A Lesson in Due Diligence: Proper Evaluation of NFR Letter Leads to Successful Project

A local industrial developer is laying plans to redevelop a 13-acre property on the near south side. The property was historically used as a metal forging facility for over 100 years that was recently demolished to make way for a 180,000-square-foot logistics building with on-site truck trailer parking.

The property originally changed hands in a sale-leaseback transaction in 2011, and at that time, the environmental conditions were assessed for due diligence purposes. The Illinois EPA issued a No Further Remediation (NFR) letter in 2014 that allowed underground storage tanks (USTs) to be abandoned in-place, and high levels of petroleum contamination to remain below the building (on site at that time) due to the impracticality of completing remediation given the existing building, heavy machinery and concrete floor slabs.

This situation illustrates the oftentimes mistaken assumption that an NFR letter can be seen as an indicator that the site is “clean.” Under the State’s risk-based program, this is not always true, and the developer worked with its partners at Pioneer Engineering & Environmental Services, LLC to evaluate the site closure documentation to determine the impacts on the planned redevelopment. Through this review it was determined that once the buildings were demolished and the USTs and petroleum contamination became accessible, the conditions of the NFR letter were no longer valid which necessitated the removal of the tanks and residual contamination from below the building. The updated assessment and evaluation of the site showed the environmental costs would exceed $1,000,000 to obtain an updated NFR letter for the site.

By properly reviewing the data during the due diligence period, these costs were effectively worked into the deal and enabled the buyer/developer to still achieve a successful redevelopment of the site. When complete, this will add to the developer’s considerable portfolio of industrial redevelopment sites and will further contribute to Pioneer’s status of obtaining the most NFR letters in the State (over 700 NFR letters and counting).

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