Redevelopment of Former Gas Station...

Fellow Fastlaners,

Is there a developer in the community, or someone you may know, who has successfully redeveloped a gas station?

I'm looking at a particular opportunity and would love to get some solid advice with regard to site acquisition/negotiations, site remediation, securing attractive tenants, etc.

Please feel free to send me a PM.

Thanks folks.

Anthony

Don't know of anyone personally. I would think soil quality and underground tank integrity would be the first priority when considering this. Just MHO.

I would have the seller pay for what I think is called an environmental impact study or something like that. Basically, they do soil samples to see if there were leaks at all.

The last thing you want is to be on the hook for a million dollar epa cleanup

Not sure if its the same everywhere, but here its called a "phase one" environmental study. Its a basic look at the condition at the soil under and around the storage tanks. You want to start there. Not sure on the seller paying for it up front, but you could make an offer with a stipulation that if the site is contaminated that they reimburse you ($1500-3000). As stated, it can get VERY expensive to clean up a site. There is usually a 3-6 month test period time, then the clean up. There are further tests after the phase one, but thats where you start. Be very careful, this is not like rehabbing a house. We have a site here that was once an Exxon site that even they won't clean up, it was so bad (if that's any indication as to expense).

Not deterring you, just be careful and get a qualified party to assist you through this.

Runum, Kurt and EasyMoney --

Thank you all for responding.

Based on preliminary discussions with the listing broker, the oil company has agreed to perform all site clean up. In addition, the broker is suggesting that the close of escrow not be contingent upon delivery of a clean site, given the time frame for such a clean up could take between 18 months and two years.

That last sentence, in particular, is why I want to speak with a more experienced developer. As such, I will continue to do my homework and seek answers to questions I have.

Thanks, again, fellas. All the best.

Anthony

translation- I want paid my commission, so screw you. No need to make the offer contingent on them cleaning it up first. Why would you want a silly little thing like that?

lets say you buy it and whatever division of exon that owns files bk, who will be on the hook then?

LOL!!!! Truer words have never been spoken, Kurt. The minute that sentence crossed his lips, I said to myself, "Yeah, right."

Chevron, actually, and an excellent question that I'll pose to my attorney.

make sure he is up on EPA crap. From what I understand, they can reach pretty far when it comes to this stuff.

you should get an option on the site...closing occurs AFTER all remediation is complete and inspected by your environmental people.

Sid23,

That crossed my mind a while ago. I mentioned it to an investor/broker that I know several months ago who shot my idea down. He stated that no one would give me an option on a choice parcel of land in this economy. How does he know? Like an idiot, I tabled the thought -- putting a governor on my idea's potential -- instead of keeping my own counsel and letting the chips fall where they may.

That brings me to what I love most about this forum -- you're taken to task, around here, for not taking action not for trying new ideas. Such an environment is not only encouraging to newbies like myself but it also lends itself to being an educational venue, as well.

Kudos to MJ and all the other wonderful contributors on this forum who share their insights, experience and expertise with the rest of us.

Thank you, Sid23.

Anthony

Development is all about risk reward. The #1 lesson I've learned is how to understand the risks and then plan to MITIGATE them as best as possible.

To me, it doesn't matter how good the site is with that kind of risk involved. You could close on the site, dump a million bucks into predevelopment (which in CA is normal) only to find out the remediation was unsuccessful, or worse, not considered "acceptable" by the city and the dozens of environmental groups in CA that will have their eyes on this. Your million is down the toilet and then worse, you won't be able to resell it to anyone because they know the site has environmental issues that are prohibitive.

Granted, if you had a $50M net worth (or partnered with someone who did) and they were willing to fund the closing and predevelopment costs (because they figured you guys might back that money back 10x over) and the risks were worth it to them, then go ahead and close and take your chances. Someone with that type of money changes the "risk reward" ratio. To them, dropping $1M to make $10M might be a risk they are willing to take.

Also, I'm surprised no one would offer you an option "in this economy" as you put it. No one can get construction financing, so landowners can't unload property. Not sure why someone told you what they did. Remember, you often get what you pay for when it comes to advice.

Good luck with however you proceed.

I have a question, is this opportunity so good that it's worth the trouble? I only ask because there are many fantastic opportunities now in the marketplace that projects with added pressures from government agencies seem to make them less attractive. I've spent a lot of resources in the past fighting the EPA and working with gov't and it's a very long process.

Sid,

I am certainly not worth $50,000,000 but am working to mitigate the risk, as much as possible. Thanks, again, for your well wishes.

Randall,

The land sits out near the ocean in an area where there are very few buildable parcels left. The tenant ideas I have, after speaking with a prominent broker in the area, would be a nice addition to the commercial lifeblood of the community. Of course, a proper feasibility study will have to be performed.

It's also a situation where I can be creative given the current economic environment we're in. I've kissed a lot of investor frogs, lately. All talk, no checks. Any deal where I can potentially get the ball rolling on my own is very attractive to me, right now. I don't have a problem with the time frame, as I knew this was a long term play when I first saw the lot.

Also, one of the real estate operators I follow, Tom Barrack, of Colony Capital, is contrarian in his thinking about real estate. I'd like to do the same wherever it makes sense.

I'd like to hear about some of your EPA interactions if you have time. Any insights are appreciated.

All the best and thanks for the response.

Anthony

You need to get a phase 1 done, if it comes back contiminated like they usualy do on gas stations you need to make your offer contingent on the owner cleaning it up.

My uncle just bought an old gas station parcel and it was already cleaned up, Exon did the remediation. Look at it this way, until its cleaned its totaly worthless. If they tried to give it away for free no one would take it.

So here is what I would do; also don't listen to the listing broker. He is not representing you, you are not his client.

1. Make an offer contigent on a phase 1, you will probably have to pay for it out of pocket. I'd try to work something out with the seller. Also make your offer contigent on the next point.

2. If they accept your offer and the phase 1 comes back showing it needs some work(which it probably will) than the seller has to preform all remediation work before you can close. If it takes a year so what, thats not your problem.

CA is probably a lot tougher than CT, and in CT underground tanks are a nightmare.

The economy sucks and this is a tough parcel, they are not going to have people banging down their door. The listing broker knows no one is going to buy a gas station unless its cleaned up. On top of that in this economy the only person who can buy a parcel like that is coming in with cash. Its extremly difficult to get construction financing, and if you do they are going to require the land to be cleaned before lending on it.

Hatteras,

Everything you outlined is exactly what I've been planning to do.

The listing broker does not have my best interests at heart -- he works for Chevron. I may not be long on development experience but I'm smart and humble enough to ask questions. The fact that he honestly thinks I would make an offer without a contingency with regard to the site being delivered clean only re-enforces that time honored dictum of 'Caveat Emptor'.


How long did the remediation take in your uncles' deal? You're right, CA is no joke when it comes to the environment. One only need to fly into LAX and witness the brown haze that we deal with on a daily basis to know that environmental efforts out here are mission critical.

Thanks for the advice.

Regards,
Anthony

Hi, I have a lot of experience here (but not much time currently available).

The Fed EPA has nothing to do with this. Congress waived sovereign immunity under the Clean Water Act to the states. In Ca the State Water Board has purview over groundwater contamination, including the Underground Storage Tank (UST) program. The State Board further delegated to the Regional Boards. Do believe Santa Monica is covered by the Los Angeles Regional Water Quality Control (LARWQCB) Board.

So, you need to find if the LARWQCB has a case file on this property.

Also, large counties and cities in CA have CUPA authority, which means the UST program was further delegated from the Regional Board to the city or county

I am in NorCal so I don’t know about Santa Monica, but it looks like they have partial CUPA authority.

See here:

Santa Monica OSE - CUPA Billing, Questions & Disputes

I did not see a UST program on the web site, so you need to ask them who administers that program. Then ask that CUPA authority if they have a case file.

Don’t waste your money on a Phase I. The consulting firms use phase I’s as a loss leader to get more business. Start with the assumption that you will need to do a phase II (which means soil sampling).

I guarantee a regular city gas station has contamination. It is all just a matter of 1) how much, 2) what and 3) from where.

The cleanest gas station in the state still had accidental spillage around the fill ports and island station dispensers. Just an operational fact.

I’ve cleaned up Chevron stations before. If the station is rather clean (still requires sampling) you can get often get a ‘No Further Action’ letter from the CUPA in about a year, maybe less if you did the sampling right and had someone with writing skills and industry knowledge write the report. Cleaning up a Dirty tank site will generally take 2-5 years and quite a bit more $$$. There are ways to indemify but it won't be easy or cheap.

You biggest problem could be not the leakage from the tank, but leakage from NEIGHBORING businesses onto your site. Now you have a co-mingled site, and the lawyers will fuck it all up, believe me.

To make sure that is not the case you need to do some due diligence. For starters, run the site (GPS coordinates) through the Geotracker to see if there are any nearby sites.

http://www.swrcb.ca.gov/ust/electron...yz_4_14_05.pdf

Also, your general area (I don’t know about your particular area) has a problem with TCE (aka PERC). Read about it here:

http://www.swrcb.ca.gov/water_issues...s/pce_0209.pdf

Try to find out if a drycleaner operated in the area (source of TCE). Look at the last 50 years of aerial photographs to see what businesses or buildings may have FORMELY existed but are now demolished; these are potential contamination sources. If there is industrial nearby, look into that as well.

So, you have some decent homework to do here. Rehabbing a gas station is definitely do-able and can be quite profitable since many are (at least WERE) in prime locations, but you need to VERY CAREFULLY follow a SET process, dot your I’s and cross the t’s.

1. Find the RWQCB case file
2. Find the CUPA file, or regulator
3. Run site through geotracker
4. Interview the former owner (Chevron sold many franchises in California; try to find that original owner/operator).

At that point you can determine if you need to do a Phase II or not.

Good luck.

My uncle pruchased the property from a developer that went to jail for some reason, and his lawyers told him to sell it because they wanted to get paid.

The property had already been cleaned up and approved for 10 condo units, when my uncle bought it. It was originaly listed several years ago at a crazy price, but as his legal bills went up the price came down to reality.

However Exon did all the remediation prior to selling it to the original developer.

You have been given some good adivce in this thread, so good luck with it. Its really no different than buying any other parcel for development, you simply need to do your homework.