Everyone’s excited about the deal. Until an environmental issue stops it.
More real estate transactions are derailed today by even the mere suspicion of an environmental exposure. With the implementation of fair value accounting principles and the demand for more transparency by investors and regulators, you are likely facing an increase in disclosure requirements regarding environmental threats and environmental liabilities. The arrival of a new administration favorable to tougher environmental laws and regulations also heralds a potentially more challenging real estate market for buyers, developers, REITs, redevelopment organizations and other property investors.
Property development: how many unknown risks could you face?
Demolition, renovation, expansion or new construction---each of these scenarios involves its own environmental exposures.
Some of the risks include:
- Hazardous chemical storage from a previous owner and/or tenant
- Hydraulic oil leaks from elevator wells
- Lead-based paint contamination or lead solder in the water pipes
- Bacteria including fungus or spores in heating, ventilation and air conditioning systems
- Poor housekeeping or waste disposal practices by a tenant or previous owner, such as onsite garbage incineration
- Releases of asbestos, radon or solvents into the air
- Water leaks and vapor releases from the use of green building materials
Brownfield redevelopment: do you know all the risks of contamination?
Brownfield redevelopment is an exciting prospect for property owners, developers, government agencies and the community. However, the past, present and future environmental risks that are lying in wait can prevent these unused, contaminated sites from being put back into productive use.
Some of risks include:
- Unexpected discovery of contamination during redevelopment
- Aggravation of existing contamination by a consultant or contractor
- Discovery of contamination on adjacent properties
- Spread of existing contamination during remediation
- Claims for bodily injury and/or property damage liability related to the existing contamination
Zurich solution: environmental liability tailored to your development
Zurich understands that each of your projects has its own complex exposures and distinct coverage needs. That’s why Zurich created Z Choice™, an environmental liability insurance solution that can be customized to your project. It’s flexible enough to add or remove coverages as your needs change. And that makes it more cost-efficient, too, as you are paying only for the coverage you choose. Learn more about Z Choice.
Coverage for the past, present and future
A national real estate and development firm had big plans to turn a former landfill and low-income public housing project in Florida into a new mixed-use, multi-family property, which would meet the needs of the community and local government. Neither the broker nor developer were veteran brownfield redevelopment players, and each sought guidance on environmental insurance matters.
Zurich was asked to help determine the appropriate environmental insurance coverage, especially since it involved the sensitive issue of turning a prior unregulated landfill into residential use. Not only did the developer need to be insured for certain potential risks, but contracts also required that the city as the prior owner, the lender, and the contractors and subcontractors working on the remediation and removal of the contaminated soil be insured as well. Because of prior experience as an environmental consultant, Zurich’s underwriter was able to effectively communicate with the stakeholders, making them aware of certain technical issues in regards to the soil contamination, which included polycyclic aromatic hydrocarbons, lead, arsenic and pesticides, and how they could be managed.
Both the broker and developer were impressed with the flexible nature of Zurich’s Z Choice™ Pollution Liability insurance policy that offered coverages for:
- Onsite and offsite cleanup of both known and unknown pre-existing and new pollution events
- Third-party bodily injury and property damage arising from both known and unknown pre-existing and new pollution events
- Natural resource damages for pre-existing and new pollution events
- Non-owned disposal site coverage
- Mold insurance coverage
Flexibility at the holidays and beyond
The middle of December and the busy holiday season may not seem like an ideal time to be reviewing environmental exposures, especially for a large real estate investment trust (REIT) with dozens of regional malls and outlet centers. The REIT found itself needing to review exposures for all its 383 properties across North America, Europe and Asia, and determine the right solution before the end of the year—just a few weeks away.
Zurich’s environmental underwriting and risk engineering team spent two full days at the company’s U.S. headquarters reviewing environmental documents and reports for all properties. Zurich was able to save the REIT substantial time and effort during the end-of-year time crunch by conducting an on-site underwriting review. The Zurich team familiarized themselves with the REIT's exposures, and identified a comprehensive list of environmental insurance coverages needed. These included: costs to clean up mold, asbestos and other pollution resulting from tenant occupancies such as retail drycleaning and automotive repair operations; cleanup costs resulting from migration of pollution from adjacent properties; and potential costs associated with compensating third parties for property damage and bodily injury. In the end, the REIT purchased a Z Choice™ Pollution Liability Insurance Policy from Zurich to address their environmental needs. The flexible design of Z Choice could cover a large number of locations (or a single site) as well as a wide variety of pollution exposures.