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A Phase I Environmental Site Assessment (ESA), in conformance with the ASTM Standard Practice E 1527-13, is performed to “define good commercial and customary practice in the United States of America for conducting an environmental site assessment of a parcel of commercial real estate with respect to the range of contaminants within the scope of Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and petroleum products.  As such, this practice is intended to permit a user to satisfy one of the requirements to qualify for the innocent landowner, contiguous property owner, or bona fide prospective purchaser limitations on CERCLA liability; that is, the practice that constitutes all appropriate inquiries into the previous ownership and uses of the property consistent with good commercial or customary practice as defined at 42 U.S.C. § 9601(35)(B).”

An ESA is considered the gold standard and is always recommended in a property transfer. 

However, many times, when costs are a concern, a lesser product is requested and in some cases may be acceptable for a client.  Such cases include a refinance, a restructure of an existing loan, or a loan where the real estate itself is not being used to collateralize the loan.  In such cases, the client may opt to conduct what we call an Environmental Desktop Review (Desktop).  Since there is no ASTM Standard Practice for such a study, the scope of such a review likely will vary from consultant to consultant.  In EI’s case, this product includes: 1) a regulatory database review; 2) an historical review (including review of available city directories, aerials, and Sanborn fire insurance maps); 3) a review of available online environmental databases and property information; and 4) an owner/operator interview.  While a Desktop will not provide the user with a defense to CERCLA liability, it will provide a screening for environmental concerns that is better than no environmental assessment.  The object of the Desktop is to provide enough information to be reasonably certain that, in the event of foreclosure on the property, the property would pass the scrutiny of a full ESA.

If an ESA was performed on a property in the past, another option may exist. 

That option is for an environmental professional (EP) to review the previous ESA, update the regulatory database search, and confirm that the use of the subject property has not changed since the previous ESA was conducted.  This also would apply only when the transaction involves a refinance, a restructure of an existing loan, or a loan where the real estate itself is not being used to collateralize the loan.  Again, the object of this review is to provide enough information to be reasonably certain that, in the event of foreclosure on the property, the property would pass the scrutiny of a full ESA.  It is important that this review be performed by an experienced EP who will provide an opinion about the potential for concerns that have occurred on the property since the time of completion of the previous ESA.  If the property is occupied by a business that has a high potential for releases of hazardous substances and/or petroleum products and/or the length of time since the ESA is too long, the EP may determine that further investigation is necessary.

In order to make a decision as to the level of proper environmental due diligence, it is important to work with professionals who have significant experience in many types of commercial real estate transactions.