Colorado Firm Planting its Roots in N.J.’s Brownfields

Colorado Firm Planting its Roots in N.J.’s Brownfields

NJBIZ Online

September 11, 2009

By Bill Lynott

Viridian’s visibility takes hold as it restores more contaminated locations

Having completed work on one of the year’s most high-profile New Jersey real estate projects, the chief executive of a Colorado-based brownfield development company is aiming to make further inroads in the Garden State, with plans to acquire new properties and open a local office in the coming year.

“We like the real estate in New Jersey as well as, or better than, anywhere else in the country,” said Bill Lynott, CEO of Highlands Ranch, Colo.-based Viridian Partners, which he founded in 2003. In its acquisition and repositioning of brownfield sites, Viridian has focused on two of the nation’s largest industrial markets — the ports of Newark and Elizabeth, and the ports of Long Beach and Los Angeles — which have the “best economics” because of their supply constraints, high demand and exit pricing potential, he said.

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Currently, all of the company’s projects are located in the Garden State, said Lynott, 59, whose firm is best known locally for its remediation and repositioning of a 130-acre former Hercules Inc. chemical plant site in Burlington Township. That project won the New Jersey chapter of NAIOP’s 2009 Creative Deal of the Year award in May.

During the cleanup, Viridian obtained the entitlements necessary for a 1.69 million-square-foot distribution warehouse park, and got the pad sites ready for three of the four buildings in the park. The property, which the developer acquired in 2005, was sold to Lion Industrial Trust in August 2008, and Viridian received its no-further action letter — indicating remediation on the site is complete — from the state Department of Environmental Protection last month.

The developer is now at work on four other sites in New Jersey, including a defunct munitions plant site of 400 acres in Cranbury; a 29-acre vacant lot, previously owned by Wakefern Food Corp., in Elizabeth; a 13-acre former chemical plant in Woodbridge; and an 8-acre former auto parts assembly facility in North Brunswick.

“We may develop a couple of them ourselves,” Lynott said, “but our standard model is to at least get it to the point where it’s ready for that development.” Whether the company goes on to develop a site often comes down to how the property will be used after it is cleaned, he said: “Some of the specialized product that an end user might want may keep us in the game to go vertical on these sites.”

Meanwhile, Viridian intends to expand its portfolio in the state. “We have our eye on upwards of a dozen additional properties in New Jersey,” all of which are either on the I-95 corridor or in the immediate ports areas, said Lynott, who expects to close on a number of acquisitions next year.

Lynott travels to the Garden State from Colorado once a month to meet with property sellers, end users or regulatory agencies, but in 2010, he plans to open a New Jersey office and “retain someone to be the face of Viridian on a daily basis in the state” in response to the projected growth of operations here, he said.

In acquiring brownfield sites, the company has been able to beat out competitors offering higher prices because of its ability to release the seller from its environmental liability, he said. The pricing Viridian offers for properties is based on several factors, including the amount of return investors require; the projected disposition price after holding the asset for 18 to 36 months; and costs for cleanup, infrastructure and insurance, he said.

Other developers have been hesitant to take on the environmental risk for a brownfield site because of “a lack of comfort,” said Lynott, who worked for more than two decades as an environmental consultant to corporations. “They had a very poor understanding of what their real exposure was, and some of them got burned pretty badly.”

Competition for sites has dropped off considerably in the downturn, Lynott said: A few years ago, as many as a dozen investors pursued a single brownfield property; now, he may be the lone bidder. Developers who once competed for these sites “don’t really want to do that today, because they’ve got their hands full with the inventory they do have,” he said.

At the same time, corporations have been increasingly looking to unload polluted properties. “It used to be comfortable for them to just sit on these legacy properties and not do much year to year,” he said. “Now, the carrying costs are a bit more onerous.”

But in a shaky economy, Viridian — which largely funds its acquisitions through an institutional investor that provides both debt and equity — has exercised greater caution in purchasing sites, sticking to its mantra of considering only properties near the ports and along the I-95 corridor.

“It’s a tough grind to reposition a brownfield property in the state of New Jersey,” he said, though that hasn’t discouraged Viridian from investing here or in California, which also has a tough regulatory environment. “The two most attractive markets for us are in the two most demanding states.”

Lynott, however, said that the Licensed Site Remediation Professional program — part of the Site Remediation Reform Act that was passed in May — will speed the remediation process, though he wasn’t sure how many of his projects would be able to participate. The site in Cranbury, for example, still contains live munitions, and will likely stay under DEP supervision, he said.

But “something like our Elizabeth site, with just the impact of historical fill — that’s something that an LSRP could probably handle very efficiently for you.”