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Newsletter #7: Your Industry Environmental Update

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.

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:  Never be hesitant to reach out to PES by phone: 540-680-2882, or email: 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.

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 or  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.