Getting commercial real estate transactions to the closing table requires a lot of work on everyone’s part. In light of that, no one wants to see a deal fall through at the last minute.
That is why you must protect your deal by obtaining an environmental assessment commercial real estate report. Not sure what an environmental site assessment (ESA) is or why you need one? Then you are in the right place.
Whether you are a property owner, lender, or broker, this article will help you understand how to use ESAs to conduct thorough environmental due diligence and protect your deals. Let’s take a deep dive into the role of ESAs.
What is an Environmental Assessment in Commercial Real Estate?
First, an ESA is an environmental assessment of a commercial property that checks for recognized environmental conditions (RECs) and contamination. In total, there are three types of ESAs, which include the following:
A Phase I ESA is the most common type of assessment. During a Phase I ESA, assessors look for RECs by reviewing a site’s usage history. They may also conduct a walkthrough of the site.
If a Phase I ESA reveals RECs, a Phase II ESA is needed. Phase II ESAs consist of collecting groundwater and soil samples, which are sent to a lab for testing.
If those lab tests reveal that hazards are present, assessors will determine whether the substances exceed established safety limits. If they do, a Phase III ESA will be needed. Phase III ESAs are also known as site remediation, during which teams will remove contaminants to improve a land’s usability.
Who Do ESAs Protect?
ESAs – Phase I ESAs in particular – protect all parties in a real estate deal. Specifically, these assessments will protect the following parties.
Buyers benefit most from ESAs. Under CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act), buyers can be held liable for contamination of land after a transaction is complete, even if they did not cause it. What does this mean for buyers? You may have to cover some or all of the cleanup costs if you unknowingly bought contaminated land.
A Phase I ESA reveals if RECs may be present. If RECs are found, a buyer can conduct further due diligence to determine the scope and severity of contamination before buying that land.
Protecting buyers from liability is only one purpose of ESAs. They also help buyers negotiate a fair price for the land. If RECs are present, buyers can use this information to drive down the final purchase price of the real estate.
ESAs also protect sellers’ interests in two ways. Just as the presence of RECs drives down land prices, a lack of RECs can help sellers earn more for their property.
Additionally, ESAs can document if RECs were present at the time of a deal, which protects a seller if the new owner contaminates a property.
Due diligence is also essential for lenders and brokers. Brokers must look out for the best interests of their clients. They are also tasked with protecting the financial institutions they work with.
ESAs help financial institutions make informed lending decisions. They can use ESA findings to decide whether they would be able to recoup their expenditures should the buyer default on the real estate loan.
Most lenders require at least a Phase I ESA to be part of all commercial real estate deals. If brokers book ESAs promptly, deals could stay intact.
Is The Deal Over if the ESA Reveals RECs?
The most important thing to know about ESAs is that they are not designed to end a deal. Instead, they provide buyers and brokers with important information about a site. What buyers do with this data is up to them.
If you act as a seller or broker, keep in mind that a deal is not ruined just because RECs are found.
The presence of RECs just means that a Phase II ESA is needed to reveal the extent of the contamination. It will also determine whether the site can be used for the buyer’s intended purpose. If it cannot, remediation may be an option.
However, you will have to do some maneuvering to save your deal, especially if the cost of remediation is expected to be quite expensive.
The first step to saving deals is finding the right ESA firm to provide you with timely reports so you can act fast. RSB Environmental is that firm.
Book Your ESA Today
If you need an environmental assessment commercial real estate report, are on a time crunch, are looking for a reputable partner, and want to protect yourself and your deal, RSB Environmental can help.
Our team supports each type of environmental assessment. More importantly, we can complete an assessment and deliver the report quickly. Our experts will carefully prepare your ESA report, allowing you to make an informed decision and protect your deal.
To learn more, book a consultation today. Let’s discuss your commercial real estate deal and schedule an environmental assessment right away.