Commercial real estate transactions always involve some risk. The larger the transaction, typically, the greater the possible risks that might impact buyers, investors, or lenders. For properties with possible environmental issues, the risks are even greater.
Most purchases of older properties in urban areas require environmental due diligence investigations and reports. This includes residential and commercial buildings and the land they occupy. These investigations start by reviewing all available documentation about the buildingâ€”its past uses, any past environmental investigations, permits pulled for work on the building and interviews with past owners, occupants, and neighbors.
The goal of this investigation, called an Environmental Site Assessment Phase 1, or ESA Phase 1, is to determine whether any additional assessments are required. Done properly, a clean ESA Phase 1 report clears the buyer from environmental liability from any past use of the property. If the report misses any existing environmental hazard, the results can be anything from inconvenient to disastrous.
An inconvenience may be that the lenders or regulators require additional reporting when they get around to examining documentation, which is usually nearer to closing time, putting a closing date at risk. A disastrous outcome would be that a report misses some hazardous materials, and these materials are found during construction, dragging the project to a halt for weeks or months.
All of this means that it is important that environmental due diligence is done right. Many property buyers and project managers put due diligence reports out for bid to several firms, and often by default select the lowest bidder. Even more surprising, some of the largest environmental due diligence firms in turn put your project out to the lowest bidding subcontractor. This practice is important for several reasons:
The people you are hiring to inspect your building aren’t actually doing the work.
The people doing the work don’t know anything about your plans for the building, which means they don’t know exactly what to look for.
The people doing the work aren’t working for you, they’re working for the environmental consulting firm to meet their time frame and budget.
The lowest bidding subcontractor is likely to do the absolute bare minimum to inspect your property in order to protect their thin profits.
It is critical that environmental due diligence investigations are performed by experienced, trained professional inspectors, and that they understand your plans for the building so that they can ensure that you get the best possible information. They should be looking out for you. Simply handing over the project to the lowest bidder increases the risk of an incomplete or inaccurate report, which could add considerable time and cost to a project.
To learn more about how to select an environmental due diligence consultant, download our Project Manager’s Guide to Environmental Due Diligence.