Asbestos and Effects on Real Estate Development

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Table of Contents

Abstract
Introduction
Literature review
Conclusion
Work Cited

Abstract

Asbestos has been a major concern of real estate developers affecting virtually every aspect of their industry. It has cost the industry a lot of losses in terms of cash, job losses and compensation to victims. This research paper aims to evaluate the various ways through which asbestos has impacted the real estate industry. It will achieve this by showing various data on the adverse impacts of asbestos. It will also show the influence of various laws in the way the real estate industry is affected by asbestos.

Introduction

Asbestos is a naturally occurring mineral found in several forms. It is mined chiefly in Canada and Russia as a dense rock and separated into fibers by crushing. Asbestos was widely used before the 1970s by the construction industry because of its strength and flexibility, temperature-resisting properties in insulation, caulking, floor tiles and plastics by the automotive industry in brake linings, and by the textile industry in fire-resistant clothing. Although asbestos causes no serious health problems as long as it remains intact, it becomes dangerous when it crumbles or breaks and its fibers are released. The fibers can cause diseases such as asbestosis and certain types of cancer.

Because of these hazards, use of asbestos in industry is regulated in the United States to protect workers and many uses of the material are banned entirely. Since the effects of asbestos exposure often do not appear until years later, there is concern in the United States over the presence of asbestos in older buildings, particularly schools. Exposure to asbestos fibers may cause several illnesses such as Asbestosis Mesothelioma, lung cancer and pleural plaques.

Literature review

Given the widespread use of asbestos in building materials in the 21st century, the management and abutment of asbestos-containing building material (ACM) have become an important part of real estate management and development. Accurate delineation, abatement planning and reporting are necessary to satisfy the law and the requirements of lending institutes.

Like a genie turned against its master, asbestos is now recognized as an especially sinister carcinogen. It has been implicated in the disabilities and deaths of thousands of shipyard workers, industrial laborers and miners. Fibers that lodged in their lungs from massive exposure to airborne asbestos in the 1930s and 1940s, led decades later, to asbestosis, lung cancer and Mesothelioma a rare killer that attacks the lining of the lungs and intestinal tract. As deaths mounted state environmental agencies and the US Environmental Protection Agency (EPA) added asbestos to their long lists of hazardous substances and restricted its use as a building material in the early 1970s.

While asbestos and other environmental contamination disclosures have been commonplace in commercial real estate transactions for years, the level of attention paid to lead in residential transactions has only recently given comparable billing. The formal requirement for lead disclosures raises practical and legal considerations in the preparation for and completion of both purchase and lease transactions. Effective in 1996, EPA and Department of Housing and Urban Development (HUD) jointly issued a regulation requiring disclosures by landlords, sellers, real estate brokers and agents to purchases and tenants of property built before 1978 of the presence and location of known lead-based paint known as the Real Estate Notification and Disclosure Rule.

The Rule also states that buyers have 10 days to inspect the residential property for the presence of lead-based paint before finalizing a real estate purchase. All contracts of leasing and sales must include lead paint notification and acknowledgment language.

Maintenance in anticipation of future real estate transactions is placed at a level of greater importance by lead disclosure requirements. Full removal or abatement of the regulated material is certainly preferred, but not always practical. A seller’s position in a transaction can be significantly enhanced without the burden of costly, last-minute improvements necessary to address a buyer’s or lessee’s concerns through prudent, ongoing maintenance and containing material in place appropriately.

While fear of asbestos contamination is a fairly recent development, use of the fibrous mineral dates back to ancient times. Romans used napkins of woven asbestos which were dry-cleaned by being tossed in the fire-Asbestos outerwear, used to withstand damage from fires, and were worn at least as early as half of the nineteenth century. In the last century, asbestos was required in the bulkheads of all American worships. Up until 1976, model building codes mandated its use in spaces where protection against fire was essential. Even now, asbestos is used in hundreds of products ranging from vehicle brakes to sewer pipes to protective aprons and gloves.

The use of asbestos was first questioned in the 1920s when factory workers began filing the first thousands of lawsuits against employers, after asbestosis, an often fatal scarring of the lungs, became widely recognized. Real estate consultants estimate total abatement costs at more than $2 trillion over the next three decades, a figure which includes not only the direct cost of abatement as the EPA’s does but lost wages due to displacement and other incidental costs.

A Japanese corporation reduced its expected offer to buy the Exxon building in Manhattan by $100 million when the buyer learned it would have to spend that much to remove asbestos from the building if it hoped to renovate. Likewise, the prize of the ARCO building in Los Angeles, also sold to a Japanese firm was reduced by as much as $50 million because of the potential cost of abating asbestos.

Asbestos removal has cost real estates developers a lot of money. For example a federal Judge ruled that improper handling of asbestos during demolition work on the Hoboken waterfront in 1988 would cost a real developer and one of his corporations nearly $3 million each. Attorney Faith S. Hochberg who issued the fine against Harry Grant and the Sandalwood construction company was said the fines were believed to be among the highest imposed for this type of asbestos violation. (Joel S, pg281)

In order to avoid health risks, few products containing the fibrous material are currently installed in construction projects. Asbestos exposure still occurs frequently during its removal, and in maintenance and renovation projects involving structures that contain asbestos due to its previous widespread use. 1.3 million employees in the general and construction industry are exposed to significant asbestos levels during work according to governmental agencies estimates.

However, the greatest exposure to asbestos occurs during renovation or demolition projects, where asbestos must be removed. New York is one state that has instituted its own program regulating work conducted near asbestos and the removal of asbestos. New York’s program requires licensing of contractors; certification of all persons’ working on asbestos projects, filing of notifications for large asbestos projects, and pre-demolition surveys to identify the existence of asbestos-containing minerals. Joel S, pg299)

The presence of asbestos should be disclosed to any potential buyers of real estate; however, if asbestos is in good condition, and it does not pose a health hazard, then the law generally does not require it to be removed. Local cities and towns, however, may have more specific regulations that should be checked to ascertain removal requirements. Property owners are required to keep asbestos in good condition to prevent releases of emissions which can be harmful. Asbestos containment and removal are governed by federal, state and local regulations. Asbestos removal is strictly regulated and brokers should caution homeowners about the health and legal hazards of attempting to remove asbestos themselves. (Joel S, pg302)

While removing the asbestos is possible, it is almost always expensive. The work must be done by a specially trained and licensed removal contractor. The removal, personnel protection, and disposal equipment are very specific and accordingly costly. Removal and replacement costs from $10 to $20 per square foot. This makes refurbishing a small office building an expense that may exceed its annual rental value.

Removing asbestos, even apart from its cost, is never the best solution if the job is done badly. Introduction of asbestos into the air, possibly scattering it through a building’s ventilation system, can cause much greater harm and greater liability than leaving the asbestos alone. Even with a total replacement of all asbestos fiber-containing material documentation is needed for eventual litigation defense of future health cases because potential illness may follow a decade’s long latency period. Nevertheless, even if its management is not especially burdensome, and even if its presence is perfectly legal, asbestos usually will present a marketing problem.

Purchasers, even if not especially worried about asbestos are worried about the effect of asbestos on the market value of the property or about a rapidly changing regulatory climate that may eventually mandate removing asbestos from commercial real estate.

An increasingly frequent response of purchasers and lenders to the presence of asbestos is to discount the price of the property by the anticipated cost of removing the asbestos. This trend is worsened by the perceived necessity of those estimating the cost of removing the asbestos to provide adequate margin of safety.

Due to health concerns, all new uses of asbestos in the United States were banned in July 1989. Most asbestos uses established before the date is still allowed, but are strictly regulated lawsuits have been filed regularly since the 1960’s and continue to be filed frequently today. Asbestos litigation has pushed at least 600 companies into bankruptcy since 2000, including Bethlehem steel. Judgments are often imposed with little regard for proof of wrongdoing or causation.

Encouraged by porous legal standards, asbestos attorneys have filed claims for more than 1.4 million persons’, against more than 1,400 companies. Only 6% of those claimants usually suffer from an asbestos-related illness. In 2000, the four major companies sent into bankruptcy were Armstrong World Industries (construction products), Burns and Roe (engineering and construction), Babcock & Wilcox (boilers) and Pittsburgh Corning (glass insulation). (Joel S, pg 400).

Conclusion

From the above discussion, it is clear that the real estate industry is affected by the asbestos issue. However, it is important to note that the health and well-being of citizens come first and so real estate developers must demonstrate this concern when carrying out their activities. This they have to do even if it means through the long arm of the law.

Work Cited

Joel S. Moskowitz. 2001. Liability for environmental damages. 2nd edition. Aspen Publishers. Pp 280-462.

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