SAN DIEGO FORMER TERMINAL LAND SALE

Union Oil operated a 3.9 acre petroleum fuels terminal near the Port of San Diego between 1907 and 1970.  The property was sold and then repurchased as a result of extensive environmental contamination.  After installing and operating a groundwater remediation system for several years, contamination that had migrated off site was reduced to regulatory requirements.  Significant contamination remained in on-site soil.  Since this area of the City was undergoing extensive redevelopment, including construction of  the new Petco ballpark and upgrades to an adjacent light rail system, there was a high demand for the property.  We were approached by a regional developer interested in acquiring the site for redevelopment as a mixed use commercial/residential high rise.  The developer was willing to provide environmental indemnities for existing conditions onsite.  However, the development company was not highly capitalized so we were concerned with their ability to financially back the indemnities.

Union Oil desired to have no risk of a repeat lawsuit after having had to reacquire the property once already.  Elimination of the existing onsite soil contamination would require excavation of all soil from surface down to 6 feet and disposal offsite.  After extensive negotiations with the Buyer over development plans and excavation cost estimates, the developer agreed to 1) utilize below grade areas for parking only, 2) limit residential uses to floors 2 and above, and 3) fully excavate the property and dispose of contaminated soil offsite with a sale price reduction sufficient to cover the additional cost.  Since the value of the property was considerably more than the cost to excavate, this offset was easily accommodated and Union Oil did not have to come out of pocket.  To ensure that the excavation work was accomplished to our satisfaction, we required the developer to provide an irrevocable letter of credit in the amount of $6.8 million and guaranty that the work would be completed within 26 months, including issuance of a “No Further Action” letter from the regulatory agency.  In addition, the developer purchased a cost cap insurance policy for themselves and agreed to name Union Oil as an additional insured. 

We successfully closed escrow at the market peak.  Union Oil recognized a significant sale price, net of remediation costs, and did not have to expend environmental funds to complete the cleanup.  When the work was concluded, Union Oil was able to release the letter of credit to the developer.

FORMER SAN DIEGO FUELS TERMINAL