The very first thing I Iearned in the Exxon-Mobil merger (really Exxon’s acquisition of Mobil) is that large corporations generally do NOT have a single unitary inventory list of all of their real estate! With real estate all over the world, despite centralizing intentions, at least some real estate operations are stubbornly decentralized. For example, the landmen in the field would negotiate an easement to get an oil well, and almost never tell headquarters about it! I later found that neither Marriott nor The American National Red Cross had complete lists of all of their real estate either, so this is a very common problem.
Even in an age of potential environmental deregulation, it’s going to be very difficult to radically change settled environmental expectations of both the American public and large corporations, and the large environmental cleanup costs that have already been or are being incurred. For example, during the time I worked at Mobil, the company was being sued at 300 Superfund hazardous waste sites for billions of dollars of cleanup liability. In a typical purchase and sale transaction, the seller would contractually indemnify the buyer for the cleanup of any hazardous waste on the property being transferred.So I would advise corporate real estate teams to understand that, even if parties to real estate transactions allocate the hazardous waste liability among themselves, such as by an indemnification contract, the indemnification is only as good as the financial strength of the indemnifying party.
My most rewarding recent consulting project was serving on an Urban Land Institute (ULI) national panel to study the problems of real estate resilience, particularly sea level rise, in Norfolk, Virginia. After New Orleans, Norfolk is the US city most endangered by sea level rise. Not only is the sea level around Norfolk RISING, but Norfolk itself is SINKING, in part because of the weight of the concrete barriers that the city has used to try to fend off the sea level rise. Thus, attempting to cope with sea level rise with concrete barriers can actually make the sea level rise problem worse! With its splendid natural deepwater port just inside Hampton Roads and the Virginia Capes, Norfolk is the largest naval base in the world—but if sea level rise is not arrested soon, Norfolk will disappear within 50 years.
The panel was ably led by John McElwain, who led ULI’s extensive post-mortem on SuperStorm Sandy. Other panelists included a Harvard Business School professor who has been CEO of a major construction firm, a skilled land planner from Washington DC, economic development officials from New York and Vancouver, and the top residential appraiser in New York City. It emerged that sea level risk is vaporizing coastal property values in Norfolk. Until now, waterfront property has always been sought-after and thus expensive. But sea level rise is making the traditional high values of waterfront property plunge overnight—the valuation dimension is crucial in resilience. By skillful use of comps, the appraiser was able to show just how much waterfront values in Norfolk are plunging. Frankly, it’s scary.