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If you’re considering purchasing commercial real estate, such as an office building or warehouse, your lender may ask you for an environmental report as part of their underwriting process.
The phrase “environmental report” doesn’t tell you much, especially if this will be your first purchase. In a nutshell, the purpose of a commercial real estate environmental assessment is to locate and identify any property or site contamination.
We’ll describe each phase of an environmental report, define required guidelines for hiring an inspector, provide details of possible findings, and more.
Since the passage of the Superfund Cleanup Acceleration Act of 1998, anyone interested in selling, buying, or financing a commercial property is required to have an environmental report, or environmental site assessment (ESA) performed to uncover evidence of property or site contamination.
An ESA is a combined inspection/investigation of a commercial property.
Contaminants identified may include, but not be limited to, the following.
These are some of the more common (and therefore, more commonly handled) contaminants you may find.
A commercial property that has been vacant for several months may be harboring black mold, which may be expensive or impossible to remove.
Since a buyer of a commercial property will usually be expected to cover the cost of the environmental report or ESA, it’s important for the buyer (you) to learn the basics of these reports.
In particular, buyers will need details of possible potential findings during an environment report, especially if any conditions must be remedied. This process is described as the remediation process.
Generally, a qualified inspector or Environmental Professional will adhere to the Standard Practice of American Society for Testing and Materials (ASTM) E1527-13.
An Environmental Professional is someone with the following background:
While it’s impossible to quote an accurate rate for an ESA Inspector within this guide, be prepared to pay a higher rate for a more experienced inspector with favorable reviews.
The environmental assessment must include the following:
Hiring an environmental inspector should not be a bargain-chase: You want to make sure you’re paying for value.
Below are the phases of a typical environmental report.
The first ESA inspection of a commercial property is commonly known as Phase I.
Here are some of the procedures that comprise a typical Phase I report.
If any contaminants or hazardous materials are located or suspected, a Phase II inspection will be arranged.
After contamination is suspected, investigators will conduct a more thorough investigation.
The cost for this report can vary depending on the property and the situation.
While an environmental report adds to the costs of financing a commercial real estate purpose, it may prevent future problems and costs.
For example, a cash buyer of a commercial property who skips the ESA may be on the hook for any clean-up costs if contaminants are found.
Any lender who offers funding without an assessment could also face major, unforeseen problems, making this a risky deal for everyone involved.
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