Does a Phase 1 ESA Meet the Requirements for a HUD Loan?

A Phase 1 Environmental Site Assessment (Phase 1 ESA) is a report that is used to assess current and historical uses or impacts on a property. It helps determine if there is any existing or potential contamination of the site that could cause harm to human health or the environment. A Phase 1 ESA is typically required for transactions dealing with commercial and industrial properties. Even when a Phase 1 ESA is not required it can be beneficial to have one carried out, as it provides information about possible risks for future development or sale of the property.

What is Included in a Standard Phase 1 ESA

To fully determine the historical impacts and risks of contamination to a property a Phase 1 ESA encompasses a wide variety of approaches. The first part of a Phase 1 ESA is to review historical records for the site and surrounding area. This is done by reviewing historical aerial photographs, topographic maps, fire insurance maps, and city planning files. These help determine historical usage for the property site and surrounding area. Additionally, property records are reviewed with government agencies that oversee issues with soil and water contamination. This is typically county/state environmental agencies, building departments, fire departments (Underground Storage Tanks), and health departments.

In addition to historical data, the current situation of the site and surrounding properties is assessed. This is done through a site visit by an environmental professional. They look for issues like improperly stored chemicals, oil residue, or other signs of environmental contamination. During a site visit property owners, managers, or employees are interviewed to gather further information on site usage.

After all of the relevant information is gathered certified environmental professionals will review the data to determine if there is a risk of on site or offsite contamination entering the property. Environmental professionals are certified to assemble the results into a Phase 1 ESA and determine if there are any Recognized Environmental Conditions (RECs) present on site. Using this information they provide recommendations for the site in accordance to ASTM E1527.

ASTM E1527 outlines the required information for a standard Phase 1 ESA. In most cases this is sufficient for government or bank requirements, but in the case of a loan from the Department of Housing and Urban Development (HUD) the scope of a standard Phase 1 does not meet the full requirements. The Environmental Review requirements for a HUD loan include the information found in a standard Phase 1 ESA and additional information on how the project will affect the local environmental.

HUD Environmental Review Requirements

A standard Phase 1 ESA completed in accordance with ASTM E1527 is focused on past and current contamination to the site. A HUD Environmental Review requires this, but also requires research into the projects effects on the surrounding natural environment, socioeconomic impacts, and viability of community services to support the project. These additional requirements are guided by the National Environmental Policy Act (NEPA) and other state/local environmental legislation.

The first additional requirement is to amend the introduction section of a standard Phase 1 ESA to include a Statement of HUD Purpose. This simply clarifies that the report is for a HUD project, the scope of the report, and its role in the HUD loan process. Additionally, the conclusion/evaluation section of the report should discuss if any further investigation or corrective action should be taken in accordance to HUD standards or ASTM E1527.

The additional socioeconomic, developmental, and environmental impacts required in HUD Environmental reviews varies by project location and size. Government regulation dictates which topics should be covered and to what extent. Each requirement is discussed below.

Socioeconomic Impacts

The socioeconomic impacts that are assessed in a HUD Environmental review largely revolve around employment rates and demographics in the local community. Employment and income patterns are reviewed to determine if the local community has the need or ability to support a larger population or more businesses. Community demographics and displacement are also reviewed to determine how the project will align with the community.

Community Infrastructure

The community is reviewed to determine if it has the ability to provide basic services for the HUD development project. This includes a wide variety of common services found in commercial and residential areas, like education centers, sanitary systems, waste disposal, and public safety departments.

Land Development

Some portions of land development are covered in the scope of a standard Phase 1 ESA, like zoning, drainage, and topography. In addition to this hazards are assessed, like noise and site safety. Additionally, energy consumption of the project is reviewed.

Coastal Barrier Regions, Coastal Management Zones, and Wetland Protection

The report will determine if the proposed project falls in a Coastal Barrier Region, Coastal Management Zone, or designated wetland habitat. If the project is within a Coastal Management Zone it may require additional permitting and studies. If the project falls within a Coastal Barrier Region, as dictated by the Coastal Barrier Resources Act, it will have strict limitations on development and typically HUD projects will not be permitted. If the project is in a wetland area environmental professionals should assess the possible impacts of the project on the area.

Floodplain Management and Flood Insurance

The report is required to include a Federal Emergency Management Agency (FEMA) floodplain map. It is used used to determine if the project is in a risk area, like a Special Flood Hazard Area, and what the correct preventative measures should be.

Wild and Scenic Rivers Act and Endangered Species Act

The report must list any threatened or endangered species in the development area. Additionally, it needs to describe the habitat requirements for these species and how likely the project is to affect them. If a project falls within ¼ mile of a river listed in the Wild and Scenic Rivers Act researchers must discuss the implications of the project with local National Park Service officials.

Historic Preservation

If the project is in the vicinity of a registered historic place, property, or district a qualified consultant must assess the possible impacts of the project on the historic area.

Toxic Chemicals, Hazards, or Radioactive Material

The scope of a standard Phase 1 ESA covers a lot of this already with its historic land use research and site visit. In addition to this the site needs to be checked for asbestos, lead-based paint, radon, and flammable hazards. The proper corrective or preventive measures will be provided in the report.

Airport Clear Zones

Using zoning maps environmental professionals determine if the project area falls within an airport clear zone. All development projects are prohibited in these regions.

Sole Source Aquifer

If the project is in an area with an EPA designated protected aquifer its potential effects on the water source need to be reviewed.

All of these requirements are assessed on a project by project basis to determine if they are required in a given area. Environmental professionals should be made aware of any known requirements before the project begins, as some requirements require professionals with very specific knowledge, like the Historic Preservation condition.

A standard Phase 1 ESA is a good starting point when completing a HUD Environmental Review and is an accepted environmental document in the HUD loan process. The scope of a Phase 1 covers most of the possible sources of contamination on a site, but doesn’t look deeply into how the project will affect its surroundings. The additional factors required for a HUD Environmental Review explore the risks to local communities, environments, and topics covered by NEPA regulation.