Curren touches thousands of Phase I Environmental Site Assessments (ESAs) every year. We either do the Phase I or we review the old one. We also speak to first and multiple time buyers of commercial properties. Curren prepares, reviews and/or utilizes hundreds of Phase I ESA reports every year. Curren also interacts with a significant number of residential, commercial and industrial property buyers, sellers or their attorneys.
Most buyers/sellers and real estate agents have an idea or a vague idea of what a Phase I & Phase II are all about. Most also [buyers] have a basic understanding of the different Phases for site assessments, but it’s typically a basic understanding. Although Phase I ESAs are generally similar, Phase II assessments can vary significantly from state to state and will vary based on what the investigation is directed at solving. If you manufacture something, provide a service or perform some management expertise you have no doubt more knowledge about these topics as it pertains to your business, but you may not have a complete understanding of the potential environmental considerations involved while performing that process. Even if you read this web page and spend hours reading many others, you don’t have the seasoned experience, or the actual practical knowledge of investigating and addressing potential environmental concerns comes with the experience that Curren Environmental has developed over decades of performing such work. So many people think they understand basic environmental risk, however, several millions of dollars have been spent with Curren relative to people managing environmental testing and remediation after they have owned the property. It is as basic as not completing the right level of Due Diligence when purchasing a property. There are untold numbers of property owners who did not complete a basic Phase I ESA or ,at minimum, a Transaction Screen so that there is some level of understanding of the potential environmental pitfalls associated with a property. This DIY environmental due diligence may work for some people, but we typically get involved with the sites where the lack of proper environmental due diligence creates thousands of dollars worth of problems after purchase. Obtaining professional advice could provide insight into potential problems for buyers prior to you being responsible and provide options for property owners where environmental issues exist.
Bottom line you do a Phase I because something may have occurred at the property that has some form of environmental risk, and the risk is having to spend money to address an environmental issue.
As I write this post, we are doing soil borings at a building, because a Phase I found a risk and a phase II found contamination. We are now trying to define the extent of the contamination.
It can be an uphill battle to complete a Phase I but typically when other professionals in a real estate transaction recommend a Phase I (attorney, mortgage company) a Phase I is performed. The bigger battle is when a Phase II is needed, people ask why look for a problem? Well, because problems cost money.
Why was the Phase II not stressed enough?
In a word Phase II is testing. You test to see if something in a Phase I poses a problem. A Phase II could be $500 or it could be $16,000 (both numbers of Phase II’s we recently completed.). The cost is not the topic, the issue is by doing the Phase II you are affording yourself protection. Not doing a Phase II, well you open up a can of risk. Case in point we have a company, a franchise, for a well known consumer brand. They purchased a property, did a Phase I, and the Phase I flagged some potential open issues on the property. A Phase II was not done, why the client didn't tell us, but after spending over $50,000 in remediation their complaints were loud and clear. Why was the Phase II not stressed enough?
Hey if a doctor tells you to watch what you eat and exercise more, the doctor is not going to chase you down and hound you to do it (maybe they should) and neither is your environmental consultant. You are likely going to spend thousands of dollars for a Phase II, it's your money if you choose not to do a Phase II it is your decision. (*Banks like Phase II work, because they have first hand knowledge of the risk. In short they know a Phase II can save money in the long run.)
Why do people skip Due Diligence?
Bottom line the company wanted to buy the property, it was the best property for their needs, they wanted it and ignored or didn't see the warning signs and they paid for it years later when they went to sell.
Could they have done the Phase II and fixed the issue before purchase?
Likely yes, but you can’t step in your time machine. From experience when we find contamination after a Phase II, the vast majority of time, it gets fixed and the property gets sold, either to the original buyer or another one. When the sale doesn’t go through it typically relates to time it takes to perform the remediation or the cost of remediation. Trust me if the buyer wanted the property bad enough and the math worked, no amount of remediation cost would deter a buyer, but every deal has limits.
To be clear many Phase I’s don’t require a Phase II.
Guaranteed anyone contracting for a Phase I, buyer, seller, mortgage company, bank, nobody wants the Phase I to lead to a Phase II or III, because if it does it could create a problem and the deal may not go through. This is true time and again, if I had a nickel for every time someone said they hope the Phase I is clean, I would have a bathtub full of nickels.
Hire professionals and listen to professional advice. If a phase II is warranted do it.
