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Real Estate Secured Lending – Gas Stations

Typically, when a lender is considering a real estate secured loan collateralized by a gas station, the environmental risk associated with the real estate can be a major factor in the lending decision.

The three main considerations are outlined below:

(1) What is the age of the current Underground Storage Tank (UST) system?   Regardless of other mitigating factors, internal risk tolerance thresholds may prescribe the completion of a Phase II ESA based solely on the age of the UST system?

(2) What is the age of the gas station/status of former tanks?  It is important to document the usage and removal of all historical fuel storage and dispensary systems.   If the gas station has been in operation since 1965, but the current tank system was installed in 1980, it is reasonable to assume that a fuel storage system preceded the current system.  The location of the system, type of material stored, and closure documentation could have a material impact on the environmental quality of the property.

(3) What is the regulatory status?  Many state funds require the UST system to be in compliance in order to fund re-reimbursement claims in the event of a release.  In addition, the regulatory status of any ongoing remediation is an important factor.  If the state is ‘responsible’ for cleanup, but is not funding cleanup, a secondary source of remediation funding may be necessary to make the real estate marketable in the event of default.

Finally, all of the environmental issues are typically subjugate to the credit package. Since it is possible to spread risk over numerous properties, a portfolio of gas stations, tend to be less risky than a single ‘mom and pop’ gas station loan.  Several major lending institutions currently require or are moving to require a higher percentage of equity when taking gas stations rather than other property types as collateral.

Partner Engineering and Science has qualified staff experienced in the completion of all stages of gas station due diligence.

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