Commercial Issues

Why Are Environmental Issues Relevant?
Many real estate transactions are derailed by even the slightest suspicion of environmental exposures. So development and acquisition of commercial properties should begin a due diligence process with a ground-up approach. This means starting with a Phase I Site Assessment by qualified inspectors.

What is a Phase I Site Assessment?
In the United States, an environmental site assessment is a report prepared for a real estate holding that identifies potential or existing environmental contamination liabilities. The analysis (often called an ESA) typically investigates the underlying soil, the surrounding property and any physical improvements.

What if Environmental Issues are Discovered?
If significant environmental issues such as lead in the soil are identified, then Phase II testing determines the extent of the contamination. Should contamination levels exceed established standards set by the government, then Phase III abatement and/or remediation technologies are implemented. Each step adds to the development and acquisition costs. In some cases Phase I or Phase II results will cause the developer to abandon the project or look for an alternative site.

What Potential Risks Hide in the Soil?
The acquisition of property can bring a variety of soil related environmental exposure issues. Some of the soil based risks include:

• Discovery of contaminated soil or underground storage tanks.
• Detection of toxic metals such as lead.
• Discovery of contamination on adjacent properties that currently or may potentially migrate onto the developer’s property.
• Hydraulic oil leaks from elevator wells.
• Releases of asbestos, radon or solvents into soil and air.
• Accidental spreading of existing contamination during remediation.

What Other Unknown Risks Face Developers?
The, renovation, expansion or demolition of existing structures may generate a variety environmental exposures issues. With respect to existing structures, risks may include:

• The potential extension of EPA’s lead paint regulations to commercial buildings.¹
• Hazardous chemical storage from a previous owner and/or tenant.
• Lead-based paint contamination or lead solder in the water pipes.
• Bacteria, fungus or mold in heating, ventilation and air conditioning systems.

With respect to the surrounding property, risks may include:

• Hazardous chemical storage from a previous owner and/or tenant.
• Poor housekeeping, waste disposal by a tenant or previous owner, such as onsite garbage incineration.

References

1. EPA Considers Extending Lead Paint Regulations to Commercial Buildings, Saulius Mikalonis, Crain’s Detroit Business, May 23, 2013