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Phase I ESAs are Different in New York City

Due Diligence in New York City

All commercial real estate (CRE) transactions consist of a series of important steps that all lead to a done deal. To gain a comprehensive understanding of an asset that is being purchased, sold, or refinanced, these steps must be conducted to avoid any gaps in information which may result in an owner facing issues unbeknownst to them prior to the transaction. One of the most important steps is due diligence, in which an asset must be inspected during a Phase I Environmental Site Assessment (ESA) to identify recognized environmental conditions (RECs) that impact the asset, its occupants, and the environment (or ecosystem) surrounding the asset. Though Phase I ESAs are conducted on CRE assets around the world, New York City has special differences that set them apart from ESAs in other parts of the country.

New York City has long held a valid reputation for being one of the greatest cultural hubs in the world. The buildings alone are representative of New York City’s culture and history, one that goes back even further than the founding of the country itself. History is a factor that goes into each Phase I ESA and is one of the most vital components to the assessment. Though building history is researched in ESAs from Savannah to Seattle, the buildings in NYC tend to have a longer and more diverse history with the oldest building in the city dating back to 1652. Not only is it important to take the history of the property being inspected, or the subject property, but understanding the history of directly adjoining properties needs to be considered as well. This fact alone sets NYC apart based on the relatively high density of buildings per square mile. As the consultant conducting the Phase I researches the history, they look for any red flag businesses that operate using chemicals that can result in the determination of a REC to the subject property. Some red flag businesses they may point out include dry cleaners, gas stations, or auto body shops which all use chemicals that have high likelihood of causing contamination if released into drains, soil, or water. With a high turnover of commercial tenant spaces resulting in possibly several different “red flag” tenant operations in many New York City properties and a high building density, the historical review can reveal more about the potential RECs than observations made at the subject property during the physical inspection.

New York City CRE Regulations

The history of New York’s buildings has a direct impact on its current operations today, and the issues these former uses can be exaggerated depending on the extent of any contamination from those historic uses. When considering the ever-evolving uses of the land that the buildings sit on, New York City’s Office of Environmental Remediation (OER) has devised a creative solution to the problem of redeveloping formerly industrial land into commercial or multi-family uses. This solution is called E-Designations, and the placement of one on your property can mean hazardous materials contamination, high ambient noise levels, or air emission concerns have existed on the property in the past. Before repurposing these parcels of land for commercial or multi-family use, E-Designation properties must go through additional assessments to ensure that these former issues do not impact the intended tenants. A knowledgeable professional can assist you in understanding the actions needed ahead of any developments at your property to stay in compliance with state regulations.

Like cities across the world, New York City has no shortage of regulations that keep the city safe. New York City offers a particular regulation that requires all business owners that operate with hazardous materials to register them with the New York City Department of Environmental Protection (NYCDEP). This Community Right-To-Know Law was implemented following the September 11th attacks, and failure to comply with this law can result in fines. Due diligence firms in the city can assist you in keeping track with these regulations and avoiding those hefty fines.

With each CRE transaction, due diligence can reveal many unknown quirks about your property. In New York City, these quirks can result in a spread of requirements related to the former uses of the property or surrounding properties. Engaging a reputable and trustworthy due diligence firm can make a world of difference in the way you approach your property’s quirks and avoiding liability for existing RECs that have not been addressed at your property.