While the reasons for a client requesting a Phase I Environmental Site Assessment (ESA) may vary as much as the winds change directions in a given day, one thing that consistently produces returning clients is quality reports. What are the fundamental pillars of the ESA process that contribute to the level of quality in a report? Here are the key things you should look for when selecting the right due diligence firm:
1. Context: what is required for your specific Phase I ESA Report?
Quality and context are intrinsically linked in terms of defining what should be included in the Phase I Environmental Site Assessment. For example, an assessment that requires agency approval will likely involve additional required items such as the completion of forms and checklists specific to that agency and the type of transaction. For the Environmental Professional (EP), recognizing the client’s relationship to the property itself is key to understanding what exactly should be included in the Phase I ESA. A client who seeks to redevelop a property for future residential use will benefit from a more conservative view on concerns associated with historical operations and any subsurface contamination levels. Similarly, a buyer’s specific interests in assuming liability once taking ownership are likely to be different to those of an owner seeking to refinance their loan.
An environmental site assessment that is conducted without a conscious nod to the context of the client’s overall needs may result in a report that is less than useful. Reports must service the context of the real estate transaction.
2. Acknowledging risk tolerance while accurately reporting issues
How useful an environmental site assessment is depends on the consultant’s ability to accurately characterize potential environmental concerns while taking into account the client’s risk tolerance levels. To a large extent, the strength of a due diligence firm can be measured in its ability to communicate both good and bad news to its client in a clear and constructive manner.
Environmental issues can kill a real estate deal, so while it is important to understand and delineate contamination that may exist at a property, many clients just want the report to come back with no further recommendations/clean. An environmental consultant cannot simply make issues “go away” because many recognized environmental conditions (RECs) are black and white – such as a drycleaner that has been operating at the site for 30 years using PCE and with RCRA violations. But others are more gray – and consultants’ professional opinions may differ on the significance of such concerns. Fortunately, ASTM’s recent revisions of the Phase I ESA Standard E1527-13 have greatly clarified when an issue should be considered a REC, historic environmental condition (or ‘HREC’, for a definition see here) or controlled environmental condition (CREC). It is the responsibility of the consultant to provide clarity in these instances by accurately reporting any issues while reasonably taking into account the client’s risk tolerance and other factors like the proposed future use.
To prepare an objective and useful report, the consultant must first comprehensively research the issue to uncover any potential mitigating factors. If no mitigating factors are found, the consultant should use this research to clearly and constructively illustrate to the client why something is a concern and requires further investigation.
3. Accurate and In-depth Information
Perhaps the most important ‘pillar of quality’ is the depth of research involved in the Environmental Site Assessment: the successful extraction of information, thorough analysis, and the accurate portrayal of data in the ESA report.
A critical part of the ESA process is the submittal of Freedom of Information Act (FOIA) requests to regulatory oversight agencies. On a basic level, these agencies include the main state environmental department and the local health, fire, building, planning, utility, and oil and gas departments. However, in addition to thorough knowledge of these regulations, the best quality report is achieved when the due diligence consultant is also knowledgeable about various regional and/or local exceptions and variations to these “rules”.
For example, many states rely heavily on the state-level environmental department for oversight on issues such as hazardous materials and underground storage tanks (USTs). In contrast, the Southern California region focuses largely on regional and county departments for regulatory oversight of hazardous materials and USTs, and associated records maintenance. Unique jurisdictional and public-to-private contracting issues may further complicate the process for locating the appropriate records. Knowledge of the relevant agencies, as well as the availability of online resources is key to obtaining data from all levels of available sources.
4. Comprehensiveness of Historical Research
Historical research is another critical part of the Phase I ESA process, and quality in this realm can vary depending on the sources researched. Here’s an example: an ESA report that reviews historical aerial photographs but doesn’t consider historical adjacent city directories listings may not be able to identify former tenants of a depicted older building that sat between the subject property and an adjacent property. A real estate due diligence firm that as a matter of practice uses multiple sources of historical research (such as aerials, city directories, Sanborn fire insurance maps, historical topographic maps) and employs the help of less traditional sources to close data gaps (such as historical societies, chambers of commerce, property developers, and libraries) will be far more successful in providing a comprehensive historical discussion to accurately evaluate risk and liabilities.
5. Environmental Consultant’s Experience
The consultant must be able to interpret the information reviewed and effectively communicate this data in the report. Although experience is a benefactor in all of the pillars of quality discussed above, it presents itself most prominently in the environmental professional’s ability to interpret, communicate and make recommendations based on the findings of the ESA.
For example, a discussion of a former gas station development would not be comprehensive if only the latest generation of tanks was identified, and the consultant did not identify previous generations of tanks (possibly somewhere else on the property). In general for sites with subsurface concerns, a fundamental understanding of Phase II Environmental Site Assessment principles is needed to accurately interpret subsurface data. Weaknesses in this area could lead to inadequately characterizing an environmental condition, for example if the consultant relies too heavily on the opinion of the previous consultant’s conclusions rather than on the raw sampling data. This could lead to a report that is disconnected and misleading.
In addition to the issues relating to report content, there are additional minor “cosmetic” issues that can affect the quality of the Phase I ESA report, such as poorly constructed backend figures that do not help to illustrate the onsite environmental concerns, or grammar and sentence structure problems that make the report more difficult for the client to read.
As you decide on what due diligence firm best suits your needs for a Phase I Environmental Site Assessment, you should give careful consideration to the benefits of a reputable quality report among other determining factors such as pricing and delivery. Only an environmental consultant who meets the above “pillars of quality” will be able to deliver the Phase I ESA report you can rely on to accurately and reliably evaluate the environmental liability associated with your real estate asset.