Environmental due diligence is a key consideration when engaging in commercial real estate transactions. Failing to do your due diligence could expose your financial institution to serious liability if a site is discovered to be contaminated.
However, due diligence is a complex undertaking that you should not take on alone. Instead, you should partner with an environmental due diligence firm. With that being said, not all firms are created equal. The wrong partner could endanger your transaction.
Our team wants to help loan officers and land buyers avoid this nightmare scenario. That is why we have created this guide. Below, we discuss how to find the best environmental due diligence partner. We also outline why due diligence is vital.
What Is Environmental Due Diligence?
Environmental due diligence is an investigation into commercial real estate. This investigation may include multiple components, such as:
- Site visits
- Phase 1 environmental site assessments
- Record reviews
- Title history search
- Sample collection
During due diligence, an environmental consulting firm will perform key tasks in accordance with state and federal laws. These tasks can identify the presence of recognized environmental conditions (RECs). Due diligence can also protect you from environmental liabilities.
Why Due Diligence Is Vital
Due diligence will reveal if hazardous materials are present on the land that is subject to a commercial real estate deal. If there are hazards, then the value of the land will be reduced. In short, due diligence helps the involved parties negotiate a fair price during commercial real estate transactions.
Due diligence also protects investors from certain types of liability. The Environmental Protection Agency (EPA) holds businesses accountable for contaminating the land they use. Due diligence can prove that contamination was present before a business purchased land. This ensures that the right entity is held liable for environmental contamination.
Signs of a Great Due Diligence Partner
Many firms offer due diligence services. However, these firms vary in terms of quality and experience. That is why you must be careful when searching for a due diligence partner.
The best firms will possess the following traits.
Good communication is critical for success in any partnership. It is particularly vital during real estate transactions. Firms that fail to relay data to clients can delay a deal. This lack of communication can even ruin a deal entirely.
Make sure the firm you choose communicates well. Ask how often they will provide you with status updates on your project. The best firms provide updates at least once per week.
Also, find out the firm’s average turnaround time for key services. Top firms have a guaranteed turnaround for phase 1 environmental site assessments (ESAs) and other due diligence projects. Choosing a firm with tight timetables will help ensure that your deal is not delayed.
We recommend asking these questions about a firm’s relevant experience when searching for a due diligence partner:
- How long has the firm been performing due diligence?
- Will an experienced team member lead your project?
- Does the firm normally operate in your state?
It is vital that the firm you choose has worked in your state before because environmental laws vary from state to state. A firm may be highly experienced but might still be unfamiliar with laws in your region, creating unwanted problems for your institution.
Offer a Variety of Services
Phase 1 ESAs are the most common type of environmental due diligence. However, you should choose a firm that offers other services as well. If a phase 1 ESA reveals an issue with a site, you will need to perform more due diligence. A firm that offers multiple services can assist with these unexpected needs.
Find a partner that offers services such as:
A firm that provides these services can meet all of your due diligence project needs.
A Strong Reputation
If possible, speak to other professionals who have worked with a due diligence firm.
- What was their experience like
- Did the firm provide thorough services? Or, were their services lacking?
Pay close attention to reviews that are most relevant to your needs. For instance, if you need a phase 1 ESA, find feedback about firms that provide this service. You should take one bad review or report with a grain of salt. However, firms that have a pattern of bad reviews may not be the right partner for your real estate deal.
The cheapest option is rarely the best option when it comes to due diligence. The lowest bidder may cut corners during your project. They may not obtain proper permits or may send an inexperienced team to handle your assessment. Firms that do the bare minimum are more likely to miss environmental concerns.
You should not make your decision on cost alone. However, reputable firms will be transparent about their pricing model. Find a firm that is upfront about the cost of their services. These firms are confident in the quality of service that they provide and will bill you fairly based on the scope of the project.
Why RSB Environmental for Environmental Due Diligence?
If you need an environmental due diligence partner, look no further than RSB Environmental. Our experienced team offers a full suite of due diligence services. We perform phase I ESAs, phase II ESAs, and much more.
To obtain a quote on our services, contact our team today! We look forward to protecting your interests in a commercial real estate transaction by shielding you from environmental liabilities.