06.08.2022

What You See is Not Always What You Get

When you’re evaluating a property for potential commercial investment, you need to go back in time to unearth potential environmental impacts. This includes researching whatever happened on that site in the recent or distant past and looking beyond the surface to uncover what might be lurking in the soil and water.

Due Diligence for Commercial Real Estate Transactions

You might think that a plot of farmland or wooded area is the perfect spot for commercial development. And you might be right. But how do you know for sure?

Most people, companies, and institutions can’t afford or shouldn’t- take on the risks and costs associated with hidden environmental impacts. That’s why they often conduct a Phase I Environmental Site Assessment (ESA) in advance of major commercial real estate transactions. In fact, many commercial banks require it prior to approving a loan to protect the investment.

What is a Phase I Environmental Site Assessment?

A Phase I Environmental Site Assessment (ESA) is an investigation into the history and current state of a property. This phase does not involve any physical digging or sampling. It is purely based on formalized research of data records according to the American Society of Testing and Materials (ATSM) Standard, which requires the study to go back at least 50 years.

Typically, when we’re conducting a Phase I ESA, we start with an environmental data review (EDR) and then validate and/or fill in the gaps through an exhaustive investigation. That could include interviews and documentation of former land owners, adjacent properties, and the surrounding area. People are often surprised by how much information is available in a search of U.S. Environmental Protection Agency (EPA) public records and by how much additional research can be necessary to really determine potential environmental impacts.

The research can be extensive. Although it’s not always labor-intensive, it can take a long time just to receive information from all the various sources. You might think a large property would take longer to evaluate, but sometimes a large property is clearly and well documented, while a small property can take up to six weeks to evaluate if the information is elusive.

Often, a lack of historical information is the biggest issue. We might find materials of unknown origin or things that don’t match the recorded history of a property. For example in one Phase I ESA, we found unexplained mounds of earth that should not have been there. Upon further investigation, we learned that a former owner used the site to dump materials of unknown origin for a period.

In other cases, records can easily show that a site is clean. In our experience, that happens about 50-70 percent of the time. Once that is demonstrated, the buyers and their banks have peace of mind and lower risk associated with the investment.

Types of Impacts Uncovered in an EIS

The ATSM Standard for a Phase I Environmental Site Assessment covers the impact of petroleum and other hazardous waste materials in soil and groundwater.

Petroleum

If your land has been downstream from a gas station or in the vicinity of an oil spill, you could have petroleum contamination that is not directly tied to the records of the property itself. Petroleum can stay in soil and groundwater for decades, and it can affect the air we breathe, the water we drink, and even the plants we grow there.


Hazardous Waste Materials

Other hazardous waste materials could include solid waste like discarded building materials, chemicals in soil from unknown origins off-site, or remnants of buildings that were formerly on the property itself.





We recently studied a property where we discovered that 28 farm buildings had once stood there but were now invisible! Hazardous wastes can also include things like water heater drums or bullets and shell casings, which we found recently on a property we were studying where a portion of the land had been used as a shooting range.


Other Potential Environmental Impacts

In addition to the petroleum and hazardous materials, there are other environmental impacts not necessarily specified in the ATSM Standards for Phase I, but which can nevertheless affect the value and risk of the property in question. If the property contains wetlands or is on a floodplain[GB6] , the size of your viable land may be reduced, or the investment may simply be too risky.


What Happens Next After a Phase I ESA?

Once we’ve completed the Phase I ESA, there are a few possible next steps, including:

  • A record of potential petroleum or other hazardous waste would automatically trigger a Phase II study, which unlike Phase I would include digging, sampling, etc.
  • The existence of environmental impacts might change your mind about the land as a buyer, or prompt you to negotiate remediation prior to purchase. Likewise, if you’re the current owner of the property conducting a Phase I Assessment preemptively before putting the land on the market, you would need to remediate or at least disclose the issues in advance of the sale.
  • If you’re the one conducting the Phase I ESA, be aware that it is a liability document, meaning that once you complete the study, you become partially liable for anything you might have missed. There’s insurance referred to as “errors and omissions protection” for that, but you still want to be very thorough.

The Bottom Line on Environmental Impact Studies

If you’re considering investing in commercial property, it’s well worth taking the initiative to have an Environmental Site Assessment completed to make sure you know what you’re buying and that it’s safe. Even if you’re considering a residential property, you might want to take a few minutes to look up the address in the EPA’s database of public records. Chances are it’s clean and safe, but why not just make sure?

If you’re not sure where to start or need to get started on an Environmental Site Assessment of a prospective commercial property, contact us, and our Planning and Environmental Services team will be happy to help.