Sunday, December 11, 2005

Cleaning Up Superfund Sites in "Hot" Real Estate Markets

A recent NBER Working Paper conducted an extensive Census Based analysis of how home prices change in a vacinity of recently cleaned up Superfund sites. The study nicely constructed a credible control group (see http://www.nber.org/papers/w11790). The authors of this study "cannot reject that the clean-ups had no effect on local housing price growth, nearly two decades after these sites became eligible for them."

The article below highlights the importance of considering the possibility of "heterogeneous" treatment effects. Clean up a superfund site in a declining Northeast center city such as downtown Detroit and I predict that there will be little effect on local prices.

Alternatively, cleanup a zinc mine's debris in a potential ski community for the wealthy in Colorado and prices can soar in a vacinity around the polluted site.

After reading this New York Times article, I would like to know more about the spatial distribution of Superfund sites. How many are in cold Northeast older cities? Versus, how many are in possible tourist magnet locations such as this Colorado Site. The Greenstone/Gallagher paper measures an average effect. Across the whole nation, how have home prices changed on average near Superfund sites up to the year 2000. But, what is the distribution of these effects? In what types of areas have the appreciation rates been highest? I would predict that the greatest price appreciation would occur in high quality of life areas or in areas that had low quality of life and where quality of life has improved. For example, in the Bronx in New York City as crime has sharply declined past Superfund sites may now be desirable middle class housing locations for those who work in Manhattan.


December 11, 2005
National Perspectives
From 'Superfund' Town to Pristine Ski Resort
By ALEX MARKELS

TO many who drive along Colorado's Highway 24 toward the Rocky Mountains, the town of Gilman sticks out like a sore thumb: a cluster of boarded-up shacks, dilapidated buildings and heaps of rusting mining debris accumulated over a century when the town sat atop the Eagle Mine, once the world's largest zinc mine.

Bright orange streaks of rusty mine tailings containing toxic lead, zinc, arsenic and cadmium stretch down its vertiginous slopes toward the Eagle River, the most visible of eight million tons of contamination so poisonous that the town was abandoned in 1983 and the area downstream declared a Superfund hazardous waste site by the Environmental Protection Agency.

Yet in the hopeful eyes of Edward R. Ginn, a real estate developer, the otherwise scenic location nestled among granite peaks and pine forests just a few miles from the Vail ski resort is a trophy property ideal for building a private ski resort community.

"It'll offer the perfect, pristine mountain experience," said Mr. Ginn, 56, of his planned $4 billion development, which is expected to include up to 1,700 homes, a gondola connecting Gilman to the ski slopes and a castlelike hotel-and-golf-course complex built on the mining tailings.

A risk taker whose bets in Florida and the Southeast have paid off handsomely in recent years, Mr. Ginn has successfully invested in other sullied properties, including $450 million in recent sales of home sites at Bella Collina, a resort development on the shores of Florida's pesticide-contaminated Lake Apopka. As in Florida, Mr. Ginn is convinced his upscale clientele will jump at the chance to buy homes on the Gilman site.

Last year, his development company, the Ginn Company, paid more than $32 million to buy Gilman and more than 5,300 acres on the surrounding mountainsides and valleys.

Mr. Ginn has invested millions more in nearby Minturn, a town with a population of 1,100 on Vail's backside that borders the Gilman property. He has also donated to local charities and hired Minturn's former mayor and a local newspaper reporter to help persuade residents to support a venture that could quadruple their town's population, as well as its vehicle traffic.

At a time when skyrocketing land prices have tempted builders to develop so-called brownfield sites once considered too contaminated to build on, Mr. Ginn is a prime example of a new breed of developers. "They find land that's value has been written down because of past contamination, then they clean it up and redevelop it," said Stephen D. Villavaso, a land use expert who is co-director of the Center for Brownfield Initiatives at the University of New Orleans.

It is increasingly profitable to do so, thanks, in part, to federal legislation signed by President Bush in 2002 that limits the legal liability for "innocent landowners" who develop sites polluted by their former owners. The law also provides for federal grants and loans, sweetening the pot with millions in incentives for anyone willing to transform the eyesores into clean, useful properties. States and local governments, too, have offered a variety of tax breaks.

Still, the costs of cleanup can be immense. In Gilman, the price tag stands at more than $80 million, not to mention a trail of lawsuits and distress for the string of past owners saddled with paying to clean it up.

The problems began in 1984, after the mine was closed and engineers responsible for sealing it allowed its shafts to fill with water. Samples taken from the Eagle River soon showed that toxic metals from the mine were seeping into the watershed, prompting legal claims against its owners under the Superfund law.

In 1989, snowmakers at the nearby Beaver Creek ski resort noticed a strange tinge to the snowflakes made with water pumped from the Eagle River. A surge of toxic sludge from the mine had turned a seven-mile stretch bright orange, tainting the water supply.

"Everything was dead," said Caroline Bradford, a longtime resident who is executive director of the Eagle River Watershed Council, a nonprofit group working to revive the river. "No fish, no bugs, nothing."

A water treatment plant was built to remove the contaminants, and over the next decade, millions of tons of toxic debris were moved to a huge tailings pile along the river, which sits inside the large tract of land Mr. Ginn plans to develop. The E.P.A. planned to declare the cleanup complete, based, in part, on studies showing that the fish and insect populations in the river had rebounded. But recent tests indicating a stall in the recovery forced the agency to postpone its rescinding of the site's Superfund designation.

Mr. Ginn plans to use some of the proceeds from land sales to continue the cleanup effort. He also noted that most of the land set for development sits upstream of the contamination and outside the boundary of the E.P.A. cleanup. "We could not develop on the Superfund site and still have a 5,000-acre community," Mr. Ginn said.

Although several approaches are under consideration, Mr. Ginn and his associates are eager to include the contaminated areas, which sit on some of the flattest, low-lying portions of the rugged property, for their hotel complex.

"It's our icon building," William H. Weber, senior vice president of the Ginn Company, said recently as he pointed to an artist's rendering of a Scottish baronial-style hotel complex that would include a golf course on what is now the Superfund site. "Then we'll also have an upper village with ski-in/ski-out homes and condos," he said.

All that will be possible only if he and Mr. Ginn can persuade the town of Minturn to annex the property, which is on unincorporated county land. If it becomes part of Minturn, it can be rezoned for development denser than the 35-acre parcels to which Ginn is now legally entitled. Last month, a proposal was submitted to the town council and so far the response has been positive. "It gives us the chance to control our own destiny," said Tom Sullivan, a member of the Minturn town council. He said he was confident Mr. Ginn would develop the property, "so the question is, do we want a say in it or not?"

Property prices in Minturn have surged since Mr. Ginn first made his plans known. Last summer, Mr. Sullivan sold his bed-and-breakfast to Mr. Ginn's company for more than $6 million, and has used the proceeds to invest elsewhere in town.

"Prices are probably a little inflated at this point," Mr. Sullivan said. "But Minturn is still the least expensive part of a high-rent district, and it's one of the nicest places to live in the county."

Mr. Ginn is betting his customers will feel the same way.

3 comments :

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Anonymous said...

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Anonymous said...

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