The environmental assessment industry is growing due to a myriad of factors, including changing economic conditions, an increase in green building and brownfield reclamation and a greater frequency of hurricanes and tornados, flooding, fires and other natural disasters.
International Cardno Limited acquired the Lafayette, La.-based environmental services firm ATC Associates Inc. for $47.6 million last month with a goal of achieving nothing short of “borderless project delivery,” says Cardno USA President Paul Gardiner.
With the addition of ATC, now known as Cardno ATC, the Brisbane, Australia-based Cardno will strengthen its penetration of the U.S. environmental and natural resources management market. ATC brings on board 71 offices in 39 states and client relationships with Speedway, ConocoPhillips, Bechtel, Walmart, the Port of New Jersey/New York, the New York City Housing Authority, and the North Carolina Department of Environment and Natural Resources. And Cardno’s acquisition will allow ATC to operate in emerging markets around the world.
Ultimately, says Alan Agadoni, ATC Associates Inc.’s senior vice president and director of national programs, the merger is a sign not only of a growing industry but of economic recovery in the U.S. “What it says to me is international investors are interested in companies that will prosper as the United States emerges from the recession,” he says.
NREI spoke what the merger means for Cardno, ATC and the environmental services and real estate industries with Alan Agadoni, who is based in Atlanta, and Paul Gardiner, Cardno’s former Australian-based general manager for North and West Australia and the Middle East, who is now located in Portland, Ore.
An edited transcript of that interview follows.
NREI: Let’s start with what ATC’s business has been like.
Alan Agadoni: Our company, sector-wise, is about 25 percent petroleum companies, about 25 percent real estate finance and about 25 percent construction and infrastructure-related services; the rest is miscellaneous.
On the real estate side, we work with investors, developers, property managers and finance executives in the major firms. When I look on the Internet about who’s doing what in real estate, I always see our clients right up there at the top 5 or 10 percent.
When it comes to disasters, we’ve been called to respond to every major storm hurricane and flood. We were there right after Hurricane Katrina and Hurricane Rita, and on 9/11 we were working around the area of Ground Zero within hours of the event. Our clients bring us in to first see if it’s safe to enter due to water damage or dust. Secondly, we assess damages and so they may get a baseline as to what the damages are; then we provide guidance on cleanup and remediation. Those events are usually difficult; for instance, with the BP Oil Spill in the Gulf of Mexico, we have had staff there for a long time helping to assess some of the impacts.
Day to day, our work is very much in keeping with the normal real estate life cycle. We get involved with developers on the front end, looking at raw land doing geotechnical studies and the like. We are involved in due diligence work with finance and investors. We work with property managers to make sure buildings are safe and in compliance with regulations and helping them wade through those issues in a cost-efficient and compliant manner.
How is your field changing due to technology?
Paul Gardiner: For Cardno, technology provides us with options to help clients solve tougher and tougher contamination issues. Sites that are environmentally impacted often have contaminants that can require years of clean-up and monitoring. Technologies like Cardno’s fluidized bed bioreactor help our clients achieve results that can enable a regulatory agency like the EPA to provide a no further action letter.
NREI: Where does Cardno stand in regards to green?
Paul Gardiner: Cardno is at the forefront of sustainable development, having provided design and planning services for over 100 LEED-certified, low impact, or sustainable design projects. We obtained LEED Gold certification on one of only 22 hotels worldwide and one of only two city halls in the U.S. Cardno’s Brisbane headquarters is located in what was Queensland, Australia’s first six-star, Green Building Council of Australia Green Star-rated building.
One of our companies, Cardno TEC, also has developed TECfmsTM capital investment planning software that provides large physical plant and real estate owners the ability to manage operational, maintenance, rehabilitation and capital investment priorities while incorporating LEED, sustainable infrastructure and risk management factors.
NREI: How has the economy impacted your industry?
Alan Agadoni: We get that real estate is cyclical and we need to adapt to those cycles, whether it be changes in what’s hot in the marketplace or real slowdowns. One of the advantages of our business is that you can adapt. As long as you maintain your core group of knowledge and experience, you can adjust staff sizing when you need to—and we do—but otherwise, we focus on moving into areas of the market that are thriving versus slowing down.
For instance, after 2007, we moved into areas where we weren’t doing a lot of work before, which had emerged, like distressed properties and REO portfolios. We began working with folks trying to work out of the debt crisis rather than on new acquisitions and financing, although there was a lot of refinancing too. So we certainly have seen a big change over the last couple of years in the types and purposes of loans and the way that we get involved in transactions.
NREI: So environmental consultancy firms are able to ride out real estate down-cycles by focusing on what’s hot and/or emerging in the marketplace.
Paul Gardiner: Cardno’s business approach has always been to have a diversified client and market portfolio while proactively assessing opportunities and trends that would impact our clients. We also have strategic market areas that tend to be recession-proof. Our work for developing nations falls into this category. Due to the demands created by growing populations in these countries and the fact that their infrastructure has not yet been established, we consider these to be great markets for consistent, steady work to offset fluctuations in other markets. The environmental market is also relatively recession proof in the U.S. since many of the issues that must be addressed are critical to a project’s or client’s success regardless of the market conditions.
Alan Agadoni: Another thing I’ve seen is that the speed and complexity of new transactions has changed in the last 10 years. It’s pretty astounding now, the types of portfolios we see and how fast they are processed and closed. The due diligence process is a huge challenge for us because we have to provide high-quality services very fast. We’ve had to learn how to use technology and leverage our geographical locations to figure out how to adapt to that.
The types of properties have changed too. As the economy was booming pre-recession, we were seeing pretty much all property types in markets across the country. Things were going great everywhere, but when the recession hit, most of the activity pulled back into the core CBD areas. So 24-hour cities were the ones that continued to hold investor interest.
As things have moved on and the debt crisis has started to resolve itself, we’ve seen the properties that failed come back and be put back on the market. We’re back in markets that we were not doing work in two years ago. We see a lot of properties being included in portfolios now as this work-out process happens—everything from nice pristine properties to places with real challenges, some of which are brownfields that haven’t been touched in five years because they went bankrupt and were basically abandoned right at the crux of things when the recession hit.
NREI: Do you foresee an influx of brownfield remediation and/or retrofitting of contaminated buildings as the economy takes off again? Is this a growth area?
Paul Gardiner: Investors continue to see brownfields as viable alternatives for redevelopment in urban areas. Ongoing EPA support through federal funding and incentives at local, state and federal levels help improve developers’ bottom lines and bring needed redevelopment to these blighted areas. Consultants like Cardno that can assist in obtaining these funds and integrating the civil and environmental challenges of these sites will continue to be sought after in this market, especially as the economy for development improves.
How will the merger expand the range of projects you are taking on?
Alan Agadoni: It’s tripled our office space in the U.S., which is huge. There is a lot of diversity of service between the two organizations and very little overlap so we work in a lot of the same markets bringing different services to the table offer a much deeper and broader package to our clients in more locations.
For the real estate industry, we were already doing some work in Mexico, Canada and the Caribbean. But now we have offices in South America, Asia, the U.K., the Middle East—places it would not have been cost-effective for us to operate, where we didn’t have the local expertise to operate. Real estate managers always want local compliance and knowledge and remediation experience. For our investor and financer clients, we are going to be able to provide due diligence services faster and more economically in more areas than we could in the past. For developers, we’ll bring more baseline engineering work, geotechnical materials testing and special inspections work for construction to more markets than we ever could before.
Environmental consultancy firms have been consolidating a lot in recent years. Why?
Alan Agadoni: Healthy successful firms like ATC are in a great position to prosper even more as the economy recovers, so they see [mergers] as a great economic opportunity. Secondly, all eyes turn globally for even firms that are based in the U.S. There’s a great interest in the emerging markets—Brazil, Russia, India, China, Southeast Asia, South America, Canada, Mexico, even Africa—and those are places Cardno and other companies are looking to grow. By bringing on companies like ATC, it rounds out their service offerings in those places as well.
Paul Gardiner: We’re seeing consolidation of firms both within the U.S. and within the international market. Part of this has to do with a trend towards borderless project delivery. Many of our clients seek specialized experts rather than generalists to meet their needs and they know that in today’s world they have options beyond their geographic boundaries.
And yes, investors should pay attention. Cardno and other area environmental compliance specialists have an opportunity to innovate by developing solutions that address the public’s demand for greener solutions and increasingly stringent regulatory requirements.
We constantly challenge Cardno staff to create solutions to move development forward while respecting the environment. For instance, Cardno developed a proprietary fluidized bed bioreactor that removes methyl tert-butyl ether (MTBE). It removes MTBE contaminants from water streams with microorganisms–this is a green solution with no by-products that helps clean up many contaminated sites.
NREI: What do you see as growth areas?
Paul Gardiner: Across the globe, we are at a stage where we have sophisticated technologies to deliver clean drinking water and clean energy, but are still experiencing increasing demands on natural resources that are becoming scarcer. Building infrastructure, while addressing natural resource scarcity issues, is going to be a challenge for everyone, but will also provide significant growth opportunities for firms like Cardno that have expertise in all aspects.