How to Manage a Brownfields RLF Program –

an EPA Perspective

James Chow, EPA New England Boston, MA

Tuesday, February 24, 2004

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What is the Recipe for Success? � Step 1: Establish a RLF team � Step 2: Marketing � Step 3: Smooth Application Process � Step 4: Careful Due Diligence � Step 5: Clear Approval Process for Loans � Step 6: Verification of Activities � Step 7: Servicing and Loan Collection

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Marketing - Let’s Look at Some Stats First

� >$140M in RLF grants provided by EPA since 1997

� 43 Loans Made totally $19.5M � Increased activity in recent years

� FY01: 4 loans; $1.6m � FY02: 12 loans; $5.4M � FY03: 19 loans, $9.7M

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� Public – 23 loans; $9.4M � Non-profit – 4 loans; $1.7M � Public borrowers are an important

niche! � Avg private loans is 30% larger than

public/non-profit deals!

Some More Stats Types of Borrowers �

Marketing - Let’s Look at

Private – 16 loans; $8.4M

Other Marketing Points

Based on anecdotal information: � Subgrants are going to be a key component � Must outreach to banking community � Different strategies must be used for private,

public, vs. non-profit borrowers� Use the entire range of conventional

marketing tools – brochures, business presentations, mailings, internet

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What Does it Take to Operate an RLF?

� Must act in the role of a specialized Lending Institution

� Must understand the service that you are providing

� Must understand the costs and benefits of your program to potential borrowers

� Must be able to perform fiscal, environmental, and legal due diligence and management activities

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How to Set Up a Good RLF Team

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RLF Program Coordinator

Fiscal Environmental Legal

Know your capabilities – fiscal, environmental, legal

Retain experts to round out your team

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The Loan Application Process � What documentation should be

required of applicants � Environmental reports � Justification for amount requested � Financial information � Proposed development pro forma

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Pro Forma – the overall budget for the proposed cleanup and development

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Perform Due Diligence � Environmental Due Diligence

� Ground-truth environmental cleanup cost estimates

� Evaulate need for environmental insurance

� Contact state project manager if needed

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Sensitivity analysis – test the underlying assumptions of the budget

How is loan to be repaid – with private lending (I.e., RLF is gap financing), projected revenues of the development – verify the scenarios

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Perform Due Diligence Cont’d � Financial Due Diligence

� Credit worthiness of borrower

� Efficacy of collateral used to secure the loan

� Sensitivity Analysis of Development Pro Forma

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Sensitivity analysis – test the underlying assumptions of the budget

How is loan to be repaid – with private lending (I.e., RLF is gap financing), projected revenues of the development – verify the scenarios

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A Loan Review Committee � Establish a Loan Review Committee

(LRC) � Small diverse group of advisors

� LRC reviews results of due diligence process

� LRC considers others important factors and approves the loan

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Verification Activities � Conduct periodic field visits to verify

the work being done

� Review cleanup completion reports and certifications

� Financial verifications

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Loan Servicing and Collection � In case of loan default, notify EPA

and State

� …not much else to say here

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Region I RLF Successes ­former Empire Laundry Site

� Lender: Lynn, MA � Borrower: Lynn

� Reuse: Housing � Terms: $69K

@5% interest for 12 month

Housing Authority

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Success Stories!!

Bates Mill Lewiston, ME

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Contact Info � James Chow

US EPA Brownfields Program1 Congress StreetBoston, MA 02114phone: (617) 918-1394email: chow.james@epa.gov

� www.epa.gov/region1/brownfields

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A Story of Partnerships

NEW HAMPSHIRE’S BCRLF PROGRAM

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Problem: Financing

• • Low Cost Financing for Cleanup Costs

Along With Some Direct Financial Assistance (for compliance with NCP)

Tool: NH Brownfields Cleanup Revolving Loan Fund Solution:

Financing for actual cleanup costs difficult or impossible to get

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RELATIONSHIPS

• Business Finance Authority (Private Borrowers) • State Treasury (Municipal Borrowers) • 10 Coalition Partners (Municipal and State) • Borrowers/NHDES Partnering for Success

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BUSINESS FINANCE AUTHORITY

Borrower

Instruments

• Conducts Credit Review for Private Sector

• Provides Opinion on Advisability of Making Loan • Prepares Loan Agreements and Closing

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STATE TREASURY

Sector Borrowers

Instruments

• Provides Bond Counsel Services for Public

• Establishes Range of Loan Terms • Prepares Loan Agreements and Closing

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COALITION PARTNERS

• 7 Municipalities • 3 State Agencies • # of Partners Assists in Grantsmanship

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BORROWERS

Underway

Pending

Laconia/Somersworth

• Whitney Screw, Nashua – Project Completed • White Mountain Laundry, North Conway – Project

• McGinley Development (Applicant),Gilford – Loan

• Chinburg Builders (Prospective Applicant) –

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INTANGIBLES

• • EPA Liaisons •

Sophistication of Borrowers

State Brownfields Team Strengths - Management - Technical - Legal

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PROGRAM MANAGER ROLE

• Coordinates all BCRLF Initiatives to Apply Resources to a Project for Success

• Conducts Outreach to Potential Borrowers • Liaison to EPA

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SITE MANAGER ROLE

• I• Insures Compliance with Project Work Plan

• Experience in Studies, Removals, RA nsures Compliance with CERCLA and NCP

• Oversees RA and DFA Contractors • Reviews Disbursement Requests

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PROGRAM ADMIN/LEGAL ROLE

• In-house Processing of Loan Applications

Support Staff • Liaison with BFA, Treasury, Borrower, NHDES

• Drafts Covenants • Approves Disbursements • Grant Quarterly Reports

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ACCOUNTING

• Maintains/Tracks BCRLF Grant Funds • Assists With Financial Reporting • Makes Disbursements • Handles Repayment Billing/Accounting

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DIRECT FINANCIAL ASSISTANCE

Confirmatory Sampling

EECA QAPP Community Relations Plan

• Whitney Screw - $18,000 • White Mountain Laundry - $12,000 • McGinley Development - ? • Prospective Applicant - ?

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NHDES BCRLF PROJECTS

• I• Completed - 1

n Progress - 1 • Application in Progress - 1 • Pre-application Negotiations -1

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WHITNEY SCREW Nashua

Soil Metals

and Disposal of Soil

• Former Industrial Site • Asbestos, Petroleum Contaminated Debris, High

• $189,000 BCRLF Loan • EECA - Sub-slab Vapor Interception, Excavation

• Leveraged $3.5 Million Investment in Site • Great Example of How BCRLF Should Work

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WHITE MOUNTAIN LAUNDRY North Conway

Residential Mixed Use Property Including Former Dry Cleaner

• Run Down, Abandoned Commercial and

• Perchloroethylene (PCE) in Groundwater • CVOC Vapor Intrusion Into Building • EECA – Sub-slab Vapor Interception • $75,000 BCRLF Loan

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Gilford

Groundwater, Drum Removal

Development of Elderly Housing, Retail

McGINLEY DEVELOPMENT

• 15-acre Former Auto Repair and Junkyard • CVOC And Petroleum Contaminants in

• External Project Financing Unavailable • Planned Extension of Municipal Waterline for

• Potential Local Delinquent Tax Abatement • $260,000 BCRLF Loan

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CHINBURG BUILDERS Laconia/Somersworth

• Two Separate Sites • Lead, Asbestos, Petroleum, CVOC Contamination • Building Demo and Disposal • $500,000 Potential BCRLF Loan

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SUMMARY

Project Success

• Partnerships Make Projects Work • BCRLF Team Important Player • Sophisticated Borrowers Increase Likelihood of

• Utilize Expert Resources Whenever Possible • Construct BCRLF Program That Can Adapt to

Varying Levels of Activity

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Hennepin County’s BCRLF: Lessons Our Loans

Have Taught Us

Deborah DeLuca February 2004

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•Population: 1,116,200

•Area: 611 miles2

•45 Cities

•County Seat: Minneapolis

BCRLF Timeline • Cooperative Agreement Sept. 1999 ($500,000)

• East St. Anthony Village Loan 1 December 2000

• Supplemental Funding #1: October 2001 ($500,000)

• East St. Anthony Village Loan 2 October 2001

• Supplemental Funding #2: June 2002 ($500,000)

• East River Mews Loan: June 2002

• Supplemental Funding #3: August 2002 ($500,000)

• Edgewood Investors Loan: November 2003 49

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Four Loans to Date

• Loan size: $425,000 – 450,000 • Cleanup Costs: $1.6 M - $ 2.3 M • Other State/regional funding:

$1.3 M - $1.75 M • Development Costs: $18 M - $62.5 M

– 3 = Housing / Mixed Use – 1 = Industrial Park

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Four Loans to Date

• Interest rate = 0.75 – 1.7 % • Loan duration

– Housing = tied to sale of units – Industrial = 12 years, tied to revenue stream

• Eligible Activities = soil cleanup, insurance (PLL)

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Loan 1 - East St. Anthony Village Blocks 1 and 2

• Minneapolis – East Bank Neighborhood - two blocks – 30 affordable apartments; 48 high-end town-homes – 15,000 ft2 retail; 30,000 ft2 office space

• Clean-up costs: $1.6 M projected • Development costs: ~ $ 24 M • Public funding:

– State cleanup grant $1,118, 000 – Metropolitan Council grant $226,225

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Loan 1 - East St. Anthony Village Blocks 1 and 2

• Loan size = $240,000 with option to increase amount to $425,000 if needed

• Interest rate: 1% per annum, due upon loan maturity

• Length of loan: the sooner of sale of 46 of 48 town-homes or 10 years

• Corporate guaranty to repay

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Loan Number 2 -East St. Anthony Village Block 3 • 1 City Block – East Bank neighborhood • 96 condominium units – market rate • Projected cleanup costs = $1,740,000 • Development costs ~ $57 M • Public funding:

– State cleanup grant: $1,252,429 – Metropolitan Council grant: $583,922

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Loan Number 2 -East St. Anthony Village Block 3 • Loan amount = $240,000

– Can be increased to $450,000 if there is need • Interest rate: 1% per annum, due upon loan

maturity • Length of loan: the sooner of sale of final

condominium unit or 5 years • Corporate guaranty to repay

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Loan 3 – East River Mews

• Minneapolis – Prospect Park neighborhood • Proposed development: 53 owner-occupied

units, includes 5 affordable units • Cleanup costs = $1.9 million • Development costs ~ $16 million • Public Funding

– State cleanup grant: $ 1,103,734 – Metropolitan Council grant: $ 210,537

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Loan 3 – East River Mews

• Loan amount = $450,000 • For cleanup and purchase of PLL insurance • Interest rate = 0.75 % per annum, due upon

maturity along with principal • Length of loan = sooner of five years or six

months after sale of final condominium unit • Corporate guaranty to repay

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Loan 4 – Edgewood Investors

• City of St. Louis Park – Eliot View Nbhd. • Proposed Development: 79,000 square-foot

industrial building - 156 new jobs • Cleanup Costs = $2,325,960 • Development Costs = $4,500,000 • Public Funding:

– State and regional grants: $1,722,672 total – DEED RLF loan (EPA-funded): $150,000

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Loan 4 – Edgewood Investors

• Loan Amount = $450,000 • Eligible expenses: soil cleanup and

management, purchase of PLL insurance • Interest rate = 1.7% ; loan matures in 12

years • TIF note is pledged to Hennepin County

and DEED for repayment

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Edgewood Business Center - 2004

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Minnesota Brownfield Cleanup Environment

• MPCA Voluntary Investigation and Cleanup (VIC) Program – Liability assurances for voluntary response actions – Expectation for all contaminated property transactions

• Available Cleanup Grant Programs – Minnesota Dept. of Employment and Economic

Development - Cleanup Grant - $9.5 million per year – Metropolitan Council Council's Tax Base Revitalization

Grant Program - $6 million per year – Hennepin Co. Environmental Response Fund: grant

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Hennepin County BCRLF Market Niche

• “Transactional pain” too great for loans under $150,000 – Time – added community involvement elements – Money – added consultant, legal fees

• Loan size limited by BCRLF capitalization – Maximum = $450,000

• “Competing” funding programs • The result = local match for state grant

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Five Lessons Learned 1. BCRLF structure must acknowledge

brownfield community’s “environment.” 2. Be clear about your program’s goals. 3. Work closely with your EPA regional

staff, consult with other RLF programs. 4. Flexibility is important - Loan structure

should be tailored to fit individual project. 5. Don’t be afraid to make mistakes.

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• Deborah DeLuca • 612-348-9938 • deborah.deluca@co.hennepin.mn.us

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