December 14, 2018

Why Dry Cleaners Pose Problems for Commercial Real Estate Properties

Dry cleaning businesses are quite common in cities, small towns and urban areas throughout the United States and Canada. So is the pollution (and contamination) that a dry cleaning business creates. Due the chemical nature and resistance to degradation, the contamination that a dry cleaning store creates can pose serious potential risk for a real estate investor purchasing a site or their lender.  

Since the chlorinated solvent PCE (perchloroethylene) was introduced to the dry cleaning industry in 1931, dry cleaners have remained an ambivalence to the commercial real estate world.  However, chlorinated solvents (especially PCE) are not the only toxic chemicals associated with dry cleaning activities. Other chemicals that are also toxic can seep into groundwater and exist for decades because of their resistance to degradation. They include petroleum based solvents and even organic solvents such as turpentine.

THE MAIN RISKS AND CONTAMINANTS FROM DRY CLEANERS

While efforts by the Environment Protection Agency and other federal and state environmental agencies have restricted modern dry cleaning equipment, reduced chemical solvents and enacted preventive measures which have considerably decreased the incidence of accidental spills and leaks at dry cleaning locations, the contamination created by decades of dry cleaning activities is still present today.

Any property on or around a dry cleaning establishment may be at risk to air or groundwater contamination. Solvents can evaporate and intrude into people’s breathing of air (vapor intrusion) and seep into and contaminate building structures, sidewalks and streets. And also leak through sewage lines and be present from illegal dumping.

The following are the main contaminants associated with dry cleaning activities:

  • Perchloroethylene (PCE)
  • Trichloroethylene (TCE)
  • Vinyl Chloride (VC)
  • Carbon Tetrachloride
  • Stoddard Solvent
  • Kerosene
  • Turpentine Mineral Spirits
  • Petroleum Base Solvents

ENVIRONMENTAL AND FINANCIAL IMPACT UPON COMMERCIAL REAL ESTATE

The current or long-term presence of a dry cleaner on site doesn’t have to be deal-killer for a mall, strip mall, shopping center or commercial property renting space to multiple businesses. But, because of the serious toxicity of the chemicals involved, the strict and costly cleanup standards for these pollutants and the regulations adopted by states and other municipalities across the country, considerable financial risks and liabilities occur.

What not only real estate investors, lenders and developers but small business tenants of commercial property have to bear in mind is the continual rising cost of doing business within a commercial property where a dry cleaner is also doing business.

In addition to the environmental due diligence risks, there are sometimes increases in operations costs as well.  The steady rise in rent and tenants and liability insurance alone can, over a short stretch of time, bankrupt an entire commercial shopping establishment as well as the many small businesses who are its tenants.

HOW TO ASSESS IF A HISTORICAL DRY CLEANER POSES A PROBLEM

The immediate concern for a property with a historical dry cleaner is vapor intrusion.  Vapor intrusion means the vapor – think invisible smoke – that seeps into the ambient air from underground.  In addition, with vapor intrusion – you also have the risk of groundwater contamination from dry-cleaner. If a potential buyer is extremely price sensitive about assessing the risk – a phased out approach may be warranted.  

For example – perform the sampling of the vapor and if it the results show significant levels then proceed with further testing.  Or, collect all of the samples first and only analyze on a systematic basis. You can rely on your consultant to help you manage the pros and cons of each option.

The challenging of going back to a site multiple times for an investigation is that the seller won’t want to disturb tenants or be wary of the constant impact to operations of the tenant.  In addition, the cost for each investigation will be significantly higher on an aggregate basis.

PERSPECTIVE AND SOLUTIONS TO THE DRY CLEANING PROBLEM

As it also is, according to recent studies, dry cleaning businesses still account for 36% of PCE usage in the U.S. Plus, the EPA has estimated that an average dry cleaner can generate over 650 gallons of hazardous waste each year. In addition, studies by the EPA and the State Coalition for Remediation of Dry Cleaners believe that at least 75% of the 30,000 estimated dry cleaners in the U.S. are contaminated. And the vast majority of dry cleaners, about 80 percent of them, are still using the solvent perchloroethylene.

On the good-news front, with more and more safe cleaning chemicals coming on the market, it is anticipated that a complete replacement of PCE throughout the dry cleaning business should be in place by year 2020.

Fortunately, there are a number of healthier (and green-friendly) dry-cleaning options now available. They include wet cleaning (a system that uses biodegradable soap and water. computer-controlled dryers and stretching machines); silicone and liquid CO2 solvents; alternative petroleum solvents; and others.

RESOURCES:

  • http://www.intertek.com/building/impact-of-vapor-intrusion-on-real-estate-transactions/
  • https://www.globest.com/sites/globest/2015/02/10/when-is-cleaning-up-a-dry-cleaner-worth-the-risk/
  • https://doee.dc.gov/service/environmental-issues-dry-cleanershttps://epa.ohio.gov/ocapp/dry_cleaning
  • http://tinyurl.com/ycku8rqx
SHARE ON