10 situations where a Phase I Environmental Assessment might be overkill, and how to handle them!

Over the years, our clients have asked us some really great questions.  These are usually not rhetorical flourishes about the ASTM Standards or the nature of environmental liability exemptions, or even the cheery topic of "contaminant exposure pathway analysis".  

No, most regular people (non-consultants!) have down-to-earth questions about how to get their deals done, how to maintain compliance with regulators! One of the most common topics revolves around less expensive ways to evaluate environmental risk. 

Now, as you may remember, our last blog installment addressed recent changes in the ASTM Phase  Environmental Site Assessment standard.  In part, as a result of these changes, some people have begun to question the value of Phase I assessments for many situations. When is a Phase I necessary, and when is it not?

GREAT question!
Spending $1500 to $3000 and waiting 2-4 weeks for a Phase I Environmental Site Assessment just seems like overkill to many people.  Common scenarios can include:

1) The borrower may already own the property.  Thus, they may not be able to avail themselves of the legal protections provided by a Phase I.  Nonetheless, the lender, or perhaps the borrower wants to learn more about the overall level of environmental risk there.  A Phase I budget, however, is out of the question.

2) The type of property use and history may appear to be low-risk for environmental issues, but questions may remain based on rumor or nearby property usage. A Phase I budget is not feasible.

3) A lender may have little, if any, liability exposure due to statutory exemptions, but is interested in determining the level of environmental risk to aid in better collateral valuation. A Phase I budget is not feasible.

4)  A low-cap loan is perceived to be low risk, but the lender wants to have some basic level of environmental evaluation in the file. For competitive reasons which are important to the lender, a Phase I budget is not feasible.

5) The purchaser is buying via cash or land contract and may simply be curious about the potential for environmental risk at the property, but not concerned about liability protection. They also are not willing to pay - and wait - for a Phase I if there is something else that can give them the "peace of mind" they are looking for.

6) A lender may be interested in getting a ballpark idea if further due diligence costs will be required on properties where there is an elevated risk indicated and foreclosure may be on the horizon. A Phase I budget is not feasible.

7) The deal may or may not be SBA financed.  According to SBA or bank policy, the property may not require a Phase I, yet the environmental risk must be evaluated. 

8) The "Environmental Questionnaire" used by many banks may be deemed inadequate.  Or, there may be a real or perceived conflict of interest, and thus a third party is needed to assess the risk.

9) The Property may not be required to have any environmental review at all, however the bank or the borrower may feel it is prudent to have at least some basic level of professional evaluation performed.  A Phase I ESA, however, may be deemed too expensive or involved for the situation.

10) Residential purchasers may be curious about the environmental risk in the area of their property, since contaminated soil and groundwater is not exclusive to commercial or industrial areas. A Phase I budget is not feasible, and something less than a Phase I would be more than adequate for the purpose.
Have you seen some of your deals fall in to one or more of these categories?
The marketplace has made several attempts over the years to provide a satisfactory answer to these types of questions, including: 
  • Various Phase I components (aerials, government listed site database "dumps" from large vendors) offered on an "ala carte" basis
These are products usually sold by large national firms. They can have some value, but lack the professional input required to develop an informed opinion about the risk level. This forces the lender or the buyer to review the data and make the risk evaluation on their own without the benefit of a trained and experienced professional. These products are often about $300 - $500 and can take 3-5 days.
  • "Transaction Screens", "Phase 1/2's", and "Phase I Lite" type products.
These assessments do provide the opinion of an environmental professional.  However, they are relatively expensive, often approaching the cost and turnaround times usually associated with the more well-known Phase I. Unfortunately, these do not provide the legal protections afforded by the Phase I, and so from a value standpoint, most people simply order the Phase I. Usually $700 - $1500 and 5-10 days.
The United States Small Business Administration (SBA)  has probably made the most successful attempt to fill this "less-than-a-Phase I" gap.  
SBA's environmental policy requires a "Records Search with Risk Assessment or EZ Screen.

This report was specifically developed for use on certain lower-risk properties and low-cap type loans, based on the SBA flow chart and NAICS codes.  
These codes determine which property types are required to have a Phase I, and which ones can be evaluated with the much faster and less expensive EZ Screen used as a risk screening tool.
While Federal SBA policy dictates that the EZ Screen is a required part of the SBA financing process, this report is certainly not restricted to SBA deals!

This versatile report can be used to help assess risk in all of the scenarios outlined above.  
The best part?  
  • They can be done in less than 24 hours!
  • These reports include the opinion of an experienced, qualified, environmental professional!
  • Costs under $300.00
  • In most cases, no further work is recommended!  In the few cases where more work is needed, sometimes some additional file review can clear things up without having to go through the Phase I process.
  • In cases where it becomes clear that a Phase I is appropriate, the cost of the EZ-Screen can often be credited toward the Phase I, so there is little if any risk of wasting time or money by trying the EZ Screen  first.
  • Similarly, sometimes an environmental issue is identified which can be addressed directly - skipping the need for Phase I!  This saves considerable time and money!
If you would like to learn more about the EZ Screen environmental risk screening tool, feel free to contact us through our website or email us.   

We would be happy to send you a sample report upon request!
Alternatively, feel free to give us a call at (800) 769-7437. We offer EZ Screen services nationwide.

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