did not see a hotel stay as a viable option.