EPA’s Actions Mean that CRE Will Have to Deal with PFAS

In April 2024, the EPA took a series of steps to crack down on PFAS or “forever chemicals,” which have significant implications for the commercial and industrial real estate sectors. In one of the more significant moves, the EPA finalized the National Primary Drinking Water Regulation (NPDWR) for six PFAS chemicals, which establishes safe drinking water levels referred to as Maximum Contaminant Levels (MCLs).  Additionally, the EPA issued a final rule to designate two of the most widely used categories of PFAS, perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate acid (PFOS) and their isomers and salts, as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) also known as Superfund.  The rule has an effective date of July 8, 2024.  Other steps by EPA included updated guidance on the disposal and destruction of PFAS, guidance on enforcement priorities, and moving toward including PFAS in RCRA’s “cradle to grave” framework (February 2024). Read further below for more details about EPA’s actions and the current regulatory environment.

So, what does this all mean for the real estate industry/? Well, in short, PFAS joins other chemicals classified as hazardous substances that could expose real estate investors, developers, owners, and operators to cleanup obligations and costs, as well as environmental damages and liability for human health risks from exposure to these substances. This means that in order to have certain liability protections afforded under CERCLA, prospective purchasers must evaluate PFAS within the scope established under the Act (42 U.S. § 9601). Notably, PFAS risk will be evaluated in Phase I Environmental Site Assessments (ESAs) in the same manner as other hazardous substances.

As with any emerging issue, real estate professionals have a lot of questions. Read on for the key things you need to know about PFAS, including how to evaluate property risk during due diligence, how to assess liability for assets under management, and how to deal with problem sites.

What is PFAS?

PFAS stands for per- and polyfluoroalkyl substances (PFAS).  They are a man-made class of chemicals that are resistant to heat, water, and oil, which were originally designed for non-stick pans, stain resistant carpets, and also explosives for warfare.  Due to their beneficial properties, PFAS have become widely used in the manufacturing process since the 1940s and are present in aqueous firefighting foam (AFFF), waxes, cosmetics, food packaging, paint and coatings, petroleum, plastics, polish, soaps, waxes, fabrics and other textiles.  In addition, biosolids used in agriculture derived from wastewater treatment plants or landfills are likely to have PFAS from industrial and domestic waste discharge.

Unfortunately, PFAS also present serious human health risks, have a long-term persistence in the environment, and are also very mobile (i.e. they can travel long distances in the environment in air, surface water, and groundwater).  According to the Centers for Disease Control and Prevention (CDC), over 97% of the US population has PFAS in their bodies with health impacts that may include reproductive and developmental effects, increased risk of cancers, hormone interference, increase of cholesterol levels, and reduced ability to fight infections.  Thus, EPA’s recent ruling and drinking water standards are driven by 1) the extensive manufacturing, processing, and distribution for commercial and domestic purposes; 2) migration in soil, groundwater, surface water, atmospheric dispersion, and potentially soil vapor; and 3) consequential health and environmental risks.

What kind of sites are most at risk of PFAS contamination?

Industries can release PFAS into the environment through wastewater and stormwater discharges, accidental releases, use as metal dust suppression, air emissions, and solid waste. Some of the “bad actor” industries and known PFAS contributors include commercial printing, electronics, plating, fabric and textiles, cosmetics manufacturers, fire protection, food packaging, mining, airports, and more.

Click here for a list of NAICS codes identified as PFAS manufacturers by the Association of State Drinking Water Administrators.

PFAS implications for real estate due diligence

As mentioned above, PFAS risk will now be evaluated within a Phase I ESA, which is the key tool that commercial real estate professionals use for environmental due diligence prior to transactions. So, what is top of mind for CRE professionals/? These are some frequently asked questions that we are hearing from the real estate community:

• Will there be more properties with RECs (recognized environmental conditions, i.e. potential problems) in Phase I ESAs/? Yes, but not necessarily a lot more – many sites where PFAS contamination is a likely or known REC would already have had a REC because of other factors or operations (ex. manufacturing operations with heavy use of solvents, and also PFAS).
• Could there be more regulatory “reopeners”? Some sites that were previously remediated and “closed” (for ex. received a “no further action” letter from a regulator) may potentially be reopened by the regulators, but this remains to be seen and will likely be focused on high priority sites that are posing high risk to public health.  However, what we are already seeing is that in some states, ongoing remediation projects are now being required to evaluate for PFAS contamination before closure can be granted.
• What about timing and cost? The timing and cost for Phase I ESAs will largely stay the same; however, for high-risk sites you may have more discussions during due diligence either with your consultant or attorney or both. Phase II subsurface investigations for known or suspected PFAS-impacted sites will take longer and cost more (both for the sampling and lab analysis, due to the methods used).
• How should I handle Phase I ESAs that will be issued before July 8 (when EPA’s ruling on PFOA and PFOS as hazardous substances goes into effect)/? Phase I ESAs issued before July 8 may not have considered PFAS as a risk unless you request it. Discuss with your consultant: you may want it to approach the Phase I as if the rule is in effect now based on your closing date.

Understanding and managing PFAS risks in a portfolio

Real estate owners and operators may want to examine their exposure to PFAS risk within their portfolio.

• For M&A transactions of high-risk business operations: Conduct due diligence assessment of PFAS sources that are known or likely to impact the subject properties, specifically looking at operations and what chemicals are used, to evaluate risk and environmental compliance considerations and make a plan with consideration of Federal and state criteria and guidelines.
• Existing owners: Portfolio owners of higher risk property types may also want to evaluate potential PFAS risk from existing and historical tenant operations and make a plan to mitigate risks.
• Lease terms: Going forward, some may wish to include clauses in lease agreements as to expectations for their tenants with respect to PFAS use.

Dealing with PFAS-impacted sites

As the “forever chemical” nickname suggests, PFAS are very persistent and hard to break down, so many real estate professionals are wondering how PFAS-contaminated sites will be addressed.

• Are there ways to clean it up/? Due to its inherent chemical stability, PFAS is resistant to many remediation technologies such as chemical oxidation/reduction or bioremediation that are normally used for other common contaminants. This leaves the most obvious cleanup options as “old school” dig and haul for soil and pump and treat for groundwater (both of which are also very expensive). However, more sophisticated remediation technologies such as thermal treatment, injection of carbon substrate materials, and supercritical water oxidation are already on the market and proven to be effective.  Of course, remediation technology is evolving right alongside regulations.  The good news is that these remediation technologies which will be implemented for PFAS will generally remediate other common co-contaminants at the same time.
• Can we estimate the costs to mitigate or clean up PFAS? The short answer is yes, we can.  However, because of its unique chemical makeup, addressing PFAS as a contaminant will not be a simple “add on” to a proposed or existing remediation approach for say, chlorinated solvents or petroleum hydrocarbons.  When PFAS is present as a contaminant, it will become the driver for the overall remediation strategy and associated costs for cleanup.  Due to the rapidly evolving regulatory environment, and uncertainty about reaching regulatory closure for sites with PFAS, industry professionals can expect a higher level of uncertainty and wider ranges within remedial cost estimates (RCEs) that involve PFAS.
• What about insurance? Be aware that insurance policies may already exclude PFAS-related claims, and more will likely do so in the future.

Some fine print about EPA’s actions and state regulations

There are a couple of important things to note about the current regulatory environment:

• While PFOA and PFOS (the two types that EPA designated as hazardous substances) are the most widely used PFAS, there are over 15,000 chemical forms of PFAS, many of which are known to have adverse health and environmental impacts. Many other PFAS chemicals will likely be designated as hazardous substances based on future studies.
• In addition to PFAS and PFOA, four additional PFAS (PhDs, PFNA, PFBS, GenX chemicals, and mixtures of these PFAS) have Federally enforceable Maximum Contaminant Levels (MCLs) for drinking water. The MCLs are very low, which sets the bar high for cleanup and will contribute to high cleanup costs.
• Many states have their own regulatory guidelines, with some that include prohibitions of sale, distribution, and manufacturing, or drinking water standards.
• The regulatory landscape is quickly evolving and will likely continue to do so. Additionally, MCLs may be revised in the future with improved analytical detection limits.

Lean on your professional advisors

When it comes to PFAS risk and liability, it would be wise to lean heavily on the guidance and insights of a good environmental consultant, environmental attorney, and potentially a skilled insurance broker familiar with emerging contaminants if you are looking to address insurance concerns. As with other emerging issues, working with a consultant who is at the leading edge of these changes, who understands the potential exposures and liabilities, and is who engaged with the regulatory community is the key to successfully navigating unchartered territory.  A trusted advisor can consult with you and guide you through how this ruling will impact your business and provide expertise regarding your questions about due diligence, monitoring, treatment, cleanup, and other technologies.

Webinar for more information

To learn more about how the EPA’s actions on PFAS will affect the commercial real estate industry, join this webinar on June 27^th at 10am PT / 1pm ET.  An expert panel from Partner Engineering and Science, Inc. will share helpful background information on PFAS, review the current regulatory environment, discuss how PFAS risk can be assessed during due diligence and ownership, and strategies for how PFAS-impacted sites can be deal with.