Liability for Asbestos Damage Poses Serious Economic Threat
Next to the total national debt and loan obligations of Third World nations, the national asbestos property damage liability, approaching $2 trillion, may be one of the most serious economic considerations yet to be addressed by the new Administration.
The Environmental Protection Agency’s estimate of 733,000 asbestos-affected buildings, representing one in five in a statistical population of 3.6 million structures, carrying with it a contingent liability value of about $100 billion, could be dangerously misleading.
Peter MacDowell, an asbestos abatement expert associated with the New York-based National Abatement Corp., charges that the EPA figures do not even closely reflect a realistic risk assessment.
He believes this assessment requires input of more accurate data as lawmakers prepare to firm a national policy decision as the basis for application of the Asbestos Hazard Emergency Response Act (AHERA) to corporate and commercial buildings. The act now applies only to schools.
“The apparent lack of concern over AHERA’s prudent application in the school environment should forewarn politicians that there is a lot of homework ahead before the commercial sector is added to its agenda.
“A trip to the library and examination of public records, annual reports and published government figures quickly discloses that the EPA’s estimate of 3.6 million buildings is far too low,” MacDowell says. He believes that the estimate should have been based on 8.4 million structures, including government buildings but excluding schools, universities, churches and the military.
Misleading Figures
“If we accept the EPA’s figure of one in five, or 20% of the buildings as affected, one would arrive at a total contingent liability or discounted market value for all corporate and commercial property in the United States of $750 billion.”
The EPA’s figures might well impact not only future legislation but also property transactions and could actually cloud sound business decisions, MacDowell contends.
“A $100-billion downside risk is one thing, but a three-quarters-of-a-trillion-dollar level of collective exposure could cause a staggering ripple effect that would force the industry to follow in the footsteps of Manville Corp. in Denver.”
The company (formerly Johns Manville), just came out of Chapter 11 reorganization as a result of personal injury liability claims directly resulting from Manville building materials containing asbestos. “As it stands, EPA’s economic figure will lead the nation, the courts, the real estate industry, shareholders, investors and Congress into a false perception of the monumental economic impact under this construction task legislated by the Clean Air Act of 1976,” MacDowell believes.
“Asbestos has become a negotiations function within all buy/sell and leasing transactions and will emerge as the ultimate deal maker or breaker in transactions involving affected properties.”
Downside Factors
Prudent business management therefore dictates that analysis of financial exposure and investment risk in these transactions must include, along with the abatement costs, such downside factors as costs for professional consulting expertise; asbestos management, overtime, financing, tenant/employee dislocation, lost income, rebuilding back to its highest and best use and ongoing waste disposal costs.
“The EPA’s figures totally lack any semblance of the intelligent application of these factors in their ‘risk assessment’ evaluation,” MacDowell concludes.
