Hidden Problems Can Taint Acquisitions
Before you buy a property, you need to make sure that previous uses of the site or an adjoining site haven't left contamination that you'll need to deal with, likely at considerable expense.
By Phil Brewer, Alpha Environmental Services, Inc.
Developer Tom Blogger was absolutely delighted when he found two 25-unit apartment buildings for sale in southeast Portland, Ore. - a mainly residential area where real estate values are growing exponentially. Adjacent to the property stood an innocent-looking office building and warehouse.
Though nothing seemed suspicious, Blogger decided to conduct a Phase I environmental assessment to protect his investment. During the course of the Phase I, it was determined that the office and warehouse, once a dry cleaning store and telephone-pole treatment center, contained PCBs, creosote, petroleum and other hazardous chemicals. These chemicals had migrated onto the property he was interested in - representing major health risks for potential tenants.
In the rust to get into the hot apartment market and because
of cost issues, Blogger almost didn't have the assessment
performed.
It's important for any prospective purchaser of a commercial
property to perform the appropriate environmental due diligence
no matter what the value or location of the property.
Experience shows that almost half of all assessments reveal some
level of environmental issues that need to be resolved.
What you need to look for
Do you know the answers to the following questions?
- Has the property or adjoining property currently or previously been used for industrial use or manufacturing? Has the property or adjoining property currently or previously been used as a gas station, motor repair facility, commercial printing plant, dry cleaners, photo developing lab or junkyard? Has the property or adjoining property currently or previously been used as landfill, or for treatment, disposal processing for recycling of waste?
- Was the property used for agricultural purposes? Did an orchard, nursery, greenhouse or farm once sit on the site?
- Does the property contain storage tanks, vent pipes or fill pipes? Are there any flooring, drains or walls located within the facility that are stained by substances other than water and are emitting foul odors? Is there a transformer, a capacitor or any hydraulic equipment?
Have radon testing, asbestos surveys and lead-based paint inspections ever been performed at the property?
Do apartment buildings need site assessments?
The quick answer is "yes" for commercial property investors, commercial property buyers and property owners and financial institutions. For each group, there's a slightly different need. For example, lenders are looking to protect their investment; property owners want to see if there's anything they should be concerned about; and prospective buyers want to gauge the value of the property.
"We require some level of environmental due diligence on all
loans," said Scott Beard, vice president for Portland's Pacific
Bank.
Because of health and liability concerns, it is important to
address radon, asbestos and lead-paint issues prior to
purchasing a building.
Choosing an environmental services firm
The environmental professional's job - like that of a good attorney - is ultimately to protect you, the client. Look for a firm with a comprehensive knowledge of the many diverse environmental issues that can affect a property, a clear understanding of regulatory requirements, and a solid track record.
"The cost of environmental investigation can more than pay for themselves in terms of future costs avoided," said Scott Schang, an attorney and vice president with the Environmental Law Institute in Washington, D.C.
New environmental assessment standards from the Environmental Protection Agency are slated for late 2005 or 2006. These changes will provide greater reliability for environmental investigations and increased protection for commercial property owners, investors and consultants.
Environmental site assessments for property transfers focus on assessing the potential for environmental liability based on significant research.
Environmental issues and actions require extreme care and diligence in their execution.