A Phase 2 environmental report is one of the most important pieces of due diligence documentation used during commercial real estate transactions. However, in order to effectively leverage the information contained in these extensive reports, it is vital that you know what to look for.
Generally, reading through the entire Phase 2 environmental site assessment report line by line is not a good use of time, as the document can contain hundreds of pages.
The good news is every Phase 2 ESA report contains an index that will help you quickly navigate to the most critical information. By leveraging that index and the information outlined in this guide, you and your commercial real estate clients will be able to use the Phase 2 environmental report to make informed decisions.
Phase 2 Environmental Site Assessment vs. Phase 1 ESA
Before we turn our attention to the most important elements of a Phase 2 ESA, let’s compare this assessment to a Phase 1 environmental site assessment. Environmental assessments are arranged into a progressive-tier system:
- Phase 1 ESA: non-intrusive inspection of the property.
- Phase 2 ESA: intrusive inspection.
- Phase 3 ESA: remediation of the property.
During a Phase 1 ESA, inspectors review the history of the property and physically walk the site to look for recognized environmental conditions (RECs). If RECs are discovered, a Phase 2 ESA will need to be scheduled. If not, then no further environmental site assessment is necessary.
During a Phase 2 ESA, inspectors will conduct more extensive testing. Specifically, they will collect soil and ground samples. These samples will then be analyzed in a laboratory to determine what contaminants are present and at what concentrations.
Depending on the findings of the Phase 2 ESA, a Phase 3 ESA may be required, which we will cover later in this article.
What Are the Most Important Elements of a Phase 2 ESA?
The most important elements of a Phase 2 ESA are the results of soil and ground sample testing. These test results will reveal what contaminants were discovered on the site. More importantly, the results will explain whether the contaminant levels fall above or below established thresholds.
Understanding contaminant thresholds can be somewhat difficult due to several factors. The first is that contaminant thresholds can vary from state to state. Additionally, each state may have different thresholds for contaminants based on the intended use of the land.
For instance, contaminant thresholds for land that will be used to build an apartment complex will differ from limits placed on a parcel that is being used for industrial applications.
What Issues Should Loan Officers or Brokers Look for?
When reviewing sample test results, loan officers or commercial real estate brokers should pay particular attention to the specific quantities of each contaminant. Additionally, you should see if these quantities fall below established thresholds or if other actions are required.
If further action is required, the deal is not necessarily dead in the water. When a site has a high likelihood of generating a strong return on investment and only requires a mild to moderate amount of remediation, buyers may still want to move forward with the transaction.
Conversely, if remediation is projected to cost tens of thousands of dollars, buyers will either need to back out of the deal or negotiate the purchase price down.
When Are Phase 3 ESAs Necessary?
If a Phase 2 ESA reveals that contaminant levels exceed maximum thresholds, a Phase 3 ESA might be required. Phase 3 ESAs involve site remediation and other efforts to restore the land to a usable state. Ultimately, Phase 3 ESAs are by far the most costly type of environmental site assessment.
What Services Are Included in a Phase 3 ESA?
During the initial stages of a Phase 3 ESA/site remediation, our team will thoroughly review the findings of the Phase 2 environmental report. This report and additional site data will help us accurately project the scope of remediation efforts.
After a plan is in place, remediation will involve several different processes to remove contaminants from groundwater and soil. The most common type of remediation involves removing contaminated soil, disposing of it, and backfilling it with fresh soil.
There are also several advanced processes available for remediating groundwater. The specific type of remediation processes that are chosen will vary depending on what contaminants are present, state requirements, and other factors.
After remediation efforts are completed, assessors will conduct further testing to determine contaminant thresholds. The results will be submitted to the appropriate state entity so that any use restrictions can be modified or removed entirely.
While the goal of remediation is to eliminate all use restrictions, there are instances where this is not possible. Even if all restrictions are not removed, comprehensive remediation will help with future assessments and improve the land’s value.
How RSB Environmental Can Help with Remediation
RSB Environmental has assisted numerous clients by providing timely and cost-effective Phase 2 environmental reporting and site remediation. Our experts have decades of experience, making them uniquely suited to oversee your site assessments and remediations.
When providing environmental site assessment services, RSB Environmental can accommodate very short turnaround times. In most cases, we can schedule, perform, and document an assessment within 7-10 business days.
Our services help protect lenders and buyers from potentially bad deals. Our team can provide insights into what RECs are present and in what quantities. Additionally, we can leverage our years of industry expertise to provide remediation estimates so that buyers can make informed purchasing decisions.
The findings of our reports can be used to guide buying decisions. You and your clients can use our environmental reports to negotiate pricing, avoid high-risk purchases, and achieve an improved return on investment.
To learn more about obtaining a Phase 2 environmental report for the property in your deal, schedule a consultation with RSB Environmental today.