I had the good fortune of moderating a panel at the Environmental Bankers Association (EBA) January Conference on the subject of QA/QC of Phase I Environmental Site Assessments and the entire environmental management process during underwriting.

The premise of the panel was to study error in order to make future environmental due diligence better.  Senior credit officers are asking the environmental risk managers: How did this REC site slip through the cracks (or did it)? Why are we having to do Phase II Environmental Testing on fully underwritten loans?  

Environmental Risk Management

The panel provided tremendous insight into better technique in environmental risk management.  My take-aways from the EBA panel discussion were the following:

• Environmental loss (an environmental “mistake” that caused the bank a financial loss of some sort) during this downturn was way lower than previous downturns, but environmental loss is still occurring.
• A lot of environmental loss was attributed to loan where less than a Phase I Environmental Site Assessment was required.  Lower-tier products like Records Search and Risk Assessments and other Desktop Environmental reviews (which do have their place in a risk management strategy), let some polluted properties through.
• Consultant errors on Phase I ESAs were generally a small fraction of environmental loss for environmental bankers who spoke—in my opinion these bankers generally maintain higher standards for Phase I ESAs than the average lender. 
• The frequency of environmental loss experienced on loans with Phase I ESAs was way higher when the bank accepted a borrower-supplied report!
• Environmental waivers from bank credit staff was a major category for environmental loss.  Often the strength of the borrower was the justification for not requiring Phase II Environmental Testing on a site with a Recognized Environmental Condition.      
• Environmental Risk Managers struggle at times to get their entire bank to comply with their environmental policy.  

During the question and answer secession, Mike Kulka asked if any lenders in the room had sued a consultant that had completed a bad report.  No lenders cited an example.  The implication of his question was that an occasional lawsuit might force the worst proprietors of Phase I ESAs out of the field.  I certainly share Mike’s frustration with having to compete with unregistered and less experienced professionals. 

The overall message was that our industry had successfully reduced environmental loss considerably, but that there was plenty of room for improvement.   Finally, a sound environmental policy is as important as a good environmental consultant.

In accordance to SBA’s SOP 5010 5 (C), when obtaining a 504 or 7a Loan SBA requires an Environmental Investigation of all commercial Property upon which a security interest such as a mortgage, deed of trust, or leasehold deed of trust is offered as security for a loan or debenture. The type and depth of an Environmental Investigation to be performed varies with the risks of Contamination.

Here is a simple “Steps of Environmental Investigation” flowchart describing what level of report would be required based upon the property site’s NAICS (North American Industry Classification System) Code .

For more information regarding SBA Environmental Due Diligence requirements, or the complete Standard Operating Procedures created by the U.S. Small Business Administration visit http://ftp.sbaonline.sba.gov/idc/groups/public/documents/sba_homepage/serv_sops_50105_c.pdf

You’ve been told you need to have a Phase I Environmental Site Assessment (ESA) and now may be looking for answers to the questions:

• Why you need one
• Where you get them
• How much they cost
• How long do they take
• Will it meet the Small Business Administration (SBA) environmental requirements .

When ordering a Phase I Environmental Site Assessment (ESA) you want to make sure that:

• It is AAI (All Appropriate Inquiry) compliant, and conforms to ASTM 1527 05
• The environmental firm maintains certain levels of liability insurance (required by the SBA for SBA 7a and SBA 504 loans)
• The environmental firm will sign the latest Reliance Letter  required by the SBA
• The environmental firm understands the latest environmental requirements outlined in the Small Business Administration’s Standard Operating Procedures (SOP), for year 2011 this would mean SOP 5010 5 (C)– valid through November 15^th 2011
• The Environmental Firm that you choose is approved by your lender

Why Do I Need a Phase I Environmental Site Assessment (ESA)?

The purpose of an Environmental Site Assessment (ESA) is to identify any existing environmental contamination on the subject property.  You as a buyer do not want to unwillingly become financially responsible for the prior environmental practices on the subject property.  An ESA saves you from assuming liability for existing contamination and the costs of remediation (if needed).  A Phase I ESA provides a current and historical record search as well as a site visit and inspection by a trained and certified Environmental Professional.  The Environmental Professional’s job is to provide you with a report of the property site that informs you that either the site is clean, or there are Recognized Environmental Conditions (REC’s) that exist.

Where Do I Get a Phase I Environmental Site Assessment (ESA)?

Your banker can suggest some names of Environmental Firms that are on the bank’s approved lists.  In cases where no recommendations are given, you can search the Internet for Phase I Environmental Site Assessments.

How Much Will a Phase I Environmental Site Assessment (ESA) Cost?

Typically you can expect to pay between $2,000 and $3,000 depending on the property. 

How Long Does it Take to have a Phase I Environmental Site Assessment performed?

The average turn around time for a Phase I Environmental Site Assessment is three (3) to four (4) weeks.  Many firms can provide rush jobs as well.

Will the Phase I Environmental Site Assessment meet the Small Business Administration (SBA) Environmental Requirements?

The Phase I Environmental Site Assessment performed in accordance with  ASTM 1527 05 does meet the environmental requirements of the U.S. Small Business Administration.

Entry by JoeDerhake

Entry

When doing Phase I Environmental Site Assessments, sometime the facts are on the border between a recognized environmental condition and an environmental issue.   This blog is my latest in a series of borderline decisions.  

Here is the scenario: the Phase I ESA finds a classic REC on site.  Let’s say we have 15 years of dry cleaners on-site in the 1970s and 1980s—clearly a REC.  However, in this instance the site was redeveloped with a high-rise office building with a 3 level subterranean garage in 1988.  The construction project necessitates excavating 40 feet from lot-line to lot-line.   Assume groundwater is at 80 feet below ground surface. 

The environmental professional may point out that the solvent could have penetrated all of the way to groundwater, but the excavation of 40 feet of soil clearly is a significant mitigating event.  

Would you as an environmental professional still consider this situation a recognized environmental condition?   Would you recommend Phase II Environmental Testing?  

Providing our clients with good environmental risk management opinions is a very important part of our job.  Please let me know what you think?

Keywords

Phase I Environmental Site Assessment, Phase I ESA, Environmental Risk Management, Phase II Environmental Testing

Entry by JoeDerhake

Entry

When doing Phase I Environmental Site Assessments, sometimes the facts are on the border between a recognized environmental condition and an environmental issue.   This blog is my latest in a series of borderline decisions.  

Here is the scenario: the Phase I ESA finds a classic REC on site.  Let’s say we have 15 years of dry cleaners on-site in the 1970s and 1980s—clearly a REC.  However, in this instance the site was redeveloped with a high-rise office building with a 3 level subterranean garage in 1988.  The construction project necessitates excavating 40 feet from lot-line to lot-line.   Assume groundwater is at 80 feet below ground surface. 

The environmental professional may point out that the solvent could have penetrated all of the way to groundwater, but the excavation of 40 feet of soil clearly is a significant mitigating event.  

Would you, as an environmental professional, still consider this situation a recognized environmental condition?   Would you recommend Phase II Environmental Testing?  

Providing our clients with good environmental risk management opinions is a very important part of our job.  Please let me know what you think?

Keywords

Phase I Environmental Site Assessment, Phase I ESA, Environmental Risk Management, Phase II Environmental Testing