Hartford Business Journal

INDUSTRY OUTLOOK | INDUSTRIAL REAL ESTATE 26 HARTFORDBUSINESS.COM | JANUARY 13, 2025 INDUSTRY OUTLOOK | MULTIFAMILY REAL ESTATE claims that they were negligent in the production, handling and disposal of PFAS, and withheld information about their harmful effects. In 2024, the Environmental Protec- tion Agency stepped up its push to regulate PFAS: • On Jan. 31, the EPA issued regula- tions under the Resource Conserva- tion and Recovery Act (RCRA), that would designate nine PFAS chemi- cals as hazardous constituents. • On April 10, EPA released its final National Primary Drinking Water Regulation under the Safe Drinking Water Act, which set drinking water standards for several PFAS compounds. • On May 8, the EPA desig- nated PFOS and PFOA (two common PFAS compounds) as hazardous substances. These regulations will have a significant impact on the value of properties contaminated by PFAS, as well as the cost and time of due diligence related to the purchase of commercial and industrial properties. For instance, a phase one envi- ronmental site assessment — a standard due-diligence requirement for prospective purchasers — will now have to address potential contamina- tion of PFAS substances. Given the widespread migration of PFAS, many properties will be identi- fied with some level of the chemicals, become effective once a new set of release-based cleanup regulations were adopted. Instead of being triggered by the transfer of a prop- erty or business, the release-based cleanup regulations will come into play only when the release of a hazardous substance occurs, or a historical release is identified. Initially, the release- based cleanup regula- tions were expected to be drafted and adopted within a year, but the task of completing comprehensive regulations for a new remediation program has been a challenge, and that timeline has continued to be extended. Last fall, the General Assembly held a public comment session regarding the new proposed regulations, and the Regulation Review Committee appears to be getting closer to approving them. While the transition to the released- based cleanup program is greatly anticipated by the real estate industry, there is certainly potential for implementation issues and unintended consequences. The new regulations are going to be a sea change from the current transaction-based program that has been in place since the 1980s. Likewise, there are a lot of questions as to how these regulations are going to tie into the existing body of environmental statutes. Nevertheless, it is expected that the sunsetting of the Transfer Act and tran- sition to the released-based cleanup program will be a net positive for the real estate industry in Connecticut. Emerging threat of PFAS We are only beginning to understand the impacts of Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS) on the real estate industry. These "forever chemicals," used in everything from consumer products to fire suppres- sants, migrate easily and can take more than 1,000 years to break down. While PFAS chemicals were first manufactured in the 1940s, only recently have they caught the atten- tion of the public, as a result of the settlement of class action lawsuits and implementation of a number of federal regulations. A class action lawsuit against Dupont, Chemour and Cortevat resulted in a February settlement that requires the chemical manu- facturers to pay $1.1 billion to settle Gary O'Connor Steve Stafstrom which will necessitate a more exten- sive phase two environmental site assessment, adding cost and time to the transaction. Given the uncertainty as to the toxicity levels of the various PFAS chemicals and the increasing regula- tion of PFAS by federal and state envi- ronmental agencies at extraordinary low levels (parts per trillion), prospec- tive purchasers may walk away from properties where the chemical substances are detected — at least until there is more certainty as to the levels of PFAS that will trigger remedi- ation of a property, and the ultimate cost of remediation. Unfortunately, there will be no quick solution to the PFAS problem. The sheer number of these PFAS substances — estimated to exceed 10,000 — poses a daunting challenge for regulatory agencies. Establishing comprehensive cleanup standards and remediation guidelines is further complicated by the lack of robust toxicological data and scientific consensus on safe exposure levels. Real estate professionals can only hope that regulators do not take a very cautious approach and set low action levels and costly remediation requirements until there is a more comprehensive understanding of PFAS substances. Gary O'Connor and Steven J. Staf- strom Jr. are partners at the Connecticut law firm Pullman & Comley. Supported by strong demand/ government incentives, multifamily riding high into 2025 By Michael Puffer mpuffer@hartfordbusiness.com M ultifamily market experts foresee no letup in housing demand or development interest in 2025, at least under current conditions. Amanda Faroni-Sheehan, managing partner of Oxford Realty Group, said she expects continued strong demand for housing to bolster the market into the coming year. "The reason behind this is a post-COVID influx of Connecticut residents combined with a limited supply of offerings," Faroni- Sheehan said. "We believe this will continue into 2025, driving another solid year of multifamily sales." Faroni-Sheehan said investors are optimistic thanks to the possibility of additional interest rate reductions. The Federal Reserve via three separate rate cuts at the end of 2024 reduced the federal funds rate to between 4.25% to 4.5%. "Rates always play a huge factor in the sale of all asset classes of real estate, so this will be some- thing to look out for in 2025," Faroni-Sheehan said. While it's widely believed the Federal Reserve will continue to lower interest rates, a wary eye must be kept on inflation, Faroni-Sheehan said. The policies of the incoming Trump administration will bear partic- ular attention, she noted. "We are hoping that talks of deregu- lation in both the lending and building industries, coupled with pressure on the Fed, will spur the market to newfound heights," Faroni-Sheehan said. Amit Lakhotia, a busy multifamily developer focused on the New Britain market, said continued strong housing demand has pushed rents Developer Amit Lakhotia said this year he plans to complete a roughly $19 million transformation of the former Stanley Black & Decker headquarters in New Britain into 106 apartments. HBJ PHOTO | STEVE LASCHEVER higher, offsetting the increase in insur- ance, construction and other costs faced by developers and landlords. Lakhotia, however, does harbor some reservations, wondering if America has begun to overcompen- sate for its historic housing shortage. "There is a lot of construction going on," Lakhotia said. "Every town wants new development. They are changing (zoning guidelines) to get more housing. My fear is that, like China, we are overbuilding. We have to wait and see." Lakhotia plans to finish four development projects in the coming year, with the most prominent being a roughly $19 million transformation of the former Stanley Black & Decker headquarters in New Britain, at 480 Myrtle St., into 106 apartments. The first units are expected to begin renting in the first quarter of 2025. Lakhotia also expressed some uncer- tainty about the impact of the new presidential administration. He said the promised policy of mass deportations might cool housing demand. Amanda Faroni-Sheehan Transfer Act and PFAS Continued from page 25

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