Real Estate Journal — Shopping Centers — January 30 - February 12, 2015 — 3C
www.marejournal.com
M id A tlantic
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By David S. Coyne, QEP, Liberty Environmental One size doesn’t fit all: Evaluating alternate forms of environmental due diligence
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several things: 1.Identifies the environmen- tal condition of a site; 2.Determines if these condi- tions pose a risk to the future value of the property; 3.Determines if these condi- tions pose a risk to the future planned operation of the prop- erty; and 4.Estimates the methods – and costs – associated with remediating or attenuating these risks so that the new owner can operate the prop- erty as intended. But like the decisions we make in that shoe store, it’s
just as important for real estate professionals to un- derstand what level and type of assessment is appropriate for the transaction at hand. As the methods and prac- tices for environmental due diligence have evolved since the mid-1980s, the Ameri- can Society for Testing and Materials (ASTM) Standard Practice for Phase I Envi- ronmental Site Assessments (E1527) has emerged as the most widely-implemented, industry-recognized scope of work. Particularly after 2005, with its tie-ins with federal
ere’s a common sce- nario to consider: you’re standing in
CERCLA regulations through the landmark All Appropri- ate Inquiry Rule (40 CFR Part 312), the ASTM E1527 Phase I ESA has been the standard bearer for complete and proper environmental due diligence at a site. And that’s with good rea- son. However, as the lending landscape has matured and diversified, it’s been correctly recognized that not all sites bear the same level of risk. And not all sites – in fact, very few sites, by percentage – will ever have a realistic need for federal CERCLA protection.
In addition, as specialized lending programs such as SBA and other public programs have emerged as viable fund- ing options in the post-reces- sion economy, many involved in real estate transactions are finding that the environmen- tal assessment process must be carefully weighed, and that the best choice may not always be the ASTM Phase I ESA Standard. ASTM Transaction Screen Environmental Assessment (E1528): A significant portion of projects on lenders’ desks continued on page 14C
a store, de- ciding which type and size of shoe to buy. Should you buy a dressy work shoe? A s p o r t y pair of run- ning shoes,
David Coyne
or a casual loafer, perhaps? The decision, of course, is a function of how we plan to use them. Then, once we’ve identified what we need, we certainly can’t just blindly buy a shoe of any size. Such an uninformed purchase would more than likely leave us very disappointed – and with sore toes, no doubt. We’ve all wrestled with the uncertainty of whether or not the item that we’re buying is going to fit our needs. So we measure, think, inspect, try on, and decide accordingly. It’s a type of transactional due diligence that we do ev- ery day, and it’s a generally subconscious process for the most common decisions of our day; what to eat, what to wear, what to buy. Consider when the stakes are much higher – financial- ly, at least. Investors face a similar set of questions about what type of due diligence process to perform as part of their decision making. These professionals are aware of the potential risks involved in ac- quiring an asset – be it a real asset such as land or a build- ing, or some other type of asset such as a company or contract. In each of these cases, the investor must understand not only what it is that they are acquiring, but also what the potential pitfalls could be present in this acquisition. As lenders, attorneys and investors can attest, there are few services of greater value to the real estate transac- tion process than proper due diligence. Unique among the various forms of pre-trans- action intelligence available on the market, which include appraisals and inspections, the environmental assess- ment process has continued to evolve and find new appli- cability over its 20-plus years of existence as a real estate decision making tool. When properly implemented, envi- ronmental due diligence does
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