Buffalo's Gold Coast
by Geoff Kelly
Back in November, Buffalo Mayor Byron Brown’s office announced that the mayor had signed a memorandum of understanding between the city and Steelfields, Ltd., a three-way partnership that has been remediating a 220-acre stretch of brownfields off of South Park Avenue since 2002. The mayor said that the city would spend about $4.6 million to purchase 185 acres from Steelfields with the intention of developing it in the same, largely successful mold as Lakeside Commerce Park, the light industrial and office complex that sits beside the former Union Ship Canal.
Since then the deal has been wending its way through the required course of approvals from the Common Council and the Buffalo Fiscal Stability Authority. Both have endorsed the deal. According to Bryce Link, BFSA’s spokesman, the money for the deal will come from a pot of state assistance funds, which will become available in March. The money will be transfered to the Buffalo Economic Renaissance Corporation, which will in turn transfer the funds to the Buffalo Urban Development Corporation, which will purchase the property.
The $4.6 million purchase price will be the second and final property sale Steelfields makes. The partnership sold 31 acres to HydroAir, a national company with local roots that had outgrown its Hamburg facility, for close to $800,000 in 2006. HydroAir has invested nearly $10 million in its new facility on the site—a success story that includes the retention of more than 100 jobs in Western New York that might have migrated south.
So Steelfields has brought in about $5.4 million from their investment in those blighted acres, which once were home to Republic Steel, Donner Hanna Coke and Feine Steel. The property had come into the possession of LTV Steel, that gargantuan multinational specialist in aggrandizing dying or dead steel companies, stripping them of whatever value they retained and then declaring bankruptcy in order to shed their liabilities, including the environmental remediation costs attached to properties that, like this one, had been poisoned by a century of heavy industrial activity. Whatever LTV may have taken from Republic and Donner Hanna, what they left was a Superfund site, which by the early 1990s loomed across a contaminated berm over the now infamous Hickory Woods housing development.
That $5.4 million in revenue might seem like a raw deal, if one considers that Steelfields has spent $16.5 million on environmental remediation over five years. But it seems a better deal if one takes into account that the $16.5 million was free money, transfered to the newly formed Steelfields partnership by LTV, as part of a last-minute deal signed before the steel giant’s latest bankruptcy proceedings were closed. The property was transfered to Steelfields as well, at no charge (though the company did dip into its pot of free money to purchase the contiguous former Feine Steel property, at $400,000).
And if one considers that the three partners in Steelfields represent the principal contractors in the ensuing remediation—in other words, the companies that would be paid substantial sums out of that $16.5 million kitty—then it seems like the deal yielded a substantial return indeed (certainly more than $20 million) on the partnership’s investment ($0).
Here’s how it worked. In 2002, three partners came together to form Steelfields: Gary Smith, the chief public figure in Modern Landfill Corporation, based in Niagara County; Paul Werthman, head of two Buffalo-based environmental remediation companies, Benchmark and Turnkey; and Richard Palumbo, a Rochester attorney.
At a 1999 Common Council hearing on environmental problem in Hickory Woods, Palumbo represented “the Donner-Hanna Property Mangement Group and consisting companies that previously owned part of the property now known as Hickory Woods.” In his testimony at that meeting, Palumbo said that the companies had been negotiating for the past year with the New York State Departments of Environmental Conservation and Health to enter into a voluntary cleanup program for the LTV Superfund site. When the Hickory Woods fiasco became a public nightmare for Mayor Tony Masiello in 2000 and 2001, he ordered Assistant Corporation Counsel Richard Stanton to join in those negotiations and wrangle some money out of LTV to help the city fix the mess. The judge overseeing LTV’s bankruptcy kept the proceedings open so the city could make its case, and the result was the transfer of the property and the sum of $16.5 million to Steelfields. In addition, the site weas removed from the state’s Superfund list, which facilitated future reuse.
How Palumbo and Smith came together is not clear, though environmental remediators, waste managers and the lawyers who serve them are a pretty tight field. Werthman reportedly was owed a large sum of money from LTV for previous assessment work his companies had performed, which may explain why he was brought into the partnership: He had losses to recoup.
The subsequent remediation must have helped to make him whole: Even though dollar amounts are not available, it is clear from reviewing DEC documents associated with the cleanup that the main contractors were Benchmark, Turnkey and various divisions of the Modern Corporation. Palumbo, the attorney, performed the necessary legal work. All three men were presumably paid out of the $16.5 million.
Matching DEC’s requirements to the challenges in the field can be complicated. Nonetheless, the bulk of the remediation involved earth-moving. Contaminated earth was identified, excavated and either shipped off-site to a number of landfills (including Modern’s facility in Niagara County) or dumped into a giant containment cell constructed in the middle of the Steelfields property. (You can see that structure if you drive down Abby Street and take a right at the first break in the berm that separates Hickory Woods from the Steelfields property. You’ll know the containment structure from its ventilation pipes.)
Some of the waste material required more technologically advanced methods than burying and capping. Werthman and his companies later dropped out of the partnership, apparently not altogether amicably: Turnkey and Benchmark are now party to a lawsuit and countersuit between HydroAir and Steelfields, in which HydroAir alleges that Steelfields used inadequate remediation techniques in one portion of the lot that HydroAir purchased. The issue is whether a bioremediation technique applied to a waterlogged area heavily contaminated with BTEX (benzene, toluene, ethylbenzene and xylene) would work, because the groundwater was very acidic, registering a pH of two, possibly inhibiting the biological process required. In its final remediation report submitted to DEC last month, Benchmark was careful to note that the Modern Corporation—and not Benchmark itself—had installed the well used in the bioremediation effort.
Neither HydroAir, Werthman nor his former Steelfields partners returned calls asking for comment on these suits.
A number of important tax benefits to HydroAir depend on DEC signing off on remediation performed by Steelfields.Until that suit is settled, HydroAir holds a $2 million mortgage on the rest of the Steelfields property—the property the city intends to buy. Steelfields maintains that its work is solid, and is suing HydroAir for failing to relinquish the mortgage, which is complicating its deal with the city.
One might ask why the city is angling to take over a piece of property whose only investor so far is suing the current developer over environmental issues, and who holds what amounts to a $2 million lien on the property pending the settlement of that suit. The consensus seems to be that the city needs to take control of the property. South District Councilmember Mickey Kearns said that he doesn’t believe the city should be in the development business, but added, “I voted for the Steelfields purchase because at least then the city has control…I thought it was important for us to take control of that property.”
Added Richard Tobe, Commissioner of the Department of Economic Development, Permit and Inspection Services and a board member of the BUDC, “We want to see that one type of development but not others take place [on that site]…for instance, not a waste transfer station. We don’t want outdoor storage and materials. We don’t want stone and rock crushing. There are a lot of things we don’t want. We’re trying to get a higher level of development and to do it comprehensively.”
Asked to outline the city’s plans for the Steelfields site, Tobe talked about building on the success of Lakeside Commerce Park, then expanded the scope of the discussion and envisioned a master plan for the entire industrial corridor that stretches south of the Old First Ward, noting promising, if environmentally compromised, properties such as the former Mobil Oil and Buffalo Color.
There seems to be an understanding that Steelfields, Ltd. could not be trusted as a partner in realizing these plans. Gary Smith had, in fact, lobbied to build a waste transfer station on the site for the Modern Corporation—which, who knows, may have been his purpose in the partnership all along. The idea was killed immediately. Steelfields has not engendered much love in the neighborhood or in City Hall. It was understood in 2002, for example, that some of that $16.5 million would be used for a compensation fund to help out Hickory Woods homeowners. But the plan Steelfields put forth was so miserable that the neighborhood revolted; hardly anyone bought in, and less than $200,000 of the $2 million put aside for the purpose was distributed.
The balance? Steelfields kept it. The partnership contributed not one thin dime to the $7.2 million settlement fund recently approved for Hickory Woods. That’s all city money.
Just like the $4.6 million buyout that Steelfields is waiting on now.
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