Entry by JoeDerhake

Entry

Maybe my wife should have written this one—or maybe she would have advised young people to not…better to marry a doctor.

More seriously, how do consulting firms love their environmental professionals?   When you run an environmental due diligence firm, you have to be good at it if you want to succeed. 

More

First of all, employees need respect.   Firms that focus on environmental due diligence have advantage in terms of respecting the environmental professional.   I began my career at a civil engineering firm that was good at Phase I Environmental Site Assessments, but focused more on engineering disciplines.  There was a sense that you need to become a PE to move up in the company.   Also, in my experience, sometimes firms that are good at a great many cool engineering things have a hard time recognizing the Phase I Environmental Site Assessors as equals to the big shot engineers who are doing $100 million federal contracts.  

Secondly, employees need a challenge.  The key is to focus on due diligence and all of the ins-and-outs of a Phase I ESA and the commercial real estate business.   Consulting in commercial real estate transactions provides an endless helping of interesting and nuanced situations.  I find the field interesting because of the intersection of environmental science and business.   Also, environmental due diligence intersects so many other disciplines:  industrial hygiene, environmental compliance, environmental remediation, and building sciences to name a few.  A good Environmental Professional must continue to accrue expertise in the adjacent fields.

Third, most environmental professionals relish a sense of team.   When an employee feels like he is part of a team, he will work hard for the company and his teammates.   The sense of achieving things together is a very rewarding part of work.   Much of the love that the EP feels may come from their peers.   Team building activities create a great sense of culture, accountability… and maybe love.

Happy holidays.  Hopefully your families will heap the love on their environmental professional this year.

Keywords

Environmental Professional, Environmental Site Assessor, Phase I Environmental Site Assessment, Phase I ESA, environmental due diligence

Entry by JoeDerhake

Entry

This blog is a re-post.  Math is the same, but I corrected a typo and I added some clarifications (see italics).

What do you do when you have groundwater sampling that shows solvent contamination and you want to infer a soil gas concentration, but you don’t have soil gas testing data?  This situation comes up a lot.

Maybe you are doing a Phase I ESA and know that the property across the street has high solvent concentrations in groundwater – hence the question, what are the highest soil gas concentrations that could partition from the saturated zone to the vadose zone?

Predicting the relationship between soil gas concentrations and groundwater concentrations is relatively easy in a controlled environment.  You can use Henry’s Law, which is a ratio of the concentration of a substance in air to its concentration in water.  Of course, you can only go so far in the open environment of vadose zone soils with differing temperatures and pressures, etc.; but it is helpful to make a couple of assumptions to predict a range of reasonable soil gas concentrations.

More

Henry’s Law Constant (unitless) is defined as:

H’ = C air / C water

Where

H’ = Henry’s Law Constant (dimensionless)

C air = concentration of compound in air (volumetric basis)

C water = concentration of compound in water (volumetric basis)

Therefore, C air = C water * H’

Henry’s Law Constants are the partition coefficients for various substances for water to air partitioning.  Henry’s Constants were determined in laboratory experiments published by the U.S. EPA and also by John Washington in the journal Ground Water.  You can view Henry’s Constants for various contaminants here.

Let’s assume that we have 100 µg/L PCE in a groundwater plume.  What is the equilibrium soil gas concentration at 25 °C and standard pressure?  Henry’s Constant (H) for PCE at 25 °C is 0.0.0174 atm-m³/mol (U.S. EPA Henry’s Law Constant Calculator website).

According to Environmental Forensics Principles & Applications (link below), you can convert H to H’ (Henry’s Law Constant unitless) via the Ideal Gas Law:

Henry’s Law Constant (unitless) H’ = H/(RT)

where R = ideal gas constant (8.20575E^-5 atm-m³/mol-K)

T = temperature (Kelvin; 25 ^oC = 298.15 ^oK)

So

Henry’s Law Constant PCE (unitless) H’ = 0.0174/(8.20575E^-5 X 298.15) = 0.711

C_air = C_water x H’ = 100 µg/L X 0.711 = 71.1 µg/L

I reposted the blog because Dr. Peter Woodman correctly points out that ppb_v is not the same as µg/L for atmospheric concentrations of soil gas and my first post implied that they were the same.  Henry’s Law applies to partials pressures at the parts per billion level on a molar basis (ppb_v).  To use Henry’s Law on a water concentration in µg/L, you would first convert to parts per billion by volume (ppb_v), by dividing by the Molecular Weight of PCE (165.83 g/mol), and then covert back to µg/L in gas by multiplying by the Molecular Weight — the molecular Weight Calculations to ppbv and from ppb cancel out.

The mathematical results in the first and second post are the same.

These two links provide additional support for these methods:

Henry’s Law Excerpt from Environmental Forensics

H&P Mobile Geochemistry Excerpt on Henry’s Law

So, 71.1 µg/L is the worst-case on-site scenario for PCE groundwater concentration equivalents likely to produce atmospheric concentrations of PCE in soil gas; however, in reality this concentration is highly unlikely because Henry’s constant assumes that equilibrium was reached (with vigorous blending in a laboratory beaker, etc.).  This form of mixing doesn’t occur in the subsurface, so the actual soil gas concentrations tend to be much lower.

You could also calculate a range of soil gas concentration equivalents, by changing the soil temperature, which gives you a new Henry’s Constant coefficient value (H’) to determine the worst-case scenarios in winter and summer.  This could be particularly useful in screening out an off-site vapor intrusion source of concern.

How else could you use Henry’s Law?

Maybe you did a Phase II Subsurface Investigation and measured significant concentrations of soil gas – is this from an on-site source or could it be from the off-site groundwater plume?

You may find that you can associate lower concentrations of a chemical in soil gas based on vapor partitioning from groundwater, but not higher soil gas concentrations.  Well, where is that line? Henry’s Law can be useful in determining that the soil gas concentration is too high to be coming from the groundwater (but may be from the soil, an active leak, or a preferential vapor migration pathway).

Be careful with this calculation as the groundwater in contact with vadose zone is NOT a closed system and temperature and pressure, etc. vary.  This calculation will not predict the precise value of atmospheric soil gas concentrations; rather, help frame the possible range of atmospheric soil gas concentrations that could be detected above a groundwater plume.

Keywords

Henry's Law, Henry's Law Constant, Henry's Constant, Henry's Coefficient, soil gas testing, groundwater sampling, Phase II Subsurface Investigation

The 2011 RealShare Apartments conference was a huge success with a noticeable increase in attendance and palpable optimism.  The multifamily market is booming, and signs indicate it will continue to do well for the foreseeable future.

Multifamily Success Factors

Optimism for the multifamily market stems from some significant trends tied to the bad economy, including:

• Historically low homeownership with many foreclosures still to come – most every foreclosure means a new potential renter
• Stubbornly high unemployment rate and little job formation
• 60% of population has no rainy day fund (so no potential for ownership)

Freddie Mac and Fannie Mae Due Diligence

One particularly interesting panel included representative from Freddie Mac (Paul Angle, Western Managing Regional Director) and Fannie Mae (Heidi Green, Vice President), discussing the differences in the two GSEs, profiles of typical properties and current trends.  Freddie Mac is often seen as more selective in their properties and markets, while Fannie Mae is a bit broader.

On the topic of due diligence, Ms. Green noted that though Fannie Mae’s underwriting standards haven’t changes in the last year, right now they are extremely focused on the condition of properties, their age and how well they’ve been maintained.  This rings true with our own experiences at Partner in conducting Fannie Mae Physical Needs Assessments, which have very particular requirements on how they must be conducted and how the property is evaluated.  According to Mr. Angle, Freddie Mac has always had high standards for their due diligence, including the Freddie Mac Property Condition Reports, which also has particular requirements. 

While both Freddie and Fannie have very large backlogs, Freddie Mac is admittedly a bit slower in their process because they have a bit more diligence (Freddie re-underwrites after the DUS lender).  Fannie Mae can be a bit more flexible and quick to reach rate lock due to their complete delegation of underwriting. 

We at Partner have seen a lot of action with Fannie and Freddie lenders in the last few months, and have particularly seen an uptick in Fannie Mae portfolios and very short turnaround times for the physical due diligence - this trend was noted at RealShare. 

Some panelists speculated on the future of Fannie and Freddie, thought the consensus seemed to be that nothing would happen for another couple years. 

Multifamily Construction

Despite the uncertainty in the market, several speakers commented that new multifamily construction is picking up, particularly student housing which is “red hot.”  Other new projects noted were small 2-4 unit apartments in large markets.  Construction costs are lower than they have been in a long time, aiding the new multifamily housing starts. 

With the return of construction after such a substantial void, many lenders are finding themselves short on staff and are relying more on third parties for due diligence and loan servicing, including Construction Document Reviews, Construction Progress Monitoring Reports and other oversight. 

Other Multifamily Players

Life companies, multifamily REITs, private capital sources and local banks were all noted as competitors of Freddie and Fannie lenders.  Life companies were noted as perhaps the biggest competition; however, several references were made to the aggressiveness of local and regional banks in the multifamily market giving some of the major players a run for their money. 

Further Discussion

Partner’s Jenny Redlin was interviewed at RealShare opining the current multifamily due diligence trends, which will air on Globe Street in coming days.

Thanks to all the folks at ALM / Globe St for a great event!

Entry by JoeDerhake

Entry

When doing environmental due diligence in support of an acquisition, we are a small but sometimes very important part of a larger process.  While our fee is modest, we are often supporting a very high dollar transaction.  Occasionally we find ourselves center stage at the negotiating table.  Maybe our Phase I ESA found a REC and we are asked to deliver an opinion that may kill a deal and cost several stakeholders a substantial financial loss.   Sometime we find one of our peers/competitors across the table offering an opinion different than our own. 

Situations like this, where we are put to the test, are when we really earn our money. 

Our clients are generally graceful and diplomatic when negotiating with the other side.  Real estate professionals understand the importance of relationships and future reputation.  I have benefitted from the advice of some of the best in the real estate profession. “Be measured, but firm.” “Be hard on the issues and soft on the people.” “Listen before you talk.”

I think clients respect when two engineers agree on the science, but differ as we get to risk tolerance opinion.  Two environmental professionals pitted against each other can fulfill their respective missions gracefully and diplomatically by keeping the debate in a professional place.  To do this I think you need to allow the other side to have their own opinion and to look for differences in the data analyzed. 

When environmental professionals act as graceful and diplomatic extensions of their clients, they deliver quality environmental consulting service.  

Keywords

Phase I ESA, Quality Phase I Environmental, environmental risk tolerance, environmental consulting

The ICSC Western Division 2011 conference was full of energy – until that energy went out. Literally.  The San Diego blackout on September 8^th took the entire ICSC conference off the grid (not to mention the real damage done to the city, including sewage leaks and environmental damage).

So, what do you do when a massive black out affects the city you are attending a conference in?  I figure you have two choices:

1. Party in the Dark
2. Drive toward the light

I was one of the lucky ones that actually had option #2 as a viable option.  Others who flew in or were otherwise without transportation had no other choice but to wait it out……  wait it out for nearly 16 hours as it would turn out. 

As soon as the hotel announced that it would be giving out snacks and water in the lobby at 7 pm I made the choice to drive toward civilization as soon as nightfall hit.  I did however manage to go to one last networking event where the folks who had decided to wait it out were in pretty good spirits (I think the open bar helped). 

While the lights were still on, the energy and attendance at the ICSC Western Division conference was great – lots of networking and optimism about the near future of the retail industry.   Partner’s Mark Lambson, Director of Equity Advisory Services, was also interviewed Thursday by Globe Street, which will air here.

All of this excitement got me thinking….  How many companies experienced a loss because of this blackout (apparently caused by user error by a power company worker a whole state over in Yuma, AZ).    I for one, did not fully realize all amenities that were affected in a situation like this.  You couldn’t get food- no restaurants were open or the few that did manage to serve cold food or had gas grills could only feed so many, not to mention the long lines.  A lot of hotel rooms (on the upper floors) were without water.  And what about all of the conference events that had to be cancelled?   All of the networking, meetings and dinners that were affected?  Lost business opportunities?  

You can’t always prepare for these things, but I hope the next ICSC Conference fares better!  On the flip side, it certainly is one conference I will never forget…..

I noticed in EDR ScoreKeeper’s Q1 2011 and Q2 2011 report that big consulting firms are growing at a larger rate than small firms.  Apparently lenders and real estate investors are increasingly choosing larger firms for their Phase I Environmental Site Assessments.  

I spoke with two national lenders who said that they were trying to narrow their list and cutting the mom and pops in favor of large firms.    Both clients cited perceived quality in the national firm.   Notice, I say perceived.    Industry insiders recognize that many small firms do excellent Phase I ESAs.   However, when pushing reports out to multiple stakeholders these two environmental bankers felt that there is a perceived premium in the national firms.   One of these clients regularly leads syndications and I am sure that they prefer to push a nationally recognized firm to their syndicate partners even if the small and less-known firm does good work.

Working at a large firm, I welcome the trend.  I certainly feel that there is irregularity in the quality of Phase I ESA from firm to firm.  While I am sure that the non-EDR ScoreKeeper Top 25 firms disagree, I believe that we have a better chance of pushing a quality agenda through few firms than we do through many.   

For lenders, conducting the appropriate level of pre-foreclosure environmental due diligence is crucial to managing the risk of lender-owned real estate portfolios.  Though the economy is on a tenuous path to recovery, commercial real estate foreclosures persist.  Lenders may be dealing with foreclosure backlogs for years to come.

Partner’s Amy Rudegeair co-authored an award-winning article advising lenders on loan work out due diligence: Guidance for Environmental Due Diligence in Loan Work Out Situations.

Amy Rudegeair

The article offers options for due diligence (including pre-foreclosure Phase I Environmental Site Assessments, Limited ESAs and other options), and details primary regulatory concerns and common environmental risks encountered at foreclosure.  Also noted are solutions to managing identified risks, avoiding liability, and valuating the property.

The article was selected as the winner of the 2009-2010 national paper writing contest by the Risk Management Association.

Partner Engineering and Science, Inc. has several former environmental bankers on staff and routinely advise our clients on all manner of due diligence.  For more information, feel free to give us a call: 800-419-4923.

We’ve been hearing word lately that Farm Loans by the USDA are a growth area. Those seeking multifamily housing financing from the USDA Rural Development, should be aware of the specific engineering and environmental due diligence requirements. 

USDA Rural Development Capital Needs Assessment

The USDA Rural Development engineering due diligence requirements entail a Capital Needs Assessment, which is required for new construction loans, rehabilitation loans, transfers of ownership, loan servicing, and the Multifamily Housing Preservation and Revitalization Program (MPR). The Capital Needs Assessment or “CNA” includes a description of the property, condition of all materials and systems, accessibility issues, environmental issues, and immediate and long term estimated repair / replacement / improvement costs and schedules.

USDA Rural Development Environmental Risk Management

The USDA Rural Development environmental review typically includes the following: 1) a USDA NEPA review; 2) a USDA Phase I Environmental Site Assessment; 3) Form 1940-20 Request for Environmental Information; 4) lender comments regarding off-site conditions; 5) a Land Survey; and 6) a FEMA 81-93 Standard Flood Hazard Determination.

USDA Rural Development requires NEPA environmental reviews on all loans.  For most multifamily housing loans the USDA NEPA environmental review entails a limited Environmental Assessment (EA) (those projects constituting Class 1 Actions), though some will require a more thorough Environmental Assessment (Class II Actions).  The USDA Environmental Assessment must evaluate the project’s impacts on many natural and cultural resources, such as:  

• Wetlands and surface features;
• Floodplains;
• Wild and Scenic rivers;
• Wilderness areas and Wildlife preserves;
• Critical Habitat, Endangered and Threatened species;
• Historical and Archeological sites;
• Native American religious sites;
• Natural landmarks;
• Important farmland;
• Prime forestland;
• Prime rangeland;
• Coastal Zone Management areas;
• Sole Source Aquifer Recharge areas;
• and many other items.

If an adverse environmental impact is identified then further assessment or mitigation may be required until a Finding of No Significant Impact (FONSI) is issued.

The USDA Phase I Environmental Site Assessment (ESA) follows the ASTM E1527-05 Standard scope of work, which also must be incorporated with the lender’s standard scope of work.  The Phase I ESA is required on all new multifamily construction loans, and for existing multifamily housing loans when there is knowledge of potential contamination through either the appraiser’s report or other means.

Form 1940-20 Request for Environmental Information is designed to help the agency understand the project’s environmental condition and identify natural or cultural resources that may be impacted by the project.  This form should be submitted to the agency as quickly as possible.

The lender is asked to opine on any off-site concerns identified in the Phase I ESA, though there is no official form for this requirement.  The lender’s comments can be incorporated into the ESA Report or as part of the lender narrative.

An American Land Title Association (ALTA) / American Congress on Mapping and Surveying (ACSM) Survey may also be required for USDA Rural Development multifamily loans, primarily for new construction loans.

The FEMA 81-93 Standard Flood Hazard Determination form requires the identification of the flood zone of the project area, as well as whether federal flood insurance is available and required.  Properties located in Special Food Areas are not eligible for federal funding unless flood insurance is purchased through the National Flood Insurance Program.

Questions?

Feel free to give us a call for any questions, a quote or for a free consultation at 800-419-4923. Partner Engineering and Science, Inc. can manage all USDA Rural Development Requirements from start to finish.  We are experts in CNAs, Phase I ESAs, NEPA Reviews, ALTA Surveys, and Flood Hazard Determinations.

When performing a Phase 1 Environmental Site Assessment, the environmental professional is wise to ask enough questions of their client to understand their business plan and the intended use of the property.   Most Phase 1 ESAs adequately advise clients on the presence or absence of recognized environmental conditions, but the better environmental professionals also advise their clients on business risk.

What is Business Environmental Risk?

Business Environmental Risk is defined by ASTM E1527-2005: Standard Practice for Environmental Site Assessments: Phase 1 Environmental Site Assessment Process:

“Business environmental risk—a risk which can have a material environmental or environmentally-driven impact on the business associated with the current or planned use of a parcel of commercial real estate, not necessarily limited to those environmental issues required to be investigated in this practice. Consideration of business environmental risk issues may involve addressing one or more non-scope considerations, some of which are identified in Section 13.”

“Business Environmental Risk” includes items that are outside of the scope of CERCLA liability (Comprehensive Environmental Response, Compensation and Liability Act, the defense from which is the primary purpose of a Phase 1 ESA).  Many other laws can impose liability on a property owner or operator, such as the Resource Conservation and Recovery Act (RCRA), the Toxic Substance Control Act (TSCA), Clean Water Act (CWA) and numerous state and local laws.  Additionally, many health and safety concerns, natural resource concerns and 3^rd party liability would be considered Business Environmental Risks, as they are not covered by CERCLA and are not required to be discussed in the Phase 1 ESA.

The common non-scope business risk items referred to in the ASTM definition include:

• Asbestos
• Lead Paint
• Lead in Drinking Water
• Radon
• Wetlands
• Ecological Resources
• Endangered Species
• Cultural and historic resources
• Regulatory compliance
• Industrial Hygiene
• Health and Safety
• Indoor air quality
• Biological agents
• Mold

Business Environmental Risk Depends on the Client and Property Type

Business Environmental Risks must be identified based on the client’s unique needs, which requires discussion with the client regarding their particular risk exposure (based on the property, current and future use, and the client’s line of business), their risk tolerance and any mitigating factors (such as environmental insurance or indemnity).  Good environmental consultants will communicate with the client up front to understand whether these business risks may be of concern and require evaluation.

For example, lenders might be concerned with erosion occurring on unfinished, pre-foreclosure residential developments, which can result in hefty fines for sediment pollution.

A healthcare REIT might be concerned with biohazard waste handling. A multi-family REIT is likely concerned with mold and indoor air quality. 

A developer converting an old auto shop into a restaurant may require an evaluation not just of potential contamination in the ground, but also whether asbestos is present in the building to be demolished.

Industrial clients may require OSHA and other compliance audits.

Evaluating Business Environmental Risks

For those concerned with these business risks, a Business Risk Phase 1 ESA can incorporate the specific evaluations into the Phase 1 ESA scope, or they can be evaluated as an additional service done in tandem.  Many of these items require specialist evaluations, such as a certified asbestos inspector or biologist.  There are many services designed to specifically address non-scope items in fuller detail, such as compliance audits, or National Environmental Policy Act (NEPA) reviews and State Historic Preservation Office (SHPO) consultation regarding natural and historical resources.  Some consultants feel that business risk items should be evaluated separately from the Phase 1 Environmental Report, so as not to cause confusion. This should be decided through discussions with the client.

For environmental professionals, the bottom line is to understand the client’s needs and evaluate their environmental risk, not just to determine “REC” or “No REC”. If that goes beyond the standard Phase I ESA scope, then the consultant should be nimble and provide professional insight accordingly at an early stage.  

Clients look to environmental consultants for professional judgment, and that judgment begins at the outset of the client-consultant relationship, not just at the end of a report.

At a recent industry summit, I participated in a panel discussion on Vapor Encroachment Conditions.  We were given case studies where a Phase 1 Environmental Site Assessment had been completed and the consultant had classified a condition as a Vapor Encroachment Condition.  The panelists were asked to opine on whether or not these conditions were Recognized Environmental Conditions (RECs).  For a run down of the two Phase 1 ESA case studies, click here. 

In the discussion, the panelists generally agreed on the importance of considering the target property and the off-site concern as a specific location in space and not a “star” on the map.   We also agreed that the client risk tolerance was an important consideration.  

Recognized Environmental Condition?

I raised a technical issue that related specifically to the definition of a recognized environmental condition and the de minimis exclusion.   For a vapor encroachment condition to be considered a REC it must not fall within the definition of a de minimis condition:   if the VEC is neither a health concern nor a regulatory concern, then it is easily defined as de minimis.  

De Minimis/Human Health Conern:

“…conditions that generally do not present a threat to human health…”

If a vapor encroachment condition represents a threat to human health either for the current use or for a planned use of the property, then the environmental professional should classify the VEC as a recognized environmental condition.  

De Minimis/Regulatory Enforcement:

“…would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies.”

This was the most interesting part of the panel discussion as ASTM is a little vague.   I interpret this section to mean “would the owner of the target property be subject to a regulatory enforcement action”; as opposed to “would the owner of the off-site property be subject to enforcement action.”    This is a huge distinction, as the target property owner is very rarely subject to enforcement action for an off-site release.  

Someone in the room debated this subject with me.   My argument back was that you do not consider the countless LUST, CERCLIS, and NPL sites in the surrounding areas to all be RECs, right?   Why not?  These sites are all subject to regulatory enforcement action.   We don’t consider every nearby release site a REC simply because the owner of the off-site property is subject to a regulatory enforcement action (without other reason to believe that the off-site release has impacted the subject property or presents a human health risk to the subject property occupants).

In the end, I think that ASTM E1527’s definition of a recognized environmental condition could be clarified on this point.

Is a VEC a REC?

If more than 99% of VECs do not meet the regulatory enforcement portion of the de minimis standard, then the much larger concern for a VEC to be a REC is whether it represents a human health concern.    

There were clients at the conference that expressed greater sensitivity on this issue.   To address these needs, the Phase 1 ESA consultants should fully discuss the vapor encroachment condition and if it does not meet the definition of REC, still include the discussion as an environmental issue (or some classification of elevated risk that is less than a REC).  

In conclusion, the focus of the off-site vapor migration investigations should be on vapor intrusion conditions (vapor potentially inside a building, not just at the property line) and the corresponding threat to human health.