Gas Station Previously on Mixed-Use Property...What Are My Risks?

Question

All:

Looking at an out-of-market deal that seems to be a good one except for one (very big) issue. Property is currently MFH/Retail but used to have a gas station on it. Seller disclosed this to immediately and has been an open book thus far. He inherited it from a family member & believes there still could be a tank underneath the parking lot where the gas station previously sat.

I know any lender will require a Phase 1 & a Phase 2 bc of this. Let's assume the seller agrees to rectify any issues that my lender requires.

My questions are:

1) What are the future liability risks for me as an owner who purchased this property?

2) What do I not know that I should know about these situations that I should know?

For context, I have lots of RE experience but have zero P1/P2 experience.

Matt Devincenzo · Answer

When was it redeveloped from gas station to mixed use? Old dealerships and gas stations have been big redevelopment opportunities for mixed use the last few years. I've personally worked on 5 that had old tanks or fuel locations on site. P1/P2 identified limits of contamination potential, and the clients (large national developers) enrolled in the local "Voluntary Environmental Assistance Program" (VEAP or VAP). They remediated based upon that guidance and then built their project. In some cases 'minor' contamination was allowed to remain as long as it was within certain thresholds of acceptability, and there wasn't an impact to a beneficial source of ground water.

So I wouldn't write this off just because of the potential tank. Explore what was done and when, and whether that is sufficient or could be further cleaned up etc. It may be that you decide it's too big of a risk, but I would get the information and not just assume it is a problem.

Mason Moreland · Answer

Problems are opportunities to make money where no one else can... Not much advice for remediation since I was mostly on the "ID and Investigate" side of site contamination, but there is probably a deal hiding there if you can protect yourself adequately.

One thing I do know is if it was a gas station in the 1950's and before, it TOTALLY had leaks!!!

Henry Clark · Answer

@Will Gaston

This is a state specific question.

Call your SC DNR group and ask them where to find the list of sites on record.  Then see if your site is listed.  Tell them about your site and get their input.

Find out liability and cost share on that site or in that state.

Nebraska- owners during the contamination period are liable. Your exposure is building over something and then having it torn out for any remediation purposes.  Nebraska has a partial fund set aside.

Iowa- Will kick in up to $25,000 for remediation.

Remediation:  might mean hauling off a lot of dirt.  Might mean spreading over a farm field and discing in.  Or ?????.

Key is to call your DNR group and ask the question specifically about your location.  Each state is different.

Matt Devincenzo · Answer

An older decommissioning can mean that there are not many records of what was done and very little may have been done other than just not using it any more, but that may be ok still. The ones I've seen old tanks were left in the ground but emptied and filled with sand or slurry. My projects were complete redevelopment so they were then removed as part of the site grading and any extra contamination was removed. One site had some decent soil removal required from additional leaking, the other had very little to no additional leaking or soil removal required. I haven't worked on a project like yours where the current use was being continued, but I have seen other info in research etc. I've seen sites with minor leaking etc that could still meet standards if they install monitoring wells and pump the contaminated water out for cleaning and then discharge. Obviously that is a cost, but again things like this can be dealt with.

As far as the City water, that helps since it won't be an issue for the tenants. But when I say there is no beneficial use for the groundwater I mean in the watershed not just the site. If the groundwater under this site serves another purpose such as municipal drinking water source, agricultural water source etc then it could be an issue.

It may end up being that you are better off walking away, but I wouldn't just be scared because of the past use. Thousands of properties like this are all over the country and are being used and cleaned up every day. There are for sure many that are 100% not worth any sort of liability you'd take by purchasing them, but the cleanup options are out there...and in my limited experience with these sites the local govt agencies are actually ok to work with. They understand that being reasonable and helpful gets a site cleaned up vs. it just staying as is because no one wants to deal with the hassle.

In a sense I'd look at this as a positive. You have a very transparent seller with an issue that many others won't be willing to deal with, and are already looking to get the real info on the situation. So that may very well allow a good deal to be had.

Will Gaston · Answer

@Henry Clark thx Henry & will do 👍

Will Gaston · Answer

Hey @Matt Devincenzo I appreciate all of the great counsel. The seller & I have a fantastic rapport so I feel like the worst case is I can learn a lot & not have a ton of risk if I just walk away. Seems to be a pretty big grey area in these situations & am interested in learning more. Thx again!

Will Gaston · Answer

@Matt Devincenzo thanks for the feedback. The gas station is/was in the parking lot and was closed down in 1955. The mixed/use building used to be a car dealership as well as some other retail. I'm unaware if the actual building has any issues but will find that out, too.

I've spoken to the P1/P2 consultant and hoping to find out more once they do their thing. However, it does sound like if there is any groundwater contamination then that isn't something I'd want to mess with. I believe the property has City water so hopefully that won't be an issue. Any insight on this?

Caroline Gerardo · Answer

Cash deal/ seller carries paper and assumes partial liability. Old gas stations were not watched or regulated highly but they are now. If you buy this you won't sleep soundly.

Will Gaston · Answer

@Caroline Gerardo serious question: If this is case then how does anyone buy anything that has a potential environmental liability with it?

Caroline Gerardo · Answer

All tanks leak. There is no sure way to avoid liability to poison water table or neighbors from whatever happened in the past and future. Go look at soil vapor extracting costs/ sparging/ lawsuits...

Gas Station Previously on Mixed-Use Property...What Are My Risks?

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