Conducting a Phase I Environmental Site Assessment (an “ESA”) is often the first step in the environmental due diligence process for a real estate holding.
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Phase I Environmental Site Assessments
Conducting a Phase I Environmental Site Assessment (an “ESA”) is often the first step in the environmental due diligence process for a real estate holding. The need for environmental due diligence is often driven by a lender’s requirement associated with a financing arrangement. A significant environmental impairment will undercut the value of property, thereby eroding a loan’s collateral; lenders are thus well motivated to understand these potential risks.
We have been conducting ESAs in Massachusetts and Connecticut for decades; this means we know where to go for important information quickly and efficiently. Usually, an ESA includes a review of available historic documentation, regulatory filings and interviews with knowledgeable people, but does not include testing of environmental samples until a Recognized Environmental Condition (“REC”) is identified, then testing is often recommended.
The process of conducting ESAs took a big step in 2005 when the USEPA codified the Phase I ESA methodology developed by the American Society for Testing and Materials (ASTM E1527-05) and determined that this protocol met the All Appropriate Inquiry (AAI) due diligence requirements under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA aka “Superfund”). This means that if a property purchaser conducts an ASTM compliant Phase I ESA prior to the purchase of the property, the purchaser will be considered an “innocent landowner” if environmental contamination is subsequently found on the property. See our article (.pdf – 58 kb) from Banker & Tradesman for more information on AAI.
In some cases, an ESA may include an assessment of building materials for asbestos, PCBs or other hazardous substances. The presence of these materials inside buildings can significantly increase costs associated with building reuse or demolition, therefore it is important to be aware of them. OTO can readily add the search for these materials to our ESA scope of work.