Document ppgXkBqmzVe4z6xeq25jaxdbB

THE WALL STREET JOURNAL. 1986 Dow Jones (d Company, Inf. AO Rights Reserved Wednesday, July 16, 1986 Asbestos Fireproofing Hinders Sales of Some Office Buildings By Robert Guenther Staff Reporter of The Wall Street Journal sbestos is a dirty word in the Areal estate business. The presence ofasbestos fireproofing in many high-rise office buildings - that credit brought the price down to $300 million. Richard Adcr, senior vice president for acquisitions at I ntegrated, says, "There has to be some discount most of them completed between 1950 and 1970 - (for buildings with asbestos). I can't quantify it, but is scaring ofT buyers, depressing sales prices and these buildings are more difficult to finance." leaving owners confused about whether to remove the material, encapsulate it or ignore it for now. Although it has been well known for years that asbestos fireproofing can be a health hazard when ank of new England's recent Blawsuit against Prudential Life Insurance Co. shows just how prickly an issue asbestos can it is disturbed and particles of it become for tenants as well as owners. The bank is a are inhaled, only in the last year tenant in a Boston building that was owned by has the problem captured the Prudential but has since been sold to Integrated attention of commercial real Resources. During remodeling, the bank discovered estate owners and tenants in a asbestos fireproofing on the building's steel girders big way. Owner confusion over and floor slabs. Though the asbestos didn't pose a what to do stems from the fact health risk to workers at the time, the bank wanted lhl (here is no federal standard for acceptable the material removed. Prudential agreed to it - but levels of asbestos in office buildings. Though at the bank's expense. Maintaining that removal is Congress appears headed toward standard setting, the landlord's responsibility, the bank is suing what happens in the meantime is the question. Asa Prudential for$477,000 and Integrated Resources result, even sales of buildings where tests have for $1.5 million in connection with the removal shown asbestos hasn't gotten into the air arc being costs. Prudential says that under the lease, the affected. removal is clearly the tenant's expense. One transaction where asbestos fireproofing has Merle Atkins, an appraiser with Marshall and become an issue involves the 15-year-old Atlantic Stevens Inc., Philadelphia, notes that many leases Richfield Plaza, a 2.5 million-square-foot complex are written in such a way that capital costs such as in downtown Los Angeles which is being sold by asbestos removal costs can be passed on to tenants, Atlantic Richfield Co.. Bank of America and though few tenants realize it. General Electric Co.'s RCA Corp. subsidiary. Some real estate executives say a sales agreement probably would have been signed already were it not for the asbestos issue. As in other transactions, EVERAL FACTORS are adding to the Sconfusion over what to do about asbestos. One is whether encapsulation or removal of the the issue is whether the sales price should reflect asbestos is the best strategy. Some say it is better to the cost of asbestos removal even though monitoring cover the asbestos if it is in good condition, because hasn't detected any abnormal levels of asbestos in disturbing it might release particles into the air. the building's air. By one estimate, the cost of Others maintain that encapsulation merely post containing or removing asbestos from the complex pones dealing with the asbestos issue until the could knock between $30 million and $50 million material degrades. A further complication is the off its $600 million or more price tag. fact that cost estimates for removal vary widely - anywhere from $10 a square foot to $30 a square HOMAS LAVIN, a managing director in foot. Moreover, the problem of liability insurance TFirst Boston Corp.'s real estate arm and one has cut the ranks of qualified contractors, and since of those handling the sale of Arco Plaza, says: asbestos is regarded as a hazardous waste, disposal "The asbestos issue is fairly important in determin is difficult. ing who bids and the prices that are bid. The One last headache regarding asbestos lies in the smarter buyers view it as a dollars-and-cents issue, fact that there are asbestos standards for industrial while with the others it's an emotional issue." settings, even though none exist for office buildings. Adds John Cushman of Cushman Realty, who Legislation is pending in Congress that would represents a buyer interested in Arco Plaza: "As establish acceptable levels in offices; meantime, bestos will be an issue- eitherreal or perceived- in many owners are following the standards set for any investment decision. And I stress the word brake manufacturing plants. `perceived,' because many buildings with asbestos Until the issue is clarified, some major investors don't require removal. But it will clearly be used as and lenders refuse to consider buildings having a negotiating weapon by buyers." asbestos: Others, like Equitable Life Assurance Integrated Resources Inc.'s recent purchase of Society's real estate arm, arc tackling the issue on a 666 Fifth Avenue in New York from the Crown case-by-case basis. Richard Dotson of Equitable family demonstrates how asbestos can affect prices. says, "We haven't done that much removal, In that building, the presence of asbestos is fairly though we may do some encapsulation or enclosure limited. Nevertheless. Integrated got a $20 million of a machine room in the Bank of Boston building. credit - the equivalent of about one year's net We try to make the best judgment and proceed operating income - from the seller for its removal: from there." GLEASON-001165