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Environmental Issues in Real Estate

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Environmental Issues in Real Estate

Written by Brent Pace for Gaebler Ventures

If you are considering a development or renovation project, don't forget to understand the environmental issues involved. This article highlights basic environmental issues that most development projects face.

In many urban areas in the United States, the green-field sites are gone.

In order to build a new project near an urban core, it often means that you must build on a site that was previously occupied by another building. One of the most important considerations in doing this deals with environmental issues. This article talks about doing an environmental site assessment as well as the common environmental contaminants you will likely deal with if you renovate an older building for your use.

What is a phase 1 environmental assessment?

A big part of due diligence when you purchase a property is making an environmental assessment. There are many names for the assessment: environmental site assessment, ESA, phase 1 environmental, phase 1 environmental site assessment, etc. These all relate to the same assessment, which is an initial baseline assessment that should identify for you the major contaminants you will likely face on your site.

The Phase 1 ESA can be done by a number of environmental engineering firms. Some of these are large national firms, and others are small and local. Once hired, the firm will make a site visit and try to assess the condition of the site. In addition, the Phase 1 ESA will review prior uses of the site to determine likely contamination. For instance, if your site was once a gas station or a dry cleaning location, you are likely to have environmental issues related to leaking storage tanks and/or chemical spills. The Phase 1 ESA will also check other public records for permits and other items that could explain any prior use of the site. If a prior owner was testing pesticides in the 1970s on your site, you will want to know.

The result of the assessment will be a run-down of likely issues and site history. In addition, there may be a need to move toward a Phase 2 assessment, which is much more expensive and provides for a rigorous testing program. Hopefully the findings in Phase 1 are benign enough that you can move forward without issues.

Common environmental issues

By using a phase 1 ESA and, where appropriate, a phase 2 ESA you can identify many of the environmental contaminants that you will have to address on the project. Some of the major issues that come up frequently include: asbestos containing material (ACM), lead-based paint (LBP), mold, and vapor / air quality issues.

Asbestos containing material (ACM) is particularly common in buildings that were worked on in the 1960s and 1970s. Some forms of adhesives, insulation, ceiling tiles, and other products were made with asbestos in them. If you discover you have asbestos containing material in your property, you will need to hire a special contractor who is trained to remove, or abate, the materials. In most cases this removal is delicate to ensure that none of the ACM becomes airborne.

Lead based paint (LBP) is also quite common in older buildings. Depending on the scope of your renovation, there are several ways to deal with LBP. Some of them include encapsulating it (covering it) and then providing a notice to anyone who leases space in the project. Others include the removal of the LBP. As with ACM you will want to find a contractor trained in handling the issue.

Mold and air quality issues are also common, and can be treated by trained professionals. The big issue with air quality is to ensure that you discover the source of the problem. If vapors are leaking up through sewer pipes, you will want to get that solved.

Final note

Remember, if you are purchasing a property the Phase 1 ESA is part of due diligence. If you find a ton of work required as a result of your Phase 1, be sure to negotiate it into your purchase price. An environmentally contaminated property is worth much less than a clean property that is ready for building as-is.

Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.