Real Estate Due Diligence
Lending institutions will require some level of environmental due diligence for commercial property transactions. Environmental due diligence specifically refers to the evaluation of a property for potential environmental concerns.
The most common environmental review for acquisitions, mergers, and so forth, is called a Phase I Environmental Site Assessment (ESA). Since our inception in 1996, SRW has completed more than 1,500 Phase I ESAs for real estate transactions. In fact, we consistently provide ESA services for more than 50 local and regional banks, attorneys, real estate brokers, and private companies.
Other common forms of environmental due diligence "Desktop" Environmental Records Reviews and Transaction Screens are less-comprehensive alternatives to Phase I ESAs. These alternatives are not widely accepted, however, because they do not meet EPA's standard for completing environmental due diligence. EPA's standard is referred to as the All Appropriate Inquiry rule. The first step in satisfying AAI is generally through completion of a Phase I ESA.
Ultimately the Phase I ESA is completed to provide a determination whether there has or has not been a likely release of hazardous substances or petroleum products at the subject property. Based on these findings, lenders will determine whether the environmental due diligence requirements have been met to proceed with the loan.
If findings indicate that there is no evidence of a release, lenders may consider the environmental due diligence complete, with no further work required. If the Phase I findings indicate that there is potential for a release at the property, lenders may require soil or groundwater sampling at the property the sampling activities and subsequent reporting are referred to as a Phase II ESA.
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