Expert Commentary

Environmental Insurance Helps Cities Create Sustainable Development Out of "Brownfields"

Two New Jersey cities are using environmental insurance to turn large polluted areas into environmental models that reduce greenhouse gases, improve wildlife habitat, and provide other environmental improvements.

December 2005

Many American cities have waterfronts, landfills, and other very large areas (e.g., 50 to 1,000 acres) that are unused or underused because of pollution. Known as "brownfields," these areas may bar citizens from their own waterfronts and other natural resources. Often the principal obstacle to redevelopment is the risk that environmental unknowns pose to redevelopment capital. Environmental insurance can reduce those risks, and the large scale of these projects allows cities to go beyond cleanup and actually improve the environment by, for example, reducing greenhouse gases; improving wildlife habitat; and/or creating model small-scale treatment and power systems.

Two New Jersey communities—one in the Meadowlands and one in Camden—are proving this can be done and providing a roadmap. They are doing so with the help of one deeply capitalized and environmentally focused developer, Cherokee Investment Partners, LLC.

The Meadowlands: Greenhouse Gas Reductions

In the N.J. Meadowlands—located along the N.J. Turnpike and adjacent to the New York Giants stadium—sit six landfills, some still active and some orphaned 30 years ago. As is true of many landfills, they are filled with a mixture of municipal and construction wastes that, in addition to taking up valuable space, slowly release methane gas into the atmosphere (methane is a greenhouse gas 23 times more harmful than carbon dioxide). The environmental unknowns in the landfill are numerous and substantial, e.g., What, exactly, was disposed there? To what extent might contaminated groundwater under the landfills be carrying contamination to neighboring properties? What, exactly, will the government require to do the cleanup under today's laws? How about tomorrow's laws?

Environmental insurance—in this case, from AIG, the world's largest insurer—has been purchased to mitigate every one of those risks, and others. Cherokee bought the insurance and worked with the New Jersey Meadowlands Commission (NJMC) and with AIG to draft a customized "surplus lines" policy that fits exactly what the NJMC and Cherokee needed (not less, not more). Because those risks could be mitigated at a reasonable cost, Cherokee was able to invest substantial capital into this project.

Cherokee has probably undertaken more development of contaminated properties (over 300), and probably for longer (since the mid-1980s), than anyone else. This is exciting in itself. More exciting, however, is where Cherokee is heading now, looking not just to redevelop property in a way that does not harm the environment, but in ways that actually improves it. Led by Founding Partners Tom Darden and John Mazzarino, and supported by myriad experts, including world-renowned environmental ("Green") architect William McDonough, Cherokee is using its capital in novel and environmentally beneficial ways.

The scale of the Meadowlands project is such that Cherokee will be able to vacuum extract the methane gases that are in the landfills and pipe them to an onsite power generating plant. The capture and use of these gases is the environmental equivalent of permanently removing approximately 700,000 cars from the road.

Camden: Improved Eagle Habitat and Utility Models

Once voted America's most beautiful city, Camden, N.J., borders the eastern shore of Delaware River directly across from Philadelphia. For almost 40 years, however, much of its waterfront has been completely inaccessible to the city's residents. Housing a 90-acre long-closed landfill and several shuttered industrial sites, the waterfront is completely inaccessible to its residents, many of whom are unaware that their neighborhood abuts the river. For 25 years the city has wanted to open the waterfront; for 25 years, the environmental uncertainties and lack of capital have made that impossible.

Under the leadership of Melvin (Randy) Primas, the city's Chief Operating Officer, and with critical development capital and self-funded planning from Cherokee, Camden is pursuing a plan to clean up and redevelop close to 2 miles of waterfront (approximately 600 acres) with 5,000 units of mixed-use housing, a community center, marina, golf course, and other open areas.

A golf course, by itself, is in most cases not economically viable. In Camden, the golf course would serve three purposes:

  • to provide recreational opportunity;

  • to increase the purchase price of enough of the new homes to make the overall development viable; and, perhaps most unexpectedly,

  • to enhance the chances that a pair of bald eagles nesting along the city's waterfront can raise a viable chick.

The eagle pair began nesting in the Camden area in 2003. Their principal food source, however, is PCB- and DDT-contaminated fish from the highly polluted stretch of the Delaware River that sits between Camden and Philadelphia. As a result, state biologists must remove any egg laid by this pair, knowing it could not survive on its own. An egg that the State removed from the nest in 2004 and hatched in a lab days later produced an eaglet that died within days of suspected PCB toxicosis, and that had PCB or DDT congenital abnormalities.

With the environmental uncertainties reduced by insurance, and because of the enormous scale of the project, Camden and Cherokee have literally been able to build into their plans an alternative food source for the eagles. Golf course ponds will be created not just to improve the beauty and challenge of the course, but to hold fish that the eagles can eat.

Also because of the scale of the project, Camden and Cherokee intend to provide a novel application of self-sustainability. Under a concept known as "Camden-Off-the-Grid," the development will create its own water quality infrastructure. Cherokee is also exploring small-scale power sources. These facilities will be self-contained, lower-impact, environmental models.

In sum, because of their enormous size, these projects do more than simply reuse contaminated land and thus avoid the increasing problem of "urban sprawl." With the creative energy of city leadership combined with a knowledgeable, well-capitalized developer, these large projects can create models of environmentally sustainable redevelopment. More cities should try them.

* Expert Commentator Michael Hill is an attorney, insurance broker, and risk management consultant. Cherokee is a client of his firm.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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