Hot Environmental Topics

You break it you buy it.  Look before you leap.  You only have yourself to blame.  All common phrases.  Well environmental due diligence, i.e., a Phase I Environmental Site Assessment is an insurance policy of sorts that protects buyers of commercial properties.  Phase I is a historical and current assessment of a property for environmental issues (read costs to remediate contamination on a property).   But there are two "rubs" when doing a Phase I.  First, no buyer wants to find a problem with the property they are buying (trust me, I have heard clients say they hope we don't find anything countless times).  I call these people Hand Stampers because they want to get stamped that they did a Phase I and nothing was found, I call it unrealistic.   Do you think testing was required in the below photo?  The answer is yes.

The second rub of Phase I is that some 80% of the time, a Phase I is needed, apartment buildings much lower percent.   When Phase II testing is necessary the buyers are surprised by Phase II cost and the cost disparities (when they have time to price shop).  The rub is that a Phase I is 100% office work, a Phase II requires that same Phase I person, but now you are dealing with the environmental trades that 90% of environmental consultants subcontract out.  These Phase II services include Geophysical Surveys,  (GPR), and drilling (that's how you collect soil and groundwater samples). and perhaps excavation for test pits or removal of contamination (which technically is Phase III).   

All these services get marked up by the consultant.  You have to understand that consultants have insurance and workers comp that lists them as clerical, which is a very inexpensive insurance rating, most can't even use a shovel or it can place their personnel into a different workers comp rating which is more expensive.   So most all consultants subcontract services and markup the subcontractor, who does the heavy lifting so to speak.

We were asked to quote a Phase II for a buyer.   Our Phase II  cost was $3,500.00 and basically involved investigating locations where tanks were removed without testing.  The company that did the Phase I quoted the Phase II at  $7,800.00  the $4,300.00 difference represents the consultant's markup and recouping expenses from doing a discounted Phase I, Curren sees this discrepancy all the time.  Our client asked why the price differential, which I just explained to you and they said we should let more people know,  hence why you are reading this article.

Now, why would I want to let you know that consultants discount Phase I's knowing they will make it up on the Phase II work.   Well our recent client, who now has hired us for another property they are purchasing (Phase I), said we should.     

Curren Environmental could be considered a boutique or full-service company as we do the consulting and the environmental contracting (heavy lifting).   We find clients like being able to deal with one company and of course the financial savings.

Do you have Phase II Questions?

Call the experts

888-301-1050

Commercial Due Diligence includes performance of a Phase I ESA

Well how do you perform a Phase I ESA during Covid-19, when government offices are closed or minimally staffed delaying records request and you have settlement in 3 weeks?

Well how do you perform a Phase I ESA during Covid-19, when government offices are closed or minimally staffed -  delaying records request and you have settlement in 3 weeks?  In short you add this known delay into contract as buying real estate during Covid-19 is an unprecedented task.

Lets say you are buying a commercial building in New Jersey during Covid-19 and there are NJDEP (New Jersey Department of Environmental Protection) files that require review.  Of important note if any government environmental agency has records on the property you are purchasing you want those files reviewed.

You do due diligence not just to research current operations but what occurred at the property in the past.

Curren was performing a phase I for just such a situation and here is a quick summary of the obstacle faced with public records and Phase I ESA's.

Open Public Records Act (OPRA) request was  submitted an OPRA records request to the NJDEP on July 1, 2020.

On July 14, 2020 Curren received a response from the NJDEP indicating that due to the COVID-19 restrictions indicting “the NJDEP is not able to fully respond to record requests within the prescribed timeframe under the Open Public Records Act, N.J.S.A.47:1A-1 et seq (OPRA). The NJDEP work force has transitioned to work remotely from home, impacting the NJDEP's ability to access onsite and archived government records, conduct onsite inspections, and copy responsive records. In accordance with N.J.S.A. 47:1A-5(i)(2), which states that the deadlines under OPRA, to grant or deny access to a government record shall not apply if no reasonable efforts are available based on the circumstances, and in maintaining consistency with the social distancing directives of the Governor, the NJDEP is not able to complete the search for responsive records and respond to this request. Once resources allow, the NJDEP will complete and issue the final Government Records Request Form response to this request. We apologize for this inconvenience.”.

On July 13, 2020 the NJDEP submitted a response indicating “At this time, your request is not able to be completed within the statutory time frame specified in OPRA”.

On July 20, 2020, Curren received another response from NJDEP indicating that “Based on this record request, responsive records have been identified and will be emailed to you within 5-business days”.

On August 6, 2020 Curren reached out to the NJDEP requesting information as to the status of the email. In response to this email the NJDEP requested that Curren recontact them if the information was not received by August 18, 2020.

On August 20, 2020, Curren again submitted a request regarding the status of the information and received a reply indicating that we should have the data by Monday August 24.

On August 21, 2020, Curren received an email from the NJDEP with pdf files regarding the site. 

So approximately 7 weeks after a request was submitted the public records were produced.  You can repeat this same story for Phase's performed in Pennsylvania and Delaware, where we have seen similar delays.

If you are buying a commercial property and you are completing a phase I ESA, you need to prepare for longer reporting time frames.

If there one aspect of the economy that has strong forward momentum it is residential and commercial real estate sales.  The boom in real estate transactions (transactions are limited based on availability of properties for sale) are driven by historically low interest rates and the economic blow of Covid-19 on businesses that are driving prices lower and creating a buying opportunity for strategic investors.   In short there are businesses that are closed and real estate is being listed for sale and sold.  This is occurring by both owner operators of property as well as owner/landlords that have lost rental income and are selling the properties. By strategic investors we are referencing a buyers that have near immediate plans for the properties being purchased.  The closure of restaurants and many small business due to Covid-19 has left a dramatically different real estate market

Commercial Due Diligence includes performance of a Phase I ESA.    A Phase I researches current and past operations and diligent inquiries encompass obtaining and reviewing available public records.  Anything submitted to a government agency by nature is subject to review under the Open Public Records Act or OPRA.   Having a Phase I without reviewing OPRA records leaves a gaping data gap in your due diligence.

Expert Due Diligence Advice