Understanding Environmental Consulting Reports
While commercial real estate investments may prove very profitable, they can also be risky. Some of the biggest risks may be hidden ones. These include hidden or unknown environmental issues on the property. Environmental consultants can provide environmental consulting reports to make sure that any possible problems are uncovered before a real estate deal gets finalized.
Commercial property investors, sellers, and commercial lenders should be very interested in learning more about these environmental services and reports. Of course, people who have to live, work, or go to school on the property should also want to know about any hazards in the united states
The Importance of Environmental Consulting Reports
The Love Canal disaster really was an American tragedy. This neighborhood was meant to become a dream community for families. In the 1920s, the partially dug canal became a toxic dumping ground for waste. In the 1950s, the chemical company that owned the land and used it as a waste site sold it to the city for a dollar. It turned out to be a really bad buy.
Twenty years after a school and about 100 houses had been built there, it was discovered that many of the toxins caused cancer, birth defects and other dread diseases. Both New York and the federal government helped bail out the innocent homeowners. However, they still suffered because of the high rate of ill effects.
Love Canal is just one of the most famous and saddest environment disasters, but it isn’t the only one. That’s why it’s so important to obtain environmental consulting reports before developing homes, business, and schools on a property. While some of these hazards may be man-made, others could be natural. In any case, a qualified environmental consulting firm will investigate properties before lenders will agree to loans and buyers will agree to sales.
ESA I and II Reports
At the heart of environmental consulting are two types of standard environmental site assessment reports. These are called ESA I and ESA II. Of course, the investigation starts with an ESA I report. If some areas need to be further explored, they might be uncovered by the second type of report.
This assessment provides a pretty comprehensive look at the property. First, the environmental company will actually visit the site to investigate it. In addition, he or she will be sure to look for historical reports and records about the property. Finally, the rest of the report may come from applicable state, federal, and local laws.
These are some events that could trigger a request for one of these environmental reports:
- New real estate purchase
- Application for a real estate loan
- Ownership redistribution or buyout
- Applications for discretionary land use permits
- Suspicion by a regulatory authority of toxic conditions
- Property sale
Most of the triggering actions involve real estate deals. However, there doesn’t have to be an exchange of ownership or loan involved. In some cases, the property owners may order one of these reports because they suspect pollution or have other environmental concerns. Nobody wants to learn that their property is unsafe because it’s polluted, but it’s better to know than to risk the hazard.
ESA II Reports
Generally, ESA II reports get ordered because the ESA II report wasn’t conclusive. To understand this, a very simple example may help. Let’s say an investor wants to buy a property to build a multi-family housing complex. Investigation uncovered the fact that this site used to house a gas station. However, there are no records that the buried gasoline tanks were actually removed from the site.
Obviously, these tanks could be a potential hazard because they may leak or even explode. If the fuel tanks are still there, the developer will surely want to remove them before using the property. In some cases, the developer may even decide the property is too risky to buy. In other cases, the buyer might thing that the seller should offer a discount because of the extra costs. Anyway, it’s very important to learn if the fuel tanks have been removed or not.
Are ESA II Reports Required?
If the first report is conclusive, the transaction can probably proceed as planned. What if there are some potential properties that were uncovered in the first report? If the developer is paying cash for the property and doesn’t have any concerns about the fuel tank, it’s possible to skip the ESA II report. It might not be a good idea, but it’s certainly possible.
However, lenders are going to look at the inconclusive ESA I report and want to know about those underground fuel tanks. That’s when an ESA II report will get ordered. The environmental consulting company may be able to use instruments to detect any metal or evidence of underground fuel. In some cases, they might actually have to start digging. It’s not always true, but in some cases, the ESA II investigation will be more costly than the ESA I reports.
How Much Do Environmental Consulting Reports Cost?
It’s not possible to give an exact figure without knowing more about the property. Some real estate may require a lot more testing than others just because of the location or prior history. It is very possible to say that ESA I reports are usually fairly modestly priced. If they uncover anything that requires an ESA II report, the assessments are likely to get more expensive. Even so, it really depends upon the nature of the problem and what methods can be used to test.
If some toxic problem is found, then it’s possible that remediation could get very expensive. Still, it’s much better to know about potential pollution or other kinds of hazards before completing a sale and particularly before starting development. In the case of Love Canal, many families suffered, and the expense to all of the parties involved was enormous.
Taking the proactive steps of getting environmental consulting reports is always best. In any case, clean reports or proper remediation will save money in the long run. Besides preventing risks, it can also help reduce insurance and other risk management costs.