Environmental Due Diligence
Due Diligence and a Phase I Environmental Site Assessments (Phase I ESA) are common and often spoke in the same sentence because each one relates back to the other. A Phase I Environmental Site Assessment is the gold standard purchasers utilize for assessing the environmental liability associated with real estate. Be it commercial, industrial or multi-tenant residential. Whether the property is industrial, commercial, mixed-use, multifamily a Phase I will research the historical and current uses of the property relative to issues that may affect the property environmentally. All Phase I ESA's will follow the most current version of ASTM E1527-13 which is the standard format for a Phase I. Who performs Phase I Environmental Site Assessments? These are done by Environmental Professionals, such as Curren Environmental Project Managers, who meet the requirements of the EPA's AAI Standard.
A Phase I is a buyers due diligence. The environmental site assessment is a report prepared for real estate holding that identifies potential or existing environmental contamination liabilities. The analysis, often called an ESA, typically addresses both the underlying land as well as physical improvements to the property
The All Appropriate Inquiries Rule.
All Phase I ESAs must adhere to the EPA's All Appropriate Inquiries Rule which governs the scope of work performed when completing a Phase I. This protocol was started on November 1, 2006 and provided specific scope requirements for the environmental professional to follow for a Phase I ESA to meet the requirements of CERCLA's innocent land owner defense.
The Phase I Standard ASTM E1527-13 Standard was updated on November 6th, 2013. ASTM published the new standard after an extended input period involved with conducting Phase I Environmental Site Assessments. The current standard, ASTM E1527-13 replaced the older E1527-05 standard as the industry best practice for Phase I ESAs. With changes comes a stricter approach to completing a Phase I, some important changes include:
Phase I File Reviews - The E1527-13 standard imposes a stronger imperative for conducting regulatory file reviews. This is significant as a file review can take months to complete as the files are typically located at a government office that may have to pull files from archive. What many consultants do not explain is that a file review could take 3 to 5 weeks to complete, blowing the closing that is supposed to occur in two weeks. The environmental professional performing the Phase I reserves the right to forego a file review. But must explicitly explain in the report why a review is not warranted. Many reports get submitted sans the review, which is added as an addendum to the Phase I, this is risky as the file may turn up significant information, that may only be reviewed by the purchaser after purchase. Bottom line plan enough time to complete the Phase I.
Vapor Migration in the E1527-13 standard has greater importance on assessing impacts to the property from vapor migration.
If you broke down the steps in completing a Phase I, it would read as follows:
Site Visit: Clearly the more experienced the environmental professional performing the Phase I, the more thorough the report will be. Experience relates to cost and you will find that Phase I ESAs that are slighter higher than others, are directly related to the experience of the personnel performing the work. Read, you get what you pay for
- Inspection of the Site by an Experienced Inspector
- Catalog the Presence of Hazardous Materials or Petroleum Products
Historical Research: Research is typically purchased for the Phase I, with inquiries of local documents from local government agencies.
- Historical Aerial Photographs
- Reverse Street Directories
- Building Permits
- Planning Records
- Topographical Maps
- Sanborn Fire Insurance Maps
- Department of Oil and Gas Maps
- Title Information
Geology and Hydro-geology
- Soil Type
- Geological Setting
- Groundwater Depth
- Fire Departments
- State Environmental Agencies
- Federal Environmental Agencies
Interviews and Document Review: Knowledgeable parties are sought out to be interviewed when a Phase I is performed. Clearly it is important to speak to the owner or operator of a site as they would have the longest base of knowledge regarding the site. Speaking to the realtor or tenant, which the owner typically throws at the person performing the Phase I is not enough, although many phase I rely on the interviews with these individuals.
- Interview Tenants and Owners
- Interview State and Local Regulators
- Review Provided Reports