Lockheed Martin Corp. has two good reasons for cleaning up the toxic materials that pollute its 100-acre site near Burbank Airport.
Perhaps the most important is that it’s been ordered to do so by several government agencies. But another major factor is that Zelman Development Co. is waiting on the sidelines to pay more than $70 million for the land so it can build a massive office, retail and industrial complex on the site.
The combination of the two factors the desire to redevelop contaminated land and the need to comply with laws that protect public health and the environment have over the past 20 years spawned a $7 billion environmental industry in L.A. County. Hundreds of firms do everything from toxic cleanups to handling household waste.
About 20 percent of that industry is made up of companies that specialize in helping landowners, developers and lenders navigate their way through environmental regulations and do cleanup work.
Between 300 and 400 environmental consulting firms operate in Los Angeles County, many of them based here, according to Environmental Business International Inc., a San Diego-based company that tracks the industry.
The current construction boom is creating a lot of work for firms that specialize in infill cleanup. That’s a change from recent years, when times weren’t as good for the industry.
After a 20-year boom that tapered off around 1990, growth in the toxic remediation and consulting sector has actually been flat, rising just 5 percent in the past decade compared to 370 percent growth from 1980 to 1990, according to Environmental Business International.
Part of the reason is that in the 1990s, government dramatically slowed the pace at which it was passing environmental laws. Meanwhile, the industry has seen a fair amount of consolidation in recent years, said Grant Ferrier, editor of Environmental Business International’s industry newsletter, the Environmental Business Journal.
Another reason is that as time passed, more properties have had their problems documented by investors wary of legal problems. As a result, the need to do complete tests and extensive research has dropped.
“It’s not like there’s more and more and more,” Lovegreen said. “A lot of time we look at properties, (the testing) is already done. It takes a lot less effort than it did in the old days.”
As a result, lenders, developers, buyers and tenants are now less afraid of what they might find if they invest in a property, according to Arthur Mazirow, an attorney with the environmental unit of Freeman, Freeman and Smiley in Los Angeles.
“What holds up development is not what is known, but what is unknown,” he said. “The question becomes, ‘Can we handle it?'”
These days, the vast majority of cleanup work is not undertaken in response to regulatory enforcement by the EPA or other regulatory agencies, but is done quietly by companies that want to insulate themselves against possible litigation, Ferrier said.
What once amounted to wading into a slew of unknowns surrounding contaminated sites has now become a somewhat standardized due diligence process, thanks in part to an increasingly experienced and sophisticated environmental industry. In addition, investors and developers now have more methods than ever to gauge how much it will cost to deal with contamination, so those costs can be considered in determining if the project will pencil out.
Although there hasn’t been a major overhaul of environmental laws, some new federal and state regulations have aided remediation efforts by clarifying who is responsible for cleaning up the mess.
“One of the things that’s allowed this (infill) market to develop, particularly in the last four to five years, is there have been a number of changes that have basically enabled would-be buyers and lenders to quantify the significant risks associated with contamination,” said Tom Kabat of PricewaterhouseCoopers LLP, a financial consulting firm that handles a host of environmental issues.
The Securities and Exchange Commission has also pushed corporations to disclose environmental liabilities in their financial filings, and that in turn has encouraged many companies to clean up real estate holdings.
In addition, California has been among the first states to take a more risk-based approach to cleanup, enabling companies to tie cleanup efforts to anticipated uses that can range from kindergarten playgrounds in the heart of Los Angeles (high risk) to outdoor storage for heavy machinery miles from any homes (low risk).
Such legal clarifications have encouraged landowners to clean up properties that could eventually lead to litigation, and have made lenders more willing to put up money for projects.
Still, cleaning up toxics can be a tremendously complex and expensive undertaking. In the case of Lockheed Martin’s Burbank site, more than 20 firms were hired to do everything from vapor extraction to performing risk assessments, a company official said.
Relatively few projects in L.A. are as large as the Lockheed undertaking. Yet it’s impossible to drive very far without passing properties that have been cleaned up and converted from previous uses. Corner gas stations give way to fast-food restaurants; oil fields are converted into malls.
“For those of us here in Southern California, (infill) is a major part of what we do,” said Jon Lovegreen, director of technical operations at ATC Associates, an environmental consulting firm in Signal Hill.
However, Ferrier points out that the failure of federal legislators to update aging environmental laws has made many companies more complacent, except when there are immediate health risks or pressure from neighborhood groups.
“(Owners of polluted sites) are always weighing whether or not they’ll get caught, whether or not they are preventing themselves from being sued,” Ferrier said. “Are you going to waste your money cleaning this up if nobody’s holding a gun to your head? It comes out of the bottom line. For most, it’s something they’ve got to do because it’s the cost of doing business.”
