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Redevelopment of Brownfield Site into Successful Transit Oriented Development
Client: The United States District Court, Northern District of California
dashed line separator In 1999, the Chief Judge of the United States District Court in San Francisco engaged Gruen Gruen + Associates (GG+A) to analyze the failure of her current and past Special Masters to even partially fund the Medical Plan of the steelworkers who had been put out of work when the Pacific States Steel Corporation (PSSC) closed more than 22 years earlier. The Court had taken over the company in 1984 in response to a lawsuit filed by the retired steelworkers seeking to obtain the medical benefits promised in their contract with PSSC. Neither of the two Special Masters appointed to take over PSSC on behalf of the Court had been able to fund even a portion of the Medical Plan. The Judge asked GG+A, Why? The simple answer to that question was that PSSC’s only asset was a contaminated site with wrecked buildings on it. The more complex and meaningful answer was the failure of the Special Masters to wind their way through the complex process of converting a contaminated and landlocked site into cash. The Court appointed GG+A and two of its principals as Overseers, and then, after a hearing, as Special Masters, to monetize PSSC’s asset without any governmental subsidy. When GG+A took over, only about 23 acres of the 84-acre site had been cleaned of contaminants. On that land, 84 single family homes constituted the first phase of a new neighborhood that had been completed but not yet sold; all further construction was stopped by a series of regulatory and local entitlement issues.

GG+A began the process of remediation and asset enhancement by obtaining a new Remedial Development Implementation Plan (RDIP) to remove toxic materials and preparing a new plan of reorganization that was approved by the Court. Simultaneously, GG+A began resolving the issues that had shut down the single family project on the clean 23 acres, so that sales began and construction restarted. At completion, that development produced and sold 204 units. The cash flow from this initial residential development provided initial funding for the program of remediation on the remaining acreage, which began after the new RDIP was approved by the California Department of Toxic Substances Control (DTSC), which had taken over environmental jurisdiction of the site from the EPA. Cash flow from development of the 23 acres was also used to begin paying the claims of surviving beneficiaries of the steelworkers’ Medical Plan.

Plans were drawn for two additional new neighborhoods and the requisite infrastructure, including access to the remaining 61 acres located between two railroads and a BART track. The plans called for a new neighborhood of townhomes in Union City and a new single family neighborhood in Union City and adjoining Fremont, as well as the right of way for a future highway. The right of way was sold to the City of Union City for $700,000 an acre, as the requests for entitlement of the residential neighborhoods were being considered by that City. Builder KB Home (KB) was selected to begin construction of the new neighborhoods and supervise the construction of the necessary infrastructure, once entitlement was received from the local jurisdictions and portions of the site received “clean letters” from DTSC. In addition to “up front” payments of $700,000, as land was taken down by KB, the purchase and sale agreement called for profit participation after completion of the entire development.

Remediation was done in stages, so that some residential construction, roads into the site, and other backbone infrastructure could take place as soon as the first area was clean. By 2007, the development of three transit-oriented neighborhoods totaling 742 units in all, was completed. The final “clean letter” from DTSC had been received in 2006. The steelworkers’ Medical Plan was fully funded and set up as a Voluntary Employment Benefit Association. Gruen Gruen + Associates earned, but refused, a $2 million development fee for completing the project and paying out more than $14,600,000 to creditors other than the steelworkers. The development bonus refused by GG+A was divided among the remaining living steelworker beneficiaries to reimburse them for the many years that they had received no medical benefits. Further, the steelworkers’ contract excluded medical devices like hearing aids, which the $15,000 payment per beneficiary permitted them to purchase. More than $20 million of remediation costs were paid in full from the proceeds of the development. Over $16 million in cash remains as working capital for the development of the remaining acreage, and the payment of additional creditors when all lands are sold.

The City of Union City turned down a request by Gruen Gruen + Associates to allow the 16 acres that constitute most of the remaining acreage and had been used as a containment area for clean slag waste to be sold and developed as an experiential 21st century shopping center. GG+A is now in the process of marketing the site to an institutional use. The cleanup of the site and its development into an award-winning transit-oriented project has spurred significant further development and commercial construction on adjoining sites, so as to create a larger, highly successful, transit-oriented mixed-use development within walking distance to the Union City BART Station.




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