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Newsletter #7: Your Industry Environmental Update

PES has been a leader in Environmental Due Diligence studies for nineteen years. Our consulting has concentrated in Virginia, Maryland, and Washington, D.C. but also covering projects throughout the wider Mid-Atlantic Region. More can be learned on PES on our website: www.PESenvironmental.com.  Never be hesitant to reach out to PES by phone: 703-938-5050, or email: propertyinc@cox.net with any questions or thoughts you have pertaining to environmental matters for due diligence to be secured by a future loan.  PES can also perform REO Portfolio Reviews for Liability Exposure, Update Environmental Reports, or conduct Lender Environmental Screens.


Can a Brownfields Property Lend Security

On all of the federal and state databases that PES examines, there is often coverage of either federal or state listings known as Brownfields. A brownfield site is defined as any property where the expansion, redevelopment, or reuse of the land is limited by the real or perceived threat of environmental contamination. These properties are often the former locations of gas stations, dry cleaners, printing businesses, or manufacturing/industrial businesses. Sometimes there are significant political hurdles and economic cost and risk for developers and commercial lenders willing to bring these sites back to highest and best use status. However, some sites have been assigned the brownfields classification based just upon being adjacent to contaminated properties or have retained this classification based on minor amounts of contamination that may have dissipated over the last twenty years.

Brownfields in this latter category can represent a great business opportunity for investors and lenders willing to overcome existing roadblocks and work with regulatory officials to have these properties redeveloped. Many states have tax credits, grants, and development incentives available for the development of these properties. Oftentimes the environmental due diligence risk may only involve sharing objective data from a Phase II study to regulatory officials. A properly managed Phase II study, that defines the level and extent of contamination, can serve as a fire wall for a labeled brownfields property. A state supported fire wall for new owners and lenders, to not be held liable for contamination going forward, can allow for feasible projects.

Once a commercial investor enters a state brownfields program for redevelopment the state will determine the level of assessment needed to quantify levels of contamination. Should clean-up be deemed necessary, the state typically will determine a clean-up level necessary for the proposed development. Typically the level of clean-up is less than what would be required to the previous owners that actually were responsible for the contamination. The EPA started in the late 1990s offering pilot grants to municipalities to both assess and clean-up brownfield sites. Developers using these grants have covered the entire costs of due diligence and clean-up and provided confidence to lenders with the lower environmental risk and improved status of the collateral.

As part of a PES Phase I Site Assessment Study we research information available at state and city environmental regulatory agencies. One of them is the Commonwealth of Virginia Department of Environmental Quality (DEQ).  The DEQ was formed in 1993 with the merger of four state agencies. Since 1999 the DEQ has provided oversight of 123 waste site cleanups throughout the state.  They have also have managed the revitalization of 280 sites through the Voluntary Remediation Program (VRP) that is tied into the Commonwealth of Virginia Brownfields program.

Many years ago lenders would not consider lending on federal EPA Brownfields properties due to the size and scope of likely clean-up costs, not to mention future liability issues. However, through the years, with the development of state brownfield programs, there are numerous smaller brownfield sites that pose limited environmental risk and cost due to the support and grants available through these state regulatory programs.


The PES newsletter is available on our website with new issues written periodically as necessary based upon industry news of interest to the commercial real estate lending industry.  Please contact us with questions or thoughts at www.PESenvironmental.com or propertyinc@cox.net.  Are you in need of environmental due diligence services? Consider PES and be another satisfied client! Click here to see what others are saying about PES.

Newsletter #6: Your Industry Environmental Update

PES has been a leader in Environmental Due Diligence studies for over eighteen years. Our consulting has concentrated in Virginia, Maryland, and Washington, D.C. but also covering projects throughout the wider Mid-Atlantic Region and in Texas. PES can also perform REO Portfolio Reviews for Liability Exposure, Update Environmental Reports, or Lender Environmental Screens.


What’s in Store in 2016?

A new year brings new hopeful expectations. Although interest rates rose slightly in 2015, they are not expected to limit, at least to any significant degree, lending volume. Many commercial lenders believe the interest rate hike will boost commercial lending in 2016 as small and medium sized business owners see the advantage in locking in refinancing and acquisition loans before rates rise again later in 2016. However, uncertainty with the economy remains as business owners continue to look for a stronger economy.

Commercial lenders are finding it more important than ever to protect their bottom line. A disciplined due diligence process helps them do that. The following trends have emerged in the past few years obligating commercial lenders to address environmental due diligence proactively.

A couple years ago the Federal Deposit Insurance Corporation (FDIC) updated its environmental guidelines for the first time in nearly two decades. The FDIC has guidance procedures in place to assist all sized banks with nonperforming loans. The new normal is for greater government involvement in commercial real estate lending. This has led to banks conducting environmental due diligence near the beginning of the lending process rather than the historical practice of conducting environmental studies near the end of the transaction.

Over the past few years banks have tightened their commercial underwriting standards creating less tolerance for contaminated or problem properties. Additionally, a property’s potential for contamination does not necessarily correlate to loan size. Lenders are lowering their thresholds for Phase I site assessments, which means that more loans are going through the environmental screening process. Knowledge of previous land use is important and can be first gleaned through the current owner and some government and appraisal documents. The changes to the SBA environmental protocols a few years ago emphasize a property’s current or past use as the trigger for requiring a Phase I environmental site assessment rather than the more-traditional loan-size criteria. How a property was used has more impact than property size or loan amount.

Economic conditions have brought the importance of ongoing property monitoring to the forefront. Environmental due diligence does not stop at loan origination. Banks are monitoring properties for changes in environmental status over the life of the loan, as per FDIC recommendations. They also are adding language to loan documents to safeguard against environmental losses. Commercial lending banks need to be aware of changes to a client business that potentially effect environmental liability.


Never be reluctant to reach out to PES by phone: 703-938-5050, or email:  propertyinc@cox.net with any questions or thoughts you may have pertaining to environmental matters for needed level of due diligence study for property to be secured by a future loan. PES can also perform REO portfolio reviews and update reports for Lender commercial collateral portfolios.


The PES Newsletter provides industry news or updates of interest to the commercial real estate lending industry.  Please contact us with questions or thoughts at www.PESenvironmental.com or propertyinc@cox.net.  Are you in need of environmental due diligence services? Consider PES and you can be another satisfied client!  Click here to see what others are saying about PES.

Newsletter #5: Your Industry Environmental Update

PES has been a leader in Environmental Due Diligence studies for eighteen years. Our consulting has concentrated in Virginia, Maryland, and Washington, D.C. but also covering projects throughout the wider Mid-Atlantic Region. More can be learned on PES on our website: www.PESenvironmental.com. Never be hesitant to reach out to PES by phone: 703-938-5050, or email: propertyinc@cox.net with any questions or thoughts you have pertaining to environmental matters for due diligence to be secured by a future loan. PES can also perform REO Portfolio Reviews for Liability Exposure, Update Environmental Reports, or Lender Environmental Screens.

As part of PES Phase I Assessment due diligence studies, we research information available at state and city environmental regulatory agencies. One of them is the Commonwealth of Virginia Department of Environmental Quality (DEQ). The DEQ was formed in 1993 with the merger of four state agencies. Since 1999 the DEQ has provided oversight of 110 waste site cleanups throughout the state. They have also have managed the revitalization of 275 sites through the Voluntary Remediation Program. Part of this program is the Virginia Petroleum Storage Tank Program (VPSTF or Fund).

The primary purpose of this fund is to reimburse individuals or businesses for the often high costs associated with cleaning up petroleum releases. All petroleum distributors pay a fee per gallon of gasoline, diesel, or heating oil product sold to fund this program. This program was set up to protect the soil and groundwater, and inadvertent neighboring properties, from petroleum pollution. Owners of leaking tanks are required by law to report and cleanup releases, and this can place an extreme financial burden on individuals and small businesses.

Commercial lending banks need to establish protection for their real estate collateral. Businesses that borrow funds from these banks to expand or build their businesses need to be aware that it is best to know about subsurface contamination. The VPSTF is a fund that allows for the vast majority of cleanup costs to be covered by the fund in most cases. The fund has proved to be a great comfort and provide financial cover for many banks and small businesses over the last twenty years. Many states do not have such a fund and this has resulted in an adversarial relationship between individuals/businesses and state regulatory agencies. PES can connect our clients and client borrowers with managers of this fund.

The PES newsletter will be available several times per year or as necessary based upon industry news of interest to the commercial real estate lending industry. Please contact us with questions or thoughts at www.PESenvironmental.com or propertyinc@cox.net. Are you in need of environmental due diligence services? Consider PES and be another satisfied client! Click here to see what others are saying about PES.