March 20, 2006

Public Loans for Private Companies Aiming to Clean Up

Borrowers line up to apply for low-cost funding from a state authority that finances brownfield reclamation

Brian Quinlan
NJBIZ Staff
3/20/2006

EAST RUTHERFORD
With new construction sprouting every day, virgin land is an increasingly rare and expensive commodity in the Garden State. But there is no shortage of brownfields-contaminated sites where landfills or industry have left their toxic mark.

That's where the New Jersey Environmental Infrastructure Trust [EIT] comes in. The agency, an arm of the state's Department of Environmental Protection, recently closed its biggest loan ever to help a private company reclaim contaminated land.

The deal has grabbed the attention of executives in a number of other private companies, says EIT Executive Director Dennis Hart. As a result, the agency finds itself pursued by more for-profit businesses than ever.
Lawrenceville-based EIT can make it less expensive to build on brownfields by providing low-interest loans to companies and municipalities looking to clean up and return to the tax rolls some of the 8,000 brownfields scattered about the state.

In December, the agency dished out $212 million to help a North Carolina firm remediate 780 acres of contaminated land in East Rutherford, says Hart. Part of the loan-$100 million-is interest-free, Hart says. Interest on the rest is about half the current market rate. Cherokee Investment Partners and its subsidiary, EnCap Golf Holdings, will clean up four retired landfills near the Meadowlands Sports Complex. Once the cleanup, estimated to cost $182 million, is done in about five years, Hart says the company will sell the land with an approximate asking price of $211 million.

The state will reimburse 75% of the clean- up costs for the site, says Hart. Cherokee will receive part of the payment in lieu of taxes from the municipalities that will benefit from the clean land, and receive money from companies looking to dump dredge spoils and recycled fill material.
The Cherokee deal marks a change of strategy for the agency. "I think this signals the start of us loaning more money to private institutions," Hart says.

The EIT recently started talking with Titan Industries, which is partnering with the township of Carteret to spend $40 million to cleanup a landfill. Once finished, the developer plans to build a warehouse on the site.

The trust started in 1985, providing cut-rate loans to help local governments improve their sewage and water lines. Now it is branching out, Hart says, because private businesses have more resources and are willing to take more risks with their money than government agencies, which deal with tax dollars, when it comes to cleaning up soiled land.

Still, Cherokee couldn't have taken on the Meadowlands project if it hadn't been able to augment its resources with low-interest money from the EIT, says Stephen Pearlman, a partner with Teaneck law firm DeCotiis, FitzPatrick, Cole & Wisler who represents the private equity firm. "If the loan was all done at market rate, we wouldn't have been able to afford it," he says.

"These projects are of such a magnitude that they just can't get done by state, county or local governments on their own because they can't afford the debt service," says Pearlman, who once worked for the EIT.

Cherokee and EnCap say when the cleanup is done, which began in November, the land will be suitable for more than 2,000 houses, a conference center and three golf courses.

Bob Johnston, the EIT's community relations manager, says the remediation is important because the landfills now leak some 100,000 gallons of contaminated water into nearby rivers each day. "Nobody has been able to stop the leakage," he says."

Pearlman says the EIT has grown tremendously since he got involved in 1987. Back then, the trust closed about 15 loans a year, he says. These days, loans averages 40 or 50 a year.

In 2005, the EIT's biggest year to date, it provided more than $279 million in financing for 46 projects that cleaned up drinking water and sewer plants, says Hart. Since its inception the trust has provided $3 billion in financing to clean up New Jersey.

Johnston says the trust relies on federal funding and fees to stay afloat. On each loan, it collects a 0.01% closing fee and an administrative fee amounting to 0.03%, Hart says. And these small percentages add up. For the Meadowlands project, he says, the trust will collect $100,000 a year in fees, amounting to $2 million over the life of the loan.

Nevertheless, Hart notes that federal funding has been a downward path for the past three years. In 2003, the federal government provided $55 million to the EIT and similar projects in New Jersey. This year, Hart fears the federal government will slash funding to $27 million.

"The federal government walking away from their commitment to these kinds of projects is a tragedy," he says.