November 30, 2018
Phase 1 Environmental Site Assessment (ESA)
Your guide to everything Phase 1
What is a Phase 1 Environmental Site Assessment?
A Phase 1 Environmental Site Assessment is a standardized due diligence investigation that determines whether hazardous materials exist on a property. Predominantly, a Phase 1 analyzes any potential liabilities for property purchasers, owners, operators, and lenders.
A Phase 1 investigation looks at a lot of factors to protect a buyer from future liabilities. Typically, a Phase 1 ESA involves an on-site inspection by an environmental firm with detailed photography to document conditions. In addition, a Phase 1 reviews records for information about past ownership and uses, determining if the property has been involved with hazardous materials. Interviews with past/present building occupants and with owners of neighboring properties are also conducted to validate past uses.
There are several important stages and milestones of a Phase 1 Due Diligence period, including an EDR report, site visit, report preparation, and confirmation of delivery time.
A Phase 1 must also meet certain benchmarks and technical requirements and regulations, as established in the ASTM standard (American Society for Testing and Materials), the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), and All Appropriate Inquiry (AAI) Rule.
The Scope of a Phase 1 ESA
- Inspection of the Site
- Catalog the Presence of Hazardous Materials or Petroleum Products
- Historical Aerial Photographs
- Reverse Street Directories
- Building Permits
- Planning Records
- Topographical Maps
- Sanborn Fire Insurance Maps
- Department of Oil and Gas Maps
- Title Information
Geology and Hydrogeology
- Soil Type
- Geological Setting
- Groundwater Depth
- Fire Departments
- State Environmental Agencies
- Federal Environmental Agencies
Interviews and Document Review
- Interview Tenants and Owners
- Interview State and Local Regulators
- Review Provided Report
When Do You Need A Phase 1?
If you are buying or financing a property, you want to know if any contamination or hazardous conditions exist before the transaction. This is important because you may be paying the cost of the clean up. Therefore, the Phase 1 ESA is crucial in protecting the buyer or lender from future liability.
A Phase 1 ESA is conducted for commercial and industrial properties, rural land, open undeveloped land, and residential multi-family properties. As such, nearly all real estate transactions involve a Phase 1. However, for multifamily properties, it can go either way.
In addition, lenders require a Phase 1 for all properties that are greater than 4 units. 100% of the time, lenders will require a Phase 1 ESA for commercial properties.
Who Can Perform a Phase 1 ESA?
Environmental due diligence must be performed by an “Environmental Professional” trained under ASTM standards and experienced with CERCLA requirements, with additional local requirements. It is critical for inspectors to be aware of any state or local site assessment requirements. These requirements are often different than federal ASTM standards. Typically, Phase 1 reports are performed by environmental engineering consultants.
Most authorities recommend hiring an experienced environmental consulting firm. Phase 1 reports require very specific information and language in order to protect the property buyer from future liability. Hiring a firm with insufficient experience or training can only compound your risk if the report fails to provide you with accurate data.
In accordance with the Environmental Protection Agency (EPA) regulations, mold, asbestos tech, and home inspectors are not allowed to conduct a Phase 1 Environmental Site Assessment report, unless they meet the qualifications of being an environmental professional. Environmental firms need to include a statement of qualifications in the Phase 1 reports they conduct, proving their experience and education for conducting an ESA.
The environmental assessment will be relied on buyers, sellers, investors, lenders and insurers. The risks are high, and there’s no need to make them higher by using an inexperienced consultant.
What a Phase 1 Doesn’t Include
For property buyers, it is important to know what a Phase 1 assessment is and what it isn’t.
Phase 1 ESAs do not involve any testing of things like paint, soil, or moisture, though a visual inspection may indicate the presence of hazardous materials. A standard ESA Phase 1 investigation also does not address some serious contaminants such as asbestos, lead-based paint, and mold. These are covered under a separate Hazardous Materials Survey. A full hazardous materials inspection is not required by a Phase 1.
What are the Outcomes of a Phase 1?
There are six major outcomes from a Phase 1 ESA:
- Clean bill of health: No further action is needed.
- Recognized Environmental Condition (REC): the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property.
- Material threat: a physically observable or obvious threat, which is reasonably likely to lead to a release that, in the opinion of the environmental professional, is threatening and might result in impact to public health or the environment.
- De minimis condition: a condition that generally does not present a threat to human health or the environment, and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies.
- Controlled Recognized Environmental Condition (CREC): A recognized environmental condition resulting from a past release of hazardous substances or petroleum products that has been addressed to the satisfaction of the applicable regulatory authority.
- Historical Recognized Environmental Condition (HREC): A past release of any hazardous substances or petroleum products that has occurred in connection with the property and has been addressed to the satisfaction of the applicable regulatory authority or meeting unrestricted residential use criteria established by a regulatory authority, without subjecting the property to any required controls.
Recognized Environmental Conditions (RECs)
If anything comes up in the Phase 1 report that indicates the presence of hazardous materials, a Phase 2 is usually needed. A common dealbreaker for any real estate transaction is the presence of a Recognized Environmental Condition (REC), which can be found during a Phase 1. A REC is the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property. Some RECs include dry cleaners, auto repair facilities, underground storage tanks, or even a toxic radioactive dump site.
Although a REC can be a dealbreaker, the regulations were updated in 2013 to make it possible to clear a property with a Recognized Environmental Condition for unrestricted use under certain conditions when the contamination is deemed to be sufficiently contained and controlled.
Common Misconception: Why You May Need More than a Clean Phase 1
The Phase 1 is the fundamental start to the due diligence process and usually always step one. A common misconception is that a clean Phase 1 is the end of the road and you will never have to worry about anything related to the subsurface on your site. Although the Phase 1 ESA is a good way to get an idea about the history of the site, its purpose isn’t to cover everything.
Commonly, if a Phase 1 ESA is requested for a refinance and it comes back “clean” then usually that is all the lender needs. This is the simplest scenario. Unfortunately, we are always speaking with developers that have had a clean Phase 1, but as they moved forward in the development or approval process, they were required to do further investigations, soil sampling, etc.
In California, developers have to get approval through the planning commissions, building departments and other agencies. In addition, there are requirements from the approval agencies, specifically planning, to makes sure there are no potential issues in the subsurface. As a result, even though a Phase 1 ESA may be clean, the request to do a further investigation may not go away.
The subsurface is a unknown environment. There is no way to be 100% certain that a subsurface investigation would yield clean samples, even in the case of a clean Phase 1. As such, the Phase 1 won’t investigate imported soil that may have happened 50 years ago or fill material that may be present.
There is no way to know what is ahead by just relying on a Phase 1 ESA, which is why you must depend on your environmental consultant to provide with you with guidance not just on your immediate need, but also what is ahead.
Time Frame and Longevity of a Phase 1 ESA Report
A Phase 1 takes anywhere from 2 to 3 weeks, but sometimes can be done faster. If our search for files at local environmental agencies shows there to be a file for the subject property, it may take a slightly longer time to complete the ESA report. This is because we would need to schedule an appointment to review the file, which is dependent upon appointment availability from said government agency.
In keeping with the current ASTM standard, the report for a Phase I Environmental Site Assessment is valid for one year. However, this is dependent upon the fact that necessary updates will be performed between six months to one year. At the end of one year, the Phase I ESA report needs to be done again.
Cost of a Phase 1 ESA Report
A Phase 1 ESA costs anywhere between $1,800 to $4,600. The cost is dependent upon property location, the complex history of the site and its uses.
Will my lender find the report acceptable?
In most cases the answer is yes (99.9% of time). In our 16 years as an Environmental Firm, we have never had a client have a Phase 1 Environmental Site Assessment rejected by their lender.
Benefits of Choosing Essel Environmental
Our Environmental Firm offers complete, thorough, and expedited Phase 1 ESA and consulting that is uniquely tailored to real estate developers. Our goal is to provide you with a simple process that keeps you involved and informed throughout the process. We complete Phase 1 ESAs faster than other environmental firms without sacrificing quality performance.
While other Phase 1 Environmental Site Assessment companies may outsource their services to the lowest bidder, we only use in-house engineers so you always receive experienced and reliable professionals.
When looking at Phase 1 Environmental Site Assessment companies, you won’t find a simpler choice than Essel Environmental.
For more information, contact us!
Speak with one of our friendly client representatives today to discuss your needs and how we can quickly and efficiently meet them. Call us at 1 (800) 595-7616 or use our contact form on our website. We are here to serve you!