REBusinessOnline

Fair Exchange?

By Leland Hahnel, CresaPartners St. Louis

While at first glance the correlation is anything but obvious, the need to protect dwindling populations of blue crab and striped bass in Chesapeake Bay earlier this decade is making it more costly to develop, maintain and purchase goods at a shopping center in St. Louis County today.

Late in 2006, the St. Louis Metropolitan Sewer District (MSD) adopted new standards which significantly changed the ground rules for the planning and design of new commercial and residential developments. Prompting the overhaul were wide-ranging new Environmental Protection Agency (EPA) guidelines governing the treatment and release of storm water — a perpetual concern for the regulatory body.

It turns out the new guidelines adopted by MSD parallel those employed by the state of Maryland late in 2000 as it sought to halt the ecological decline of iconic Chesapeake Bay. The good news is that even though eco-improvement is slower than originally projected, the measures are producing positive, quantifiable results. Underwater grasses — a prime habitat — improved to cover 65,000 acres of the bay in 2007. Striped bass populations have rebounded, in part due to the re-opening of 2,266 miles of freshwater stream habitat for migratory fish. The new laws also mandated that developers manage wastewater in a way that drastically cut levels of nitrogen and phosphorous introduced to state waterways by land improvement. Last year, nitrogen-reduction readings came in at 69 percent of the long-term goal; phosphorous reduction at 87 percent.

It is difficult in this ‘green’ era to argue against regulation that benefits the environment and easy to understand why municipalities coast-to-coast are adopting storm water mitigation policies. Yet the new rules have their critics.
That’s because the new MSD standards not only mandate that development-related storm water be detained so as not to increase the rate of runoff into waterways. They also require returning storm water to waterways in a nearly pristine state. Both are tall orders, and achieving compliance is not cheap.

In addition to traditional surface detention basins, bioswails have become a solution favored at suburban or suburban fringe properties where development density is often less intense or where the cost of land isn’t quite so dear. A bioswail is essentially a natural gutter — a grassy trench much like an inverted speed bump that slows water flow so it can be absorbed into the ground. Of course, ground devoted to a bioswail is ground that can’t host a building, sidewalk or parking lot. That indirectly hikes the total cost of a project by lowering development yield.

Sand filters are a solution that scales well to compact or densely developed sites or to those possessing steep grades. A typical sand filter consists of three chambers. The first is the sedimentation chamber, which removes floatables and heavy sediments. The second is the filtration chamber, which removes additional pollutants by filtering run-off through a bed of sand. The third is the discharge chamber, which leads the treated water to the community-wide storm drainage system or directly to surface waters. While this technology is not new, what is new is the size (and the associated cost) of the underground detention structures now needed to meet new MSD standards.

With generalities established, let’s get specific. The 65-acre Manchester Highlands retail center in west St. Louis County is one of the first major new developments being built to 2006 MSD standards. The property has a high amount of impervious area (land covered by structures or parking lot) and requires both above- and below-ground detention. In pre-2006 feasibility planning which reflected the old standards, the developer budgeted approximately $2.3 million for storm water compliance. Today, that number has grown to $3.2 million — a 39 percent hike — due to new requirements.

Developers are not the only ones who will feel the impact of these heightened costs. Beyond initial construction, ongoing costs to maintain these systems are also substantially higher due to their increased size and the higher purity standards they must meet. Retail tenants, and in the end, their customers, will bear the burden in developments where common area maintenance costs are paid.

Another cost-booster with significant impact on institutions and owners of commercial real estate is MSD’s realigned rate structure. Previously, storm water fees were charged on a flat rate, per property basis. Fairly or unfairly, the size of the property did not matter. Ultimately, what did matter was that MSD was generating insufficient monies to adequately maintain the system.

Earlier this year, MSD ushered in a new formula on which to base its monthly levy — 12 cents per 100 square feet of impervious area as mapped on a given property by aerial surveillance. Recent newspaper stories detailing the impact of the change show that owners of any highly developed piece of property, including churches and schools with large parking lots, are paying hundreds of dollars more per month in waste water fees — a cost far above the 15 percent increase that MSD says the typical homeowner will experience for the balance of 2008. And waste water costs are likely to go even higher. Originally, MSD was on track to implement a 64 percent fee increase between now and 2012. Public opposition led to enacting a one-year increase and re-visiting the topic later this year.

In the end, our region is making a trade. In exchange for brighter prospects for purer water in our rivers and streams, we’re hiking the underlying cost to develop, own, and maintain institutional and commercial properties. While pros and cons abound, the one certainty is that owners, tenants and consumers will need to factor the costs of this new reality into real estate transactions going forward.

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Leland Hahnel is vice president of project management at CresaPartners St. Louis.

Content Partners
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‣ Walker & Dunlop

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