The value of proper due diligence when acquiring real estate
Proper environmental due diligence is the most critical component when making a decision to invest in real property. By not conducting a thorough environmental evaluation, the purchaser risks opening a Pandora’s Box of open ended liability and costly obligations with tenants, adjacent property owners, and regulatory agencies. Just as you would hire a licensed home inspector prior to the purchase of a home, you also should retain an experienced environmental professional company prior to purchase of property. The goal of performing proper due diligence is to understand potential environmental issues and how they impact both the purchase price, long term costs, and potential regulatory obligations. The first step is completing a Phase I Environmental Site Assessment in accordance with ASTM E1527-13. This process includes a visit to the property to inspect for red flags such as oil staining or discoloration, floor drains, underground storage tanks, and other issues that may lead to significant environmental problems. The site reconnaissance should also include an interview with personnel who are familiar with the history of the property. Another resource includes local, county, and state records. While there is a great deal of valuable information available from on-line resources, the due diligence evaluator should also review hardcopy files provided by municipal and regulatory agencies, an environmental database report and all available historical resources. The goal of the Phase I is to determine what potential areas of concern are present and if further evaluation is deemed necessary. If areas of concern have not already been addressed, a Phase II Environmental Site Assessment, in accordance with ASTM E1903-11, is often recommended. This requires a subsurface investigation typically involving the collection and analysis of soil and groundwater samples to determine if impacts are present. Completing Phase I and Phase II environmental site assessments provide the purchaser with the most comprehensive set of information to then make an educated decision on their investment. Although due diligence will require an investment, it will also provide a significant cost savings with a reduction in potential liability. While many consulting firms provide these services there can be a disparity in cost. Our experience has proved time and time again that less experienced companies often are lower cost but are single person firms that typically tend to not understand the significance of the purchaser’s investment. A qualified consulting firm conducts a more thorough review of all available resources, allowing the purchaser to make an educated decision based on risk. An experienced reputable firm, typically will require more of an initial cost investment, however the long term savings are invaluable when avoiding the purchase of an environmentally impacted property. Alternatively, you may decide that purchasing an impacted property is an investment in the future through rehabilitation, and in that scenario, understanding exactly what challenges exist provides the purchaser with the information necessary to make informed decisions supported by quantitative information. Purchasing a property after conducting only a limited evaluation can be disastrous. If there are environmental issues on a property, it is very likely that they will be eventually identified, leaving the owner solely responsibility to deal with the issues. By working with an experienced and qualified environmental consulting firm, to the purchaser will minimize risk and avoid assuming environmental liability. Sean Clifford works for Brockerhoff Environmental Services LLC in Washington, NJ. Brockerhoff provides due diligence evaluation in addition to environmental consulting/remediation services.