During the past several months, according to the economic indicators, the economy has slowed and the rate of defaults on loans in is on the increase. The Risk Management Association (RMA), a banking association which monitors trends within the banking industry, has projected that the number of bankruptcies and foreclosures will increase in the next two quarters and has issued warnings to its members to prepare for these events.

Recommended steps bankers are taking to manage accounts during this projected downturn included:

• Make sure all levels of management are aware of the projected trends and are prepared to manage accounts in this environment.

• Track accounts closely to identify problems sooner.

• Verify that the risk ratings on the portfolio are accurate.

• Hold instructional meetings or conduct additional training on problem loan identification and workout strategies.

• Make sure reserves for bad loans are adequate.

It is important that all within the organization are prepared for the increased problems that are projected. Any one foreclosure can result in tens of thousands of dollars in losses due to unidentified environmental problems. Everyone in the organization needs to be thinking on the same page and follow the appropriate procedures.

RT will be conducting seminars in May and early June on Environmental Risk Management issues, announcements will be sent out shortly. Key topics which will be addressed during the training will include:

• Identifying environmental risks and managing the liability.

• Real estate appraisals and the projected impact by the economic downturn.

• Public funding options.

• Complying with state environmental regulations to maintain lender liability protection.

• Managing environmental liability (from the bankers prospective).

Beyond the projected increase in foreclosure and "Workout" projects, there will also be an increase in Brownfields work as the availability of green space decreases. Lenders will need to understand how the Brownfields process works, what the potential pit falls are, and how to determine if the proposed plan for reuse of the site will work.

At the recent RT New Jersey Brownfields Seminar cosponsored by the Tri-State Commercial and Industrial Association of Realtors, Doctor Henry Mayer of Rutgers University presented his findings regarding mothballed industrial sites in New Jersey. Dr. Mayer’s presentation focused on industrial facilities which had environmental impacts, their location, and availability.

One of the more eye opening points presented by Dr. Mayer regarded the viability of the sites based on their location. Essentially, available Brownfields sites in municipalities where there has been long term growth, such as Hoboken, were minimal because the property values had already been escalated and all of the available land was being put to use. On the other hand, Brownfields sites in the more isolated areas of New Jersey, where there is minimal economic development or projected development, were readily available but are underused due to the low land use.

The most appealing sites and the most likely to be developed were situated in municipalities where development was needed to alleviate over development in surrounding areas. The most recent example of this type of municipality would be Perth Amboy and the recent expansion and development of the waterfront. The key would appear to be the ability to identify sites in the "next Perth Amboy." However, there is no guarantee that the best laid plans of government can not be undone by local politics. In his paper, Dr. Mayer references some of his sources from which he tried to identify these areas.

During the review of a Brownfields project, lenders will need to make sure that the plan for the Brownfields site is viable, that all potential environmental issues have been identified and addressed, and that the local government is onboard with the proposed plan, and the business plan for the real estate is sound. It is important to engage professionals who have demonstrated knowledge of the historic industries found at the site as well as how to manage the environmental issues associated with them.

With the growth of the NJDEP Brownfields Program, lack of available "greenfields" land, and the development of the recently proposed Federal Brownfields Revitalization and Environmental Restoration Act, the focus on Brownfields will grow over the next several years.