Environmental Issues & Their Impact on

ValueEminent Domain and Land Valuation Litigation

ALI-ABA ConferenceSan Diego, CaliforniaJanuary 26-28, 2012

Thomas L. Stokes, Jr.

Stokes Environmental Associates, Ltd.4101 Granby Street, Suite 404Norfolk, Virginia 23504757-623-0777

www.stokesea.com

stokesea@aol.com

Broad overall initial assessment, pre- and post-construction

Determine relevant factors, costs, and damages

Identify all potential positive or negative impacts on value

Comprehensive analysis

Environmental Review Purpose

Potential factors include: wetlands, streams, mitigation feasibility, buffer zones, habitat,

stormwater, drainage and hydrology erosion, soil disturbance, foundation impacts wastewater feasibility, drainage issues contamination, odors, noise, light pollution viewshed impacts, vibration, traffic, air quality, dust, maintenance, impervious surfaces, cut and fill, excavation, dams and impoundment effects, underground structures, aesthetic and scenic amenities, recreation, forest impacts, timber feasibility, drinking water wells, protected species, coastlines, dunes, caves, sinkholes, unique landforms, natural heritage resources, historic

resources, significant topography or structures.

Environmental Review

Site environmental evaluation Hidden value, such as feasible mitigation sites or

conservation tax credit potential

Wetland as privacy buffer

Damages, such as pollution, erosion, loss of mitigation areas, buffer area impacts

Report with methods, findings, conclusions, and recommendations, data forms, lab certificates, chain of custody, drawings, photographs, etc.

Environmental Review

Verifiable expert

Industry standard methods

Approval by an objective third party or environmental agency

Environmental documents ◦ Wetland delineation reports, Phase I/II Environmental Site

Assessment, on-site soil evaluations, odor surveys, noise measurements, visual impact assessments, groundwater analysis, soil vapor surveys, slope and topography analysis, ecoasset valuation.

Environmental Review

State certifications or licenses for some subdisciplines ◦ Certified Professional Wetland Delineator, Professional

Geologist, or On-Site Soil Evaluator   Self-regulating industry association credentialing programs

◦ Professional Wetland Scientist, Registered Environmental Manager, and Certified Environmental Professional

  Regulatory definition: Environmental Professional

◦ based on education and years of experience 40 CFR 312.10

  Many well-qualified environmental experts have no

available certification programs.

Credentials for Environmental Professional

Major factor affecting land value

Once thought of as worthless unusable bayous, bogs, fens, marshes, poquosins, potholes, quagmires, sloughs, swamps, wet meadows winter wet woods, soft ground where your feet got wet

Management method: drain it, so it could be used productively

Wetlands

Scientists showed wetlands have ecological value

Some wetlands did not look wet, similar to dry land

Net primary productivity of wetlands among the highest of all ecosystems on earth

Filter and store storm water

Recharge groundwater aquifers Protect water supplies

Rich species diversity, contain the majority of rare, threatened or endangered plants and animals on earth

Wetlands

Regulators developed a system of permits for disturbing wetlands.

Regulations may reduce economic value of wetlands,

because not all land uses in wetlands can be approved.

Permit system created economic value in wetlands which could be used for mitigation purposes, such as preservation, rehabilitation, or restoration.

Wetlands are abundant and ubiquitous, and may have a significant impact on property value, negative or positive.

Wetlands

Wetland Definition: “Those areas that are inundated or saturated by surface or

ground water at a frequency and duration sufficient to support, and that under normal circumstances do support, a prevalence of vegetation typically adapted for life in saturated soil conditions.”

Soils remain saturated long enough to create anoxic conditions

High water table within 12 inches of the ground surface for 5% to 12.5% of the growing season◦ 3 or 4 weeks (in Virginia)

Soil may be very dry for the rest of the growing season

Wetlands

Anoxic conditions cause gray, mottled hydric soils.

Plant community that is adapted to survive the anoxic soil conditions.

Hydrophytes: obvious wetland plants e.g. cattails.

Common plants, e.g. loblolly pine trees, red maples, and oaks.

Flat poorly drained areas, often with clay soils, could be used for development sites, except for the presence of jurisdictional wetlands.

Wetlands

Wetlands

Wetlands may look wet. Wetlands may look dry nearly all year.

Permits: U.S. Army Corps of Engineers regulations at 33 CFR 320-332

Clean Water Act permit to place fill material in a wetland

Definition of fill material: nearly any surface modification of wetlands

Includes mechanized land clearing, excavation - “incidental fall-back”

Individual permits for major impacts◦ >0.5 acres of wetlands or >300 linear feet of streams◦ analysis of alternatives ◦ rebuttal of the presumption that an upland area exists which does not require

wetland impacts◦ avoid and minimize impacts ◦ mitigation for unavoidable impacts

Wetlands

Simplified permits, Nationwide permits and General permits

Facilitate approval of projects with minor wetland impacts◦ Outfalls (NWP7)◦ Utility lines (NWP12)◦ Linear transportation projects (NWP14)◦ Minor fills (NWP18)◦ Residential construction (NWP29)◦ Commercial and institutional development (NWP 39)◦ Agricultural activities (NWP 40)◦ Reshaping existing drainage ditches (NWP 41)◦ Storm water management facilities (NWP 43)

Wetlands

State wetland permit system

City/County wetland permit systems

Agency Reviews: ◦ SHPO mandatory, Section 106 of the National

Historic Preservation Act◦ U.S. Environmental Protection Agency◦ U.S. Fish and Wildlife Service◦ Applicable state and local agencies.

Wetlands

Mitigation: Restored or rehabilitated wetlands, created

wetlands, or preserved wetlands

Pre-constructed wetland banks

In-lieu fee programs (generally post-constructed mitigation)

Site-specific mitigation

Wetlands

Mitigation Ratios: Typically two acres of restored or created

wetlands for each acre of impacts, or

5 to 20 acres of preserved wetlands for each acre of impacts

Wetland mitigation bank credits, $10,000 to $540,000 per acre (or per mitigation credit)

Wetlands

Mitigation price based on:◦ Habitat type (tidal vs.

nontidal) and rarity◦ Plant or animal species

of concern, special habitats

Mitigation areas separated by drainage basin and tidal vs. nontidal condition

Cost of mitigation (value of mitigation sites) depends on supply and demand

Wetland habitats can have extraordinary value

Wetlands

Protected, unbuildable buffer areas around sensitive environmental features. Many types of buffers.

Chesapeake Bay Preservation Act,100-foot Resource Protection Area (RPA) buffer landward of wetlands, perennial streams, and other environmentally sensitive areas.

Reservoirs are often protected by a 100-foot or larger buffer zone.

50-foot buffer is required around sensitive soil types “Southern Watershed” of Virginia Beach, Virginia

Bald eagle nest buffer: 750 feet unbuildable radius

Buffer zones can have devastating impacts on property valuation.

Buffer Areas

Construction project may create or alter buffer zones by:◦ Creating or moving a perennial (always flowing)

stream

Need to review land development design constraints before vs. after changing stream/buffer.

Buffer Areas

Intermittent stream may become perennial, creating a buffer requirement:

100-foot buffer on each side of the newly perennial stream, creating a 200-foot wide swath of unusable land centered along the stream.

Construction of storm water best management practices (BMP wet pond, for example)

Intermittently-flowing stream is deepened for drainage purposes◦ Bottom of the stream intercepts the water table

Buffer Areas

A new ditch routes water from drainage sub-basin “A” into sub-basin “B.”

Streams and wetlands in sub-basin “A” become dry◦ Land owner is freed from wetlands and stream buffers◦ May lose actual or potential wetland mitigation areas

Streams in sub-basin “B” become wetter and perennial◦ Creates 200-foot wide protected buffer centered along the

stream. ◦ Wetland areas in “B” expand, reducing developable land

Also reduces wetland restoration options Causes significant impacts on property value.

Buffer Areas

Contamination usually reduces valuation, but not always

May delay or negatively impact decisions by lenders, tenants, and future buyers

All buyers of property should perform due diligence

Phase I Environmental Site Assessment (per ASTM Method E-1527-00)

Discover contamination before purchase

Provide innocent landowner protections

Adjust land valuations

Contamination Assessment

If contaminated, prospective purchaser may proceed without becoming responsible for cleanup.

Must comply with limited “continuing obligations.” ◦ Did not cause the contamination, is an arms-length

third party in the purchase.◦ Must allow others to cleanup the site if necessary.◦ Must perform risk assessment (Phase II Assessment) to

reasonably inform users or occupants about the nature and extent of environmental conditions at the site.

Contamination Assessment

Liabilities after EA1:

EA1 protects against government mandated cleanups, but not:◦ liabilities with respect to suits from neighboring

properties, tenants or occupants◦ compliance with continuing obligations◦ future construction◦ groundwater usage

Contamination Assessment

Acquirer needs to determine costs related to:

Disposal and handling procedures for:◦ contaminated building materials, ◦ excavated soils, ◦ dewatering effluent, ◦ preventing contamination from spreading off-site during construction.

Migration of pollutants from contaminated areas to neighboring properties.

Underground utility lines with bedding gravel, conduit for flow.

Can be major budgetary impact.

Assess during the planning and appraisal stage of the acquisition.

Contamination Assessment

Environmental damage caused by condemnor’s construction:

spreading of contamination from off-site sources mobilized by the construction,

erosion by altered stormwater flows,

sedimentation from disturbed soils,

contamination of wells caused by rerouting of stormwater,

and numerous other possible impacts.

Contamination Assessment

Appraisal needs to consider reimbursement for cleanup costs:

Third party obligations and government programs State reimbursement for leaking underground petroleum

storage tanks, testing and cleanup Fund for remediating contamination at dry cleaner sites Federal and state programs for cleaning up brownfields

sites, including grants, loans, tax incentives, partnering options, and reimbursements

Responsible party may have reimbursement obligations

Contamination Assessment

Eligibility for reimbursement?

Original owner vs. condemnor

Individuals vs. small businesses vs. large businesses vs. government agencies.

Non-reimbursable costs◦ soil compaction and testing◦ non-mandatory cleanup -- minor contamination,

aesthetic purposes

Contamination Assessment

Estimating the extent of contamination andvaluation impact

Can be subjective process with far reaching effects.

High levels of contamination and high cost estimates can:◦ delay or prevent property closing, ◦ create more legal costs, and ◦ cause large escrow requirements.

Contamination Assessment

Underestimates of contaminant levels can:◦ create liabilities for improper reporting◦ cause accidental spreading of contaminants◦ increase disposal volumes (this can be an

extreme liability for listed wastes)◦ cause unanticipated renovation or demolition

expenses (e.g., unidentified asbestos)◦ cause loss of collateral value, and ◦ cause an underestimate of ongoing

cleanup/management costs.

Contamination Assessment

Valuation of contaminated site for private, voluntary transactions

Willing buyer and willing seller

Estimate value of the property as clean◦ deduct testing and cleanup costs ◦ deduct intangible costs (difficulty of finding tenants,

lenders, etc.).

Prudent buyer to determine all costs, and negotiate mutually acceptable purchase price.

Contamination Assessment

Deducting cleanup cost from value may not be

valid in eminent domain.

land not causing hazard seller not required to cleanup difficult to estimate cleanup costs,

subsurface factors not known with certainty government risk assessors opinions can

vary

Contamination Assessment

If owner undertakes cleanup, he may eligible for reimbursement.

would lose right to reimbursement without performing the cleanup.

would bear the entire cost himself if appraisal deducted cleanup cost.

Contamination Assessment

Some state courts have formally recognized this problem.

Illinois, Iowa and Michigan do not allow deduction of remediation costs from the property value in eminent domain takings.

California, Colorado, Florida, Georgia, Kansas, and Tennessee do allow it.

Contamination Assessment

Illinois Eminent Domain Act Does not allow eminent domain takings to make

adjustments for contamination or estimated remediation expenses, unless there is a violation of a specific environmental law or regulation.

Protects the land owner from unfairly losing his property value (cleanup costs may approach property value).

Makes landowners financially responsible for violations on their property.

Contamination Assessment

On-Site Wastewater Treatment

Soil characteristics for wastewater treatment – necessary for development.

On-site soil absorption systems, or “septic systems.”

Requires appropriate soil types. Good soils may be hard to find or limited on small area of site.

Soil structure can be destroyed quickly by excavation, grading, or compaction.◦ temporary construction easements

Partial taking may render the entire property undevelopable.

Development Constraints

Development Constraints

Alternative on-site soil systems.

Wastewater treatment “package plants.”

Proof of feasibility of such plants includes cost estimate, property line setback feasibility, outfall feasibility, and local and state regulatory feasibility.

Water supply well locations.

Constrained by required setback distances, typically 50 to 100 feet from: ◦ property lines, ◦ septic systems, ◦ storm water conveyances, ◦ other pollutant sources.

Feasible location of wells and septic systems may be limited to small area.

  Condemnation may cause

setbacks to cover entire site.

Risk of contamination to wells or damage to septic systems.

Development Constraints

Value of ecoassets or cost of environmental liabilities.

Highest and best use as a commercial environmental mitigation site?

Inventory of significant environmental features on the property.

◦ Tidal and nontidal wetland delineations, habitat characterizations, protected buffer delineation, endangered species assessment, historic resources evaluation, and special environmental features evaluation, contamination issues, etc.

Eco-Asset Valuation

Determine the location and quantity of feasible:

wetland or habitat restoration areas, approvable preservation areas, and buffers.

Compute mitigation types and yield on the property.

Eco-Asset Valuation

Inventory and delineations:

used by appraiser and land planner assess developability show type and number of

wetland/environmental mitigation credits show service area within which ecoassets

may be sold

Eco-Asset Valuation

Ecoasset valuation estimates supply and demand within the

service area, provides comparable sales and pricing, absorption rates, cost to implement a mitigation bank

◦ (planning, design, permitting, bank approval, grading, hydrology controls, planting, monitoring and reporting, contingency for corrective action invasive species control, restoration of plantings in the event of drought, financial assurance/bonding, credit sales and bank operation, and long-term maintenance).

Eco-Asset Valuation

Bottom line: Net present value of the prospective

mitigation areas

Define developable areas

Other valuation adjustments

Eco-Asset Valuation

1. Case: Swamp or Not Swamp

  36 acre piece of rural land

in southeastern Virginia. Neighboring hospital

needed the property for expansion.

Hospital claimed the entire property was wetlands.

Offered to pay $3,000/acre for “all wetlands.”

Case Summary

1. Case: Swamp or Not Swamp continued

Owner’s consultant found only 0.1 acre wetlands.

United States Army Corps of Engineers approved 0.1 acre wetland.

Appraised value $72,000/acre or 24 times the original offer price.

Case Summary

2. Case: Borrow Pit Mitigation Bank Site

Borrow pit was condemned as wetland mitigation site. Compensation offered was approximately $20,000/acre. Pricing was based on agency’s ecoasset valuation. Commercial mitigation banker and team employed. Team found more economical method to build mitigation. Low-cost grading and planting plan, saved $33,000/acre. This raised the net value to $53,000/acre, more than 150% above

original offer.

Earthmoving highest mitigation cost item. Excessive earthmoving is not practical. Mitigation valuation must use private-sector real-world cost and

income figures, based on detailed site-specific analysis.

Case Summary

Case Summary3. Case: Conventional

Valuation vs. Ecoasset Valuation

Conventional valuation on 90 acre parcel of vacant land. wetland forest with no timber

value no public water or sewer minimal road frontage with some

areas totally landlocked, 15 acres of wet ditched cropland soils not suitable for septic

drainfields property was undevelopable

Conventional value was $1000/acre, $90,000 total.

3. Case: Conventional Valuation vs. Ecoasset Valuation continued

Ecoasset valuation with highest and best use as wetland mitigation bank.

15 acres of cropland restored as wetlands yielding 15 mitigation credits

75 acres of wetland forest preserved yielding 15 mitigation credits total of 30 mitigation credits at $10,000 net per credit

Ecoasset value was $3,333 per acre, $300,000 total.

Ecoasset value was 3.3 times the conventional value.

Case Summary

3. Case: Conventional Valuation vs. Ecoasset Valuation continued

Similar property in the neighboring watershed.

Wetland mitigation areas higher demand and lower supply.

Mitigation pricing in this watershed is $40,000 net per credit.

More than 6 times higher than the conventional valuation.

Case Summary

3. Case: Conventional Valuation vs. Ecoasset Valuation continued

Additional ecoassets endangered species habitat at $10,000 to $85,000 per acre,

organic soil mitigation $30,000 per acre,

tidal wetland mitigation at up to $540,000 per acre,

tradable development rights,

carbon sequestration value at $100 to $500 per acre (?)

other marketable ecoassets with ascertainable comparable sales information

Case Summary

4. Cases: Re-Routed Stream Floods Neighbor, Erosion Cases, and More Erosion Cases

Case 4.1. High density residential development built on 50-acre prior woods

and fields.

Area drained by two small streams.

Increased impervious area increased in storm water runoff

All flow routed into one stream.

Exceeded the stream capacity, did not comply with storm water regulations.

Case Summary

Case 4.1. Continued Damage: erosion of scenic pond, flooding, undercutting

trees and ornamental plants, loss of mature shade trees, structural damage to a footbridge, and deep deposits of eroded yellow sand on and above the stream banks.

Proof: ◦ absence of topsoil◦ absence of vegetation in the sand ◦ exposed fine roots on tree roots recent erosion

The court agreed that the change in drainage patterns had caused the damage and ruled in favor of the property owner.

Case Summary

Case Summary

No Land Clearing 2005 Land Cleared 2006

Case 4.2. Upstream development caused massive discharges of sediment into neighboring pond. Attractive natural amenity changed to offensive murky storm water pond.

Case 4.2. Continued

Analysis included:◦ depth measurements in the pond, ◦ identification of the thickness and volume of new sediment, ◦ measurements of turbidity ◦ comparison with nearby unimpacted pond, ◦ measurement of suspended solids mass in the pond before and

after storms ◦ analysis of macrobenthic invertebrate populations ◦ stream impacts in the forested areas

Cost estimate was prepared to restore the pond.

Court awarded the pond owner $1,500,000.

Case Summary

Case 4.3. Condemnor deforested and denuded a hillside for utility

installation.

Hillside eroded and flowed into pond.

Improper sedimentation controls.

The cost to cure the hillside damage and other damage was computed along with impact on value of the property.

Case settled favorable to owner (all damages and fees paid).

Case Summary

Case 4.4. Large stockpile of soil from grading project.

Damage: ◦ blockage of access during rain events, ◦ major siltation of a pond, ◦ flooding/contamination of a water supply well ◦ increased moisture in the basement, mold, rot, odors, and

damage.

Required new well and installation of additional storm water treatment and conveyance systems on the downstream property in order to correct the damage.

Case Summary

Comment: Damages could have been avoided by

compliance with storm water regulations.

Flows could have been designed to eliminate off-site impacts.

Prompt stabilization of cleared areas by proper revegetation reduce sediment impact.

Case Summary

Case 4.5. Roadway was built as a high culverted causeway

embankment across a deep ravine near low income neighborhood.

Causeway formed a dam as sedimentation narrowed culverts, caused flood which destroyed several homes.

Could have avoided flood by using larger culverts. Need to anticipate sediment discharges in drainage basin, which ultimately blocked the small culverts.

Case Summary

Case 4.6. “Water boundary” is a property line based on the shoreline.

The property boundary changes as shoreline moves by natural accretion or erosion.

Gradual imperceptible changes.

Boundary does not change with sudden movement of shoreline (Avulsion).

Historic water boundaries estimated from:◦ shorelines visible on aerial photographs, historic surveys, and other

data.

Case Summary

Case 4.6. Examples of takings along shoreline:

Conversion of waterfront property to inland property

(1) permanent avulsion separates property boundary from the shoreline (e.g., bridge embankments on shoreline) (2) condemnation of beach for recreational purposes; property boundary no longer benefits from shoreline accretion

Case Summary

Case 5. The Wastewater Pump Station

  New wastewater pump station

adjacent to several houses.

Impacts to the homes ◦ Noise pollution from the pumps ◦ traffic from workers◦ odors, corrosive gas exposures

oxidized exposed copper ◦ light pollution◦ Negative perception related to

proximity of the pump station

Long sewer line where odors tended to accumulate in the long transit.

Measurements of hydrogen sulfide, carbonyl disulfide and carbonyl sulfide and atmospheric corrosivity.

Result: relocation of residents to homes in a new area away from the pump station.

Case Summary

Property value impacts are also related to other odor producing sites:◦ Animal feed lots◦ Wastewater plants◦ Biofuel and energy production◦ Composting◦ landfills

Can affect multiple properties or multiple neighborhoods

May impact real estate tax revenues

Case Summary

Case 6. Powerline Easement Utility company condemned hundreds of acres of waterfront

forest for wetland mitigation, and took a utility corridor diagonally across the property.

Impacts: eliminated waterfront access, reduced options for roads, added a large visual impact to the landscape, precluded wetland mitigation options

Professionals studied broad spectrum of development alternatives, including gated community, boardwalks, marina, equestrian uses, active lifestyle.

Feasibility of design demonstrated per existing approved wetland permits and similar projects. Value created by finding improved development concepts.

Case Summary