A Phase I Environmental Site Assessment is a common first step in evaluating the environmental condition of commercial real estate. With ASTM E1527-13: Standard Practice for Environmental Site Assessments, one would assume all Phase I’s are created equal. They’re not.
Bell Oldow reviews thousands of Phase I’s annually and sees a wide disparity as to what is and what is not a Recognized Environmental Condition (REC). The Standard allows the judgement of an environmental professional to make the determination.
Some professionals use a conservative approach and note innocuous items, for example, the presence of a groundwater monitoring well as a REC. Others have identified potential serious concerns such as an active, 50+ year auto repair/fueling station with no subsurface testing as No RECs, seemingly because no releases have ever been reported to a regulatory agency.
Since RECs typically require the need for more work and slow the deal, some tend to avoid or minimize these findings or re-define them to a lesser concern as a “business risk” or “other environmental issue.”
Understanding the risk and consequences
To a professional outside of the environmental realm that is relying on the report for financing or insurance placement, a No RECs determination may mean the environmental component is clear and there is one less obstacle to close the deal. Conversely, they may assume that an identified REC is always problematic. However, one needs to read past the Executive Summary, and look deep into the appendices to really understand the risk and the consequences that may be encountered during the loan or policy term.
Our Clients appreciate knowing the hazards, their magnitude, and the options to manage these hazards up front so that they can make thoughtful decisions to mitigate the risks within the framework of the deal.
In this business, no one likes surprises, whether it is labelled a REC or not.
