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.

Leave a Reply

Your email address will not be published. Required fields are marked *