Environmental Contamination and Industrial Real Estate Prices

By Jackson, Thomas O. | The Journal of Real Estate Research, January-April 2002 | Go to article overview

Environmental Contamination and Industrial Real Estate Prices


Jackson, Thomas O., The Journal of Real Estate Research


Abstract

This article is the winner of the Industrial Real Estate manuscript prize (sponsored by Society of Industrial and Office REALTORS) presented at the American Real Estate Society Annual Meeting.

This article examines the effects of environmental contamination on the sales prices of industrial properties. Two general questions are addressed. The first is the extent to which sales prices may be impacted by contamination. The second is whether sales price effects due to contamination persist subsequent to the remediation of previously contaminated industrial properties. Using data on industrial property sales in Southern California, this study estimates sales price models that address these two questions. The results show that there are statistically significant impacts on property values in the period before and during remediation, but that these effects dissipate subsequent to cleanup.

Introduction

Environmental risk for industrial properties reflects the investment and lending risk related to uncertainties concerning cleanup requirements, liabilities and other factors. The effect of these risk factors is sometimes referred to as "stigma." Stigma has been most frequently discussed in the real estate appraisal literature (Patchin, 1988; and Mundy, 1992). As this type of risk increases, income is discounted or capitalized through higher required rates of return into lower prices and values (Jackson 1998). In addition to stigma related risk effects, industrial property prices may be directly reduced by estimated remediation costs that are to be paid from future property cash flows (Jackson, 1997). The price models in this study focus on the effects of environmental risk, although for some properties price reductions could reflect both risk and cleanup cost effects. Indeed, uncertainty about unknown future costs, and liabilities for such costs, can create risk effects. Risk effects are also related to uncertainties about potential changes in regulatory compliance requirements, potential third party claims and liabilities due to off-site migration of contamination, and other factors.

Literature Review

Relevant literature for this research falls into two categories. The first category includes the empirical studies of price impacts on industrial and other nonresidential properties due to environmental contamination. Price impacts are measured through the use of case studies in most of these studies. In only two studies are statistical techniques used to quantify the effects of adverse environmental conditions on industrial real estate prices. Literature in the second category includes several systematic studies of industrial property values and related variables where environmental impacts are not specifically addressed. Studies in this category provide a valuation framework that will be extended to the analysis of environmental price impacts in the current research. Jackson (2001 a) provides a detailed review of these and other studies of environmental impacts on commercial, industrial and residential property types.

Studies of Environmental Impacts

Page and Rabinowitz (1993) offer one of the first empirical analyses of the impacts of environmental contamination on nonresidential real estate. Their study focuses on six commercial and industrial property case studies from the Midwest, as well as several residential cases impacted by groundwater contamination. The industrial case study properties they analyzed were abandoned industrial properties with "serious toxic chemical contamination in the groundwater," (p. 476-77). The timeframe for these analyses is 1991 and 1992, when there was less market knowledge about the risks of contamination and none of the lender liability protections that are in place today. Nonetheless, for the contaminated commercial and industrial sites, Page and Rabinowitz find reductions on property value ranging from 10% to 50%. They do not distinguish between risk and cost effects. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Environmental Contamination and Industrial Real Estate Prices
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.