Learn as much as you can about the environmental history of each property in a transaction

Derek Ezovski, vice president of business development, Environmental Data Resources

As published in Scotsman Guide's Commercial Edition, November 2005.

When accepting a site as collateral, many financial institutions often don't learn that it is environmentally contaminated until after they have secured the loan. Stories abound about lenders foreclosing on toxic sites such as former dairy facilities with cattle-dipping vats (pesticide-filled pits used to "dip" cows for tick and parasite prevention), restaurants with petroleum-contaminated soil from old underground tanks and apartment complexes built on former chemical-manufacturing operations, to name a few.

These problems could have been avoided had there simply been a more thorough historical investigation. With land continually recycled as available space shrinks, and with current laws often holding owners responsible for cleanup regardless of causation, property background checks are more important than ever. Even an innocuous-looking piece of rural property could be contaminated with pesticides from agricultural operations.

Although current government records, questionnaires and site visits are important, they should only be part of the research. Historical sources of information are excellent environmental-due-diligence tools that chronicle growth and change over time, and therefore can help uncover prior land uses.

Know the rules

The Federal Deposit Insurance Corporation, Freddie Mac, the U.S. Small Business Administration and other organizations publish guidelines for environmental site assessments. Before proceeding with a site investigation, become familiar with your bank's internal environmental policy as well as with the guidelines of the organizations with which you work.

The American Society for Testing and Materials (ASTM), a nonprofit international standards-setting organization, developed the current, widely accepted environmental-site-assessment standard. The ASTM's outlined protocol is sufficient to satisfy the courts under the Comprehensive Environmental Response, Compensation and Liability Act. It is important to note, however, that a new federal site-assessment standard, likely to pass before the year's end, is in the works by the Environmental Protection Agency (EPA).

Whether you want to gain a better understanding of your environmental consultant's findings or do the research yourself, start by reading ASTM's guidelines (www.astm.org). According to current industry standards, the research you conduct on a property must date back to 1940 or to the first developed use, whichever is earlier -- even if the property was developed after 1940. You never know if there was dumping on the property before it was developed.

Know the tools

The ASTM standard recognizes the following eight historical sources:

• Fire-insurance maps were originally produced to help insurance underwriters evaluate the fire risks of buildings. These maps, which date from the 1800s and chronicle cities block by block, can show a wealth of helpful information for environmental investigations, including data about building-construction materials, former business names, use of storage tanks and more.
• City directories, published for U.S. cities and towns since the 18th century, identify a property's name and use (e.g., gas stations, dry cleaners, etc.).
• Historical aerial photographs can show changes in an area over time. Some aerial photos date back to the 1930s.
• Topographic maps can date back to the early 20th century and can show geological information, changes in land use and areas of potential environmental concern.
• Building department records contain property notations, including past violations, changes in heating systems, the presence of pipes and tanks and locations of various structures if the building has been torn down.
• Property-tax files indicate a property's past owners.
• Land-title records also indicate a property's past owners.
• Zoning/land-use records contain data about past owners, land use and zoning. If the property was zoned as industrial, it is important to check whether an industrial facility was once located there.

Because of their level of detail, the first four sources are the most widely consulted for environmental due diligence. They can be found at local libraries and government offices or easily ordered from commercial database vendors. Aerial photos are available from many sources and can be found in public and private collections.

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