As published in Scotsman Guide's Commercial Edition, October 2007.
Almost a year has passed since the U.S. Environmental Protection Agency (EPA) officially implemented its All Appropriate Inquiries (AAI) rule last November. The rule updated the standard requirements for Phase I environmental site assessments. Soon thereafter, the American Society of Testing and Materials (ASTM) revised its Phase I assessment to meet the new federal requirements.
Today, the AAI standard and its ASTM equivalent, intended to reduce barriers to brownfield redevelopment, are the only means to secure protection from federal environmental-cleanup liability under the Comprehensive Environmental Response, Compensation and Liability Act.
And liability continues to be an issue for businesspeople involved in commercial real estate. The impact contamination can have on a business's bottom line is well-documented. As a result, more lenders are revisiting their environmental policies and considering updating those policies to reflect the new AAI protocol.
If you're working with lenders that have yet to revisit their environmental policies, you may be working with companies that are behind the curve. The liability issue may come back to haunt your borrowers.
The AAI rule, aside from bringing sweeping changes in the environmental-due-diligence arena, is also making waves in the regulatory community. Most notably, for the first time in 13 years, the Federal Deposit Insurance Corp. (FDIC) updated its environmental guidance document to respond to AAI. FDIC's reaction to the AAI rule triggered other agencies to follow suit. The Office of the Comptroller of the Currency is revising the environmental component of its "Construction and Commercial Lending Handbook." The Office of Thrift Supervision has plans to respond to AAI. The National Credit Union Administration and the U.S. Small Business Administration are also revisiting their guidelines. Even the Federal Reserve System announced that an AAI review is in progress.
AAI's snowball effect even reached Wall Street. Standard & Poors began asking for ASTM-compliant Phase I assessments soon after the new protocol was introduced. Most recently, Fitch Ratings published an updated version of its "Commercial Mortgage Criteria Report" on environmental site assessments and environmental insurance to include the new guidelines.
Heading off risk
Upon the release of AAI, federal regulators warned banks of the importance of effective risk management -- particularly in the face of record-high growth in banks' commercial real estate concentrations.
Page: 1 2 Next