Mid Atlantic Real Estate Journal — Mid Year Review — June 28 - July 11, 2013 — 15A
www.marejournal.com
D ue D iligence By Michael Shaw, GZA GeoEnvironmental, Inc. What’s Your (Environmental) Due Diligence Strategy?
W
ith the economy on the rise and a new ASTM Phase I stan-
tional due diligence, there are other business-related factors that should be considered as part of the due diligence pro- cess depending in part on the nature of the deal, the property in question and the objectives of the buyer. These include: • Asbestos Survey: Many old- er buildings in the US contain asbestos-containing materials (ACM) that can represent a real cost to maintaining and/or demolishing the structures on a property. • Hazardous Material Sur- vey: Other hazardous materials may be present (within building materials or products left in the
building) which will need to managed and disposed by the future owner. Building types particularly prone to such is- sues include: hospitals, research facilities and labs, and many industrial facilities. • Vapor Encroachment Screening (ASTM E2600): Over recent years, vapor intru- sion has become an increasingly important regulatory issue. ASTM E2600 is not specifically required under the pending revisions to the ASTM Phase I standard; however, vapor migra- tion needs to be considered, and ASTME2600 will likely become part of the standard of care over
time. • Compliance Audit: Under- standing the compliance history and current compliance perfor- mance of an operating facility can be a critical factor in assess- ing the value of an operating industrial facility. • Property ConditionAssess- ment (PCA: ASTM E2018): PCAs provide an assessment of the physical condition of the infrastructure of a property and can be used to evaluate short-term and long-term ex- penditures associated with maintaining and operating a building complex. • Energy Audit: If energy ef-
ficiency and/or sustainability are key factors in the decision, an energy audit can be used to identify potential cost-effective upgrades to improve efficiency and lower operating costs. Understanding these issues is critical to developing a sound due diligence strategy that adjusts to the demands of each transaction. Properly executed, such a strategy should result in fewer transactional surprises and more consistent financial success. Michael Shaw is a senior principal withGZAGeoEnvi- ronmental, Inc. in their Fort Washington, PA office. n
dard due to be released later this year, it seems an op- portune time to revisit your due diligence strategy for r ea l es t a t e acquisition.
Michael Shaw
The whole notion of “due dili- gence” rests on the fact that real estate transactions can be risky – in some cases very risky. Transactions have become riskier over the last few decades due to evolving environmental regulations and the associated requirements and responsibili- ties they place on property own- ers to deal with environmental impacts. The most fundamental due diligence tool is the Phase I Site Assessment, which was standardized in 1993 with the adoption of ASTM standard E 1527. From the beginning, ASTM E 1527 was intended to satisfy EPA’s requirements for qualifying for CERCLA (Superfund) liability protection under the innocent landowner exemption for unknown soil and groundwater contamination on a property. The standard was widely embraced by financial in- stitutions and was subsequently revised in ’94, ‘97, ’00 and most notably in ’05, the current ver- sion, which incorporated EPA’s final rule defining “All Appro- priate Inquiry (AAI).” ASTM E 1527 is now on the verge of another revision later this year. Although not as significant as the ’05 revisions, the pending standard will impact the way Phase I Site Assessments are performed. These changes will be covered in a subsequent article. WhileASTM E 1527 can qual- ify one for CERCLA Liability Protection and is typically re- quired by financial lenders, its value to buyers is far broader. Done diligently, it can provide valuable information about known and/or potential contam- ination issues on and around a property. This in turn can be used to better assess the real net value of a property, any po- tential constraints on planned redevelopment, and ultimately the overall financial perfor- mance of the transaction. AlthoughASTM1527 is what everyone thinks about in per- forming appropriate transac-
When you combine a culture of anticipating clients’ needs with the commitment of an entire organization around the success of every project, what you end up with is no surprises - just effective and efficient project success. That’s Proactive by Design.
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