International Risk Group Announces a National First - The Privatization
of the Environmental Liability at the Former National Aeronautics
and Space Administration Industrial Plant in Downey, CA
Littleton, CO - December 4, 2003 - In a nationally precedent-setting agreement, International Risk Assumption - Downey, LLC, (IRAD), a subsidiary of International Risk Group, was awarded a $20.5 million contract by the City of Downey, CA for the privatization and assumption of the environmental responsibility of the former National Aeronautics and Space Administration (NASA) Industrial Plant in Downey, CA.
IRAD will indemnify NASA, the United States General Service Administration (GSA), the City of Downey, Kaiser Foundation Hospitals, Downey Landing, LLC and other prospective purchasers for claims and costs incurred or asserted as a result of the environmental conditions and remediation at the Downey site. This indemnity includes claims accruing both before and after the property transfer closing stemming from historical operations, including claims arising as a result of remediation of the properties. The indemnity will also encompass new previously unknown conditions and have a term of ten (10) years.
The agreement is the first of its kind for NASA. GSA served in the role of broker on behalf of NASA and the US government.
"Through our extensive knowledge and experience in environmentally
impaired real estate, the International Risk Group team was able to
create a structure that allowed the City of Downey, the United States
General Service Administration and NASA to focus on the redevelopment
of the Downey site," states Wayne Dorband, Chairman of International
Risk Group. Mikk Anderson, who lead International Risk Group's team
of engineering, legal, financial and risk management professionals
in the transaction, added that, "The willingness of the City,
the Federal government, the State of California, the developers and
their respective teams to thoughtfully consider and execute the structure
we assembled was vital to the consummation of a complex deal."
Darrell George, Community Development Director at the City of Downey,
stated, "The City's experience in dealing with International
Risk Group has been exemplary-especially given the complexities of
the deal and the environmental unknowns." "We continually
looked to the International Risk Group team for assistance in every
way to position the property for productivity," he added.
According to George, another integral piece defining the actual structuring
of the deal was the challenge of convincing NASA to privatize the
site. George stated, "International Risk Group stunningly helped
us convince NASA that privatization was the right way to go to accelerate
the development of the property."
The site was the former home of the National Aeronautics and Space Administration Downey Industrial Plant. The facility was used over a 70-year period for aircraft manufacturing, research, production and the assembly of rockets and missiles including the Apollo Program and the Space Shuttle. During this period, hazardous substances were stored, used and inadvertently released on the property. Pollutants have been detected in soils and in the ground water beneath the site. Clean-up will be accomplished by an International Risk Group affiliate in conjunction with ARCADIS G&M, Inc.
"The broad scope of clean-up and liability transferred to the
private sector, make this a unique brownfield transaction," stated
W. James Biederman, an attorney and Senior Advisor at GSA, which acted
in the capacity of a broker for the Federal government. He added,
"Cost savings to the federal taxpayer include earlier elimination
of expenses to maintain property no longer needed by the United States
and increased efficiencies due to NASA being able to focus on its
mission rather than environmental cleanup."
The privatization was structured by IRAD's affiliate, International
Risk Group, an investment banking and risk management firm that specializes
in transactions involving environmentally impaired assets. International
Risk Group is extensively involved in the privatization of former
military bases and surplus federal properties, as well as in acquisitions
and divestitures for corporate clients. In the military base market,
International Risk Group closed the privatization of the environmental
liability at the former Lowry Air Force base in September, 2002. Assistant
Secretary of the Air Force, Nelson F. Gibbs, had this to say about
International Risk Group's privatization of Lowry on March 18, 2003
at the Senate Appropriations Committee, Military Construction Subcommittee
- "Investment in more efficient contracting approaches at our
closure installations has successfully produced faster cleanup initiatives
at significant cost savings. For example, a privatization contract
at the former Lowry Air Force Base, CO will reduce our cleanup period
from 28 years to 11 years at a cost savings of $13 million."
In addition, International Risk Group is currently providing impaired asset investment banking and risk management services for Sunflower Army Ammunition Plant and McClellan Air Force Base. International Risk Group is also providing liability management and impaired asset services for Cecil Naval Air Station in Florida and Tooele Army Munitions Depot in Utah.
Site History
The National Aeronautics and Space Administration Downey Industrial
Plant (DIP) was a 160-acre United States Government-Owned/Contractor-Operated
facility located in the City of Downey, Los Angeles County, California.
The DIP was used over a 70-year period by a succession of entities
for World War II aircraft manufacture, research, production, and assembly
of rockets and missiles including the design, production, assembly,
and testing of the equipment and materials for the Apollo Space Program
and the Space Shuttle Orbiter program. In 1996, NASA declared to the
GSA that approximately 64-acres of the DIP were in excess to its needs
and available for disposal. The City of Downey purchased this 64-acre
portion directly from the GSA in April 1999 pursuant to special legislation
(Public Law 104-204, § 433). In 1999, the balance of the DIP
(96-acres), which contains numerous aging, industrial buildings and
structures, was also declared excess to NASA's needs, thereby making
the entire facility available for disposal by the Federal government.
The City of Downey negotiated with NASA and GSA to acquire the remaining
96-acre property so that it can be developed for needed commercial,
industrial and hospital uses.
During its 70-year history as a United States Government-Owned/Contractor-Operated facility, hazardous substances were released, disposed of and stored on the property. TCE and PCE and other volatile organic compounds have been detected in soils on, and in ground-water beneath the property. Since June 2000, NASA has been conducting an investigation and remediation of such soil and groundwater conditions on the property under the supervision of the California Regional Water Quality Control Board - Los Angeles Region (RWQCB-LA).
Property Transfer
Under CERCLA's provisions for the transfer of contaminated federal
property to an entity other than another federal agency, the grant
deed executed by the United States must contain the following covenants:
a covenant warranting that -
(I) all remedial action necessary to protect human health and the environment with respect to any such substance remaining on the property has been taken before the date of such transfer, and
(II) any additional remedial action found to be necessary after the date of such transfer shall be conducted by the United States
For properties like the DIP that are not listed on the National Priorities List, CERCLA provides for the early transfer of such properties if the Governor of the state in which the property is located approves a deferral of the CERCLA covenant warranting the completion of all necessary remedial action. Although the United States' covenant warranting the completion of all necessary remedial action would be deferred until the clean-up has been accomplished and accepted by the RWQCB-LA following the property's transfer, the covenant warranting that "any additional remedial action found to be necessary after the date of such transfer shall be conducted by the United States" would still be in place. CERCLA § 120(h)(3)(a)(ii)(II) [42 U.S.C. § 9620(h)(3)(A)(ii)(II)].
In an effort to bring the entire DIP site back to an economic and
productive use, as quickly and efficiently as possible, the United
States will execute an early transfer of the DIP, with the clean-up
of the Property (as directed by the RWQCB-LA) being accomplished by
IRAD through a separate contract with ARCADIS G&M, Inc. IRAD will
provide environmental risk management services and assume all known
and unknown environmental liabilities pursuant to a fixed price liability
assumption agreement whose performance will be assured by a series
of environmental insurance policies. The environmental insurance policies
include a Clean-up Cost Cap policy (covering cost overruns to the
cleanup of known environmental conditions) and a Pollution Legal Liability
policy (covering the costs of cleanup and third party liability from
unknown environmental conditions), which will be purchased by the
City and future owners of the Property. IRG Environmental, an International
Risk Group affiliate, was the broker of record for the insurance policies.
1Section 120(h)(3)(a)ii of the Comprehensive Environmental
Response Compensation, and Liability Act of 1980, as amended (CERCLA)
[42 U.S.C. § 9620(h)(3)(A)(ii)].
This privatization of the property's clean-up obligations substitutes
local coordination and control of remediation activities in place
of such actions by the Federal government, which would allow clean-up
activities to occur concurrently with the development of the proposed
commercial and hospital uses on the property. The clean-up activities
involving soil remediation and the installation of required groundwater
treatment facilities should be substantially completed within 5 to
7 years based on the scope of remedial work needed, as determined
by International Risk Group in conjunction with NASA and the Los Angeles
RWQCB.
CERCLA explicitly provides that a deferral of the United States' required
covenant "shall not increase, diminish, or affect in any manner
any rights or obligations of a Federal agency . . . with respect to
a property transferred . . ." CERCLA § 120(h)(3)(a)(iv)
[42 U.S.C. § 9620(h)(3)(A)(iv)] The Transfer and other agreements
documenting the privatization of the Property's clean-up will explicitly
provide that they will not alter the United States' responsibilities
to complete all necessary response actions on the Property and to
take additional remedial action as required by CERCLA, applicable
environmental laws and regulatory authorities.
The privatized environmental remediation of the property will be
accomplished pursuant to a series of agreements and insurance policies
entered into by the City of Downey, NASA, and International Risk Group.
Similar arrangements have been put in place to provide protection
for government agencies and property owners at other contaminated
federal properties under the BRAC program. In the highly unlikely
event that all of these protections fail to secure cleanup, CERCLA
mandates that the United States be responsible for conducting any
additional remedial actions found to be necessary by virtue of the
covenant that it must make at the time of transfer.
International Risk Group, LLC, is an impaired asset investment banking firm headquartered in Denver, Colorado with offices in New Jersey, Houston and San Francisco. The firm specializes in acquisitions, divestitures, mergers, liability assumptions, public to private transfers, valuations and impaired asset advisory services for assets with valuations between $1 million and $1 billion and with liabilities between $1 million and $300 million. The firm represents both buyers and sellers, serving as finders, intermediaries and negotiators.
International Risk Group, LLC, headquarters is located at 7991 Shaffer Parkway, Suite 100, Littleton, CO 80127. Phone: 303.972.6633 Fax: 303.972.6655
Contact:
International Risk Group, LLC
James M. Gostic
303.972.6633
