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Relying on old reports or making assumptions about the deal: Never assume that a deal is free from environmental problems and that a Phase I is simply a formality. No one knows where the assessment will lead until all the facts are in. And don't rely on outdated, inaccurate or incomplete reports. Industry standards assign a one-year shelf life from the date of property purchase for the environmental inquiry, with a 180-day shelf life for certain components. Make sure your report is current. Changes in site conditions since the report was prepared could significantly alter the property's environmental contamination status.
Ignoring the past: Environmental professionals who are called upon to review work of their peers most often cite poor historical reviews as the most common problem they encounter. For the purpose of determining environmental risk, a site's history is just as important as its current use. A doughnut shop may look innocuous, but it could have big environmental problems if it used to be a dry cleaners.
Believing a Phase I environmental site assessment is all-inclusive: Designed to help the user avoid liability under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), a Phase I is not a catch-all screen of every environmental issue that could affect a property. Those issues outside the scope of a Phase I include things such as mold, asbestos, lead paint and vapor intrusion. An environmental professional can help determine whether taking on additional assessments is prudent.
Commercial real estate volume is down significantly, but deals are still getting done. While brokers and their lenders may face greater challenges than usual, there are plenty of prudent practices they can employ to make good deals while they wait for the economy to improve.
Skimping on due diligence, while perhaps an attractive short-term option, is myopic. Because environmental issues are complex and often hidden, a detailed environmental desktop report -- or a thorough inspection by a qualified environmental professional when the deal requires it -- is a prudent practice. It should be considered for every commercial real estate deal.
Derek Ezovski is managing director of the property-due-diligence group at Environmental Data Resources. Before joining EDR, Ezovski worked for FleetBoston Financial and helped create the environmental policy for the bank's small-business-services division. Reach Ezovski at (800) 352-0050 or at email@example.com. To learn more about EDR, visit www.edrnet.com.
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