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FAQs: Real Estate Market – Environmental Due Diligence

Environmental Due Diligence is a critical component of real estate transactions and is often overlooked until significant issues arise. In this FAQ, we hope to provide you with useful bite-sized pieces of information to help you better understand how environmental due diligence fits into the real estate buying and selling process (Phase I ESA, Phase II Site Investigations etc.). Just click on the questions of interest below for more information or Contact us 412-264-6453 or email info@appliedgeology.net 

PHASE I ESA – GENERAL

What is a Phase I Environmental Site Assessment (ESA)?

A Phase I Environmental Site Assessment (ESA) is an initial environmental investigation of current and historic uses of a property for the purposes of gathering information and adding a degree of protection from potential environmental liabilities during a property transaction.  This assessment is conducted by a standard process used to satisfy federal requirements of conducting All Appropriate Inquiry into previous ownership and property uses, as outlined in ASTM E1527. A Phase I ESA must be completed by a qualified professional and involves a review of available environmental government records, a site visit, interviews and a historical deed search to identify past uses of the property and any current or past Recognized Environmental Conditions (RECs). 

Do I Need a Phase I ESA?

While a Phase I ESA can be completed on any property for a variety of reasons, it is typically conducted as part of a commercial real estate transaction. It may be initiated by the buyer or the seller and it is often a requirement of the lending institution to complete the sale. Whether a Phase I ESA is required or not, completion of environmental due diligence during a property transaction is a comparatively inexpensive way to avoid a costly, unforeseen, environmental headache in the future.

PHASE I ESA – ASTM

What is ASTM E1527-13?

ASTM E1527-13 “ASTM E1527-13 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process,” is used for assessing land quality for environmental risk. ASTM E1527-13 Phase I Environmental Site Assessment (Phase I ESA) provides a framework for Environmental Professionals to follow. The Phase I ESA may include: records review (landowner, historical and governmental records); site visit including inspection of the property and adjacent properties; interviews with owners and occupants and local government officials; evaluation and report preparation.

The ASTM E1527-13 Standard was created by the American Society for Testing and Materials (ASTM International) – an international standards organization that develops and publishes voluntary consensus technical standards. ASTM E1527-13 is designed to meet the EPA’s requirement for All Appropriate Inquiry for environmental due diligence.

What Organizations Typically Request ASTM E1527-13 Phase I ESA's?

Phase I ESA’s are often requested by potential buyers of real estate (such as property developers, large corporations, small businesses, and industries) to borrow capital from banks and lending organizations. If Recognized Environmental Conditions (RECs) are identified in the ASTM E1527-13 Phase I ESA report, then banks/lending organizations may request further investigation of potential environmental issues (Phase II Site Investigation) or pull out altogether. 

Proactive sellers of real estate will often perform an ASTM E1527-13 Phase I ESA prior to advertising the property to understand potential environmental liabilities. It may prove cost effective to identify and remediate REC’s prior to sale negotiations and reduce delays. It is generally understood that delays to the sale of a property can lead to significant increased costs.

PHASE I ESA – WHAT IS NOT INCLUDED

Are Asbestos Containing Materials include in a Phase I ESA?

When performing environmental due diligence on commercial real estate a frequently asked question is whether asbestos-containing materials (ACMs) are included in the assessment. A Phase I Environmental Site Assessment, identifies the presence or likely presence of a release of hazardous substances and petroleum products on a commercial property and does not include an ACM review. It is understood that asbestos is a hazardous substance, however, it is generally not investigated as part of a Phase I because CERCLA exempts ACMs as “building materials” when incorporated as part of the structure, or as a “naturally occurring substance” at a property.

Generally, ACMs can be included in the scope of work but must be request by the client. Screening for suspect ACMs based using the date of construction is relatively simple method, however, the asbestos bans implemented decades ago were limited in scope. Furthermore, ACMs are still used in certain building materials today. As such, it is recommended that an asbestos survey be performed by an accredited asbestos specialist if required.

PHASE II SITE INVESTIGATION – GENERAL

What is a Phase II Environmental Site Assessment (ESA)?
A Phase II Environmental Site Assessment (ESA) is a further investigation of Recognized Environmental Conditions (RECs) that were identified at a property during a Phase I ESA. Phase II ESAs are conducted by a standard process, as outlined in ASTM 1903, and is typically completed as part of a commercial real estate transaction. The purpose of this assessment is to gather additional environmental information and to increase the degree of protection from potential environmental liabilities associated with the property. Phase II ESAs typically involve soil and/or groundwater sampling, either as a means to address RECs identified in the Phase I ESA or to fill in significant data gaps when sampling is not specifically required by the applicable government agency. Depending on the property and historic uses, regulatory agencies are not typically involved in the assessment process until the presence and extent of contamination has been identified. At that point, regulatory agencies are more likely to dictate the appropriate regulations, required procedures and qualifications of the environmental contractor needed to move forward with the situation.
Do I Need a Phase II ESA?

Not all Phase I ESAs warrant additional Phase II project work. However, if property conditions and initial assessments indicate the presence of current or historic hazardous substances and/or the potential for those substances to be released into the environment, a Phase II ESA is justified and should be conducted. A Phase II ESA is more in depth and involves a higher cost than a Phase I ESA. Additionally, completion of Phase II work may be a requirement of closing the transaction or it may be at the discretion of the buyer (or seller). Regardless of the situation, when warranted, a Phase II ESA can provide peace-of-mind, a level of protection against costly environmental liabilities in the future and, ultimately, aid in the decision of whether or not to move forward with the property transaction. 

ENVIRONMENTAL DESKTOP REVIEW

What is an Environmental Desktop Review?

An Environmental Desktop Review is a review of online databases, web resources and historical aerial imagery for linear features such as pipelines, electric utilities, right-of-ways and access roads. The Environmental Desktop Review provide clients an alternative way to evaluate Potential Environmental Recognized Environmental Conditions (PRECs) rather than performing more costly Phase I ESA studies. The advantages of performing an Environmental Desktop Review over traditional methods include: a reduction in overall assessment cost; no aircraft flyover required; proactive right-of-way assessment; significantly reduces field time; identifies potential areas of concern prior to field investigation; and streamlines decision making process. Identified PREC’s are classified into three risk categories (low,medium, and high) by experienced environmental professionals using a systematic process. PREC’s that are assigned a high risk may further investigation, such as a site visit, Phase I ESA or even a Phase II Site Investigation.

Are there Project Size Limits?

Environmental Desktop Reviews have been performed on numerous projects covering thousands of linear miles. The tools AGES employ for an Environmental Desktop Review are not limited by distance. To date, projects have ranged from a few miles to over a hundred miles.

Should an Environmental Desktop Review be Performed on Existing Pipelines, Electric Utilities and Access Roads?

Property usage can change over time which may have an impact on land quality (such as chemical impacts to soil or groundwater). Issues such as scrapped vehicles, drums/containers with unknown liquids, imported fill materials, and dumped waste products are commonly found on right-of-ways, especially in rural areas. Leaking storage tanks, manufactured waste products, abandoned farm equipment, and burn pits (trash, vegetation, flammable liquids) are not as common, however they can  caused significant environmental issues. Identifying these issues early in the project can save the client significant time and money.

Can you provide an example of a PREC?

An Environmental Desktop Review identified a number of PRECs stretching across a 30 mile rural area for a 30 Mile pipeline project. Historical unregistered underground storage tanks were identified during the Environmental Desktop Review and the suspected tank area was subsequently classified as a high risk PREC. An initial field visit located the approximate area of the underground storage tank. A rapid Phase II Site Investigation was undertaken using a combination of Ground Penetrating Radar (GPR) and Geoprobe. LNAPL hydrocarbons were detected floating above of the perched water table at approximately fourteen below ground surface. In response, engineers raised the depth of the proposed pipeline to avoid the hydrocarbon impacted zone prior to construction saving both time and cost.