Environmental
Strategies &
Applications


Real Estate Services

The vast majority of ESA’s work is derived from the purchase, sale, or refinance of industrial and commercial real estate. Nearly every day ESA’s staff works on real estate-related projects. Real estate-derived work ranges from simple due diligence assignments to complicated Brownfield deals. These services are all about protecting our clients and helping deals close.

Clients can be a purchaser, seller, or lender. A client’s needs vary as a function of what side of the deal they occupy.

Purchasers: People buying property want to know if the property in question is encumbered with any environmental issues. While such issues are not always a deal-breaker, the buyer wants to know well before closing if there are any potential areas of environmental concern.

Seller: Many sellers ask, “Why would I perform due diligence if the purchaser is going to do it anyway? Isn’t that redundant?” The answer is that it may be redundant, but it may still be necessary because it is all about negotiating a good deal. There are two issues that a seller must think about. Firstly, when the buyer performs due diligence they will know if any potential areas of environmental concern exist on your property. When it comes to negotiating (or renegotiating) the sale price, you simply don’t want the opposing party to know more than you. That runs contrary to basic negotiating strategy. Second, the other reason to perform due diligence is if you suspect that an environmental problem exists. Sometimes thorough due diligence will identify issues that need to be remedied prior to the sale.

Lender: Lenders almost always require some form of due diligence when making a new commercial or industrial loan, or a refinance. Lenders are disinclined to collateralize properties with significant environmental issues.

...And remember -- any environmental service performed on your behalf should be directed at satisfying your ultimate goal which, in most cases, is closing the deal.

Below are some of the more commonly requested real estate services.

Industrial Site Recovery Act (ISRA)

In New Jersey, selling or closing a business or ceasing operations could trigger ISRA. If you have an ISRA-subject business, you must demonstrate that your business has not contaminated the premises or surrounding property. This involves the submittal of various forms and affidavits to the NJDEP and possibly the acquisition of samples. ESA will get you through this maze quickly and inexpensively. Equally important, in New Jersey you must pay oversight fees to the New Jersey Department of Environmental Protection (NJDEP). ESA is a successful strategy that on some projects keeps NJDEP fees to an absolute minimum.

Below are common issues faced by ISRA applicants.

  • Letters of Non-Applicability (LNA’s)
  • Expedited Reviews
  • Historic Fill
  • Funding Sources
  • Deminimus Quantity Exemptions
  • Preliminary Assessment Report (PAR) and General Information Notification (GIN)
  • Innocent Purchaser Protection

Strategies to Buy And Sell Properties

Even if you have no direct involvement with ISRA, you must still be alert to various environmental issues. Here is a list of some of the more important issues that you may encounter:

  • Due Diligence - Phase I Site Assessments: A buyer should not consider proceeding to the closing without performing proper due diligence. The purpose of a Phase I Site Assessment is to determine the likelihood that environmental problems exist on the property due to prior activities. A well-written Phase I should not only cover all the elements suggested in ASTM Standard 1527E, but when summarizing the potential areas of environmental concern the report should discuss the potential environmental impact of these areas of concern. The Phase I also may confer Innocent Purchaser Protection.

  • Due Diligence - Phase I Transaction Screen: Often a full Phase I is not needed or requested. In such instances a limited Phase I, called a Transaction Screen, can be performed. This product is quite inexpensive and provides a good indication if any potential areas of environmental concern exist on site. The transaction screen does not comply with ASTM standard 1527E, nor does it confer Innocent Purchaser Protection.

  • Innocent Purchaser Protection: This protects buyers from third party liability if they should purchase a property that is subsequently found to contain contamination that, during the course of "proper due diligence", was not discovered and they did not cause. This protection is conferred by both various states (e.g., New Jersey) and the federal government. This protection will not protect you from the cost of remediating such problems, however.

  • Seller-Financed Cleanups: Should a seller go through the time and expense of cleaning up their property prior to closing? This question has no simple answer, but we will cover the fundamentals. If you want the highest sellingprice, you may want to undertake the cleanup on your own. The reason for this is that savvy buyers will estimate the cost of remediation, multiply their remedial estimate by 150 - 250 percent, and then negotiate the sale price down relative to their remedial estimate. In this fashion, the buyer could get one heck of a good deal.

  • A Sense of Perspective: Keep in focus that you are involved in a real estate deal that has an environmental element that requires attention. Inappropriately, many consultants see their environmental involvement as central to the deal. Real estate transactions are normally quarterbacked by an attorney. If the attorney is competent, they should direct how the deal is to proceed. They may require input from the consultant, but only in-so-far as environmental compliance is concerned. ESA will work closely with your attorney to effect an outcome that makes sense and, most important, keeps the deal moving.

Brownfields

Brownfields present a new twist on an old theme. Brownfields are contaminated properties that have been abandoned and (typically) are no longer ratables. While they normally exist in urban areas, they can be found anywhere. The objective of Brownfields-enabling legislation is to foster the clean-up of these properties and return them to the tax roles. Brownfields received their impetus from the federal government and now many states are also proponents, having developed their own enabling legislation. The key to a successful Brownfields program is to convey to the purchaser the new indemnities and tax incentives available from the government and, if needed, low interest loans. ESA has successfully undertaken Brownfields projects and knows how to effect an outcome that is sound and makes financial sense.

Here are some of the key issues you should know about Brownfields:

  • Covenants Not-to-Sue: A Covenant Not-to-Sue is an indemnification granted to the Brownfields developer by the ruling governmental agency that says third parties may not seek claims against the developer for past contamination, acts or practices that led to contamination. The theory behind this covenant is that those investing in Brownfields can be thought of as "white knights" who seek to remediate properties for the purpose of redeveloping and/or selling it.

  • Tax Incentives: New Jersey and other states now have programs that provide tax incentives in "urban enterprise zones". In New Jersey for example, you can receive a graduated 10-year tax deferral for undertaking a Brownfields project in the targeted urban zones. In addition, consider filing a tax appeal at the very beginning of your project. Many developers save significant dollars by appealing their taxes up front.

  • Protection Against Clean-Up Cost Over-Runs: You can protect yourself against cost over-runs that can occur when cleaning up your site. This protection is available as a single-premium insurance product. This typically makes the most sense when your cleanup could exceed $1,000,000.00

  • Low Interest Loans: Some government agencies have available low interest loans for qualified development projects. Some of this money can be applied against site investigation and clean-up.

  • Municipalities: Often municipalities have special rights and powers relative to Brownfields. Each municipality should identify what these are so they can take full advantage. By the same token, private developers also need to identify these rights and privileges so they can work more effectively within their municipality. Further, ESA cautions private developers from creating an adversarial position with their municipalities because if the municipality so chooses, they can use these rights to hamper your transaction. Your host municipality makes a far better friend than enemy.

Forms of Due Diligence

Sometimes our clients don’t know what form of due diligence to request. ESA offers four forms of due diligence that vary in complexity. All four forms have one thing in common: sampling is normally not part of the scope of work.

  • Site Inspection: This is the least expensive form of due diligence. It involves a visit to the site, and interview with the person most knowledgeable about the property, and a letter report of findings. This form of Due Diligence is most often used by lenders who make small loans on properties that are believed to be environmentaly benign.

  • Transaction Screen: This form of due diligence is used for properties that are believed to warrant a higher degree of inquiry than a Site Inspection. The Transaction Screen was formerly recognized by the USEPA as a means to qualify for innocent landowner defense pursuant to CERCLA. However, via the proposed “all appropriate inquiries” (AAI) rule the US EPA has rescinded the ability of the ASTM E 1528 Transaction Screen to serve its purpose: “to permit a user to satisfy one of the requirements to qualify for the innocent landowner defense to CERCLA liability”. Specifically, as stated by the US EPA in the supporting documentation for the proposed AAI law: “The less stringent transaction screen (ASTM E 1528) is not an interim standard and does not meet the requirements for obtaining the CERCLA liability protections.” So what does this mean for the average client that wishes to use this form of due diligence? Not much at all. Use it if appropriate, but do not count on it to provide innocent purchaser protection. Innocent purchaser protection is available from the following forms of due diligence.

  • Phase I Environmental Assessment: This is the most comprehensive form of due diligence that is recognized in all 50 states. The Phase I is performed in accordance with ASTM E1527-00. It involves a thorough records review, computer searches, site reconnaissance, and an in-depth repot of findings. A Phase I will convey via CERCLA the innocent landowner defense.

  • Preliminary Assessment: This form of due diligence is used only in New Jersey as prescribed by the NJDEP. It provides the same information as an ASTM Phase I Environmental Site Assessment, but goes beyond the Phase I. Every Preliminary Assessment must follow the format prescribed in the New Jersey Technical Requirements For Site Remediation (N.J.A.C. 7:26E), which differs from the ASTM format and must include a comparison of the results of all past environmental cleanups against contemporary standards. Preliminary Assessments are the preferred form of due diligence when buying commercial or industrial property in New Jersey because they are required pursuant to New Jersey’s Brownfield and Contaminated Site Remediation Act (N.J.S.A. 58:10B-1 et seq.). Additionally, a Preliminary Assessment must be performed to satisfy the specific requirements of an innocent landowner defense established by the New Jersey Department of Environmental Protection.

    • Phase II Sampling

    Phase II sampling is normally performed if potential Areas of Environmental Concern (AECs) are identified when performing due diligence. Sometimes a property owner knows of potential problems and will request sampling to learn more. Sampling results sometimes indicate that remediation is necessary.

    ESA’s full-time staff can collect samples by various methods. These include both surface and subsurface sample collection methodology (i.e., hand-augers, GeoProbe, truck-mounted hollow stem augers, etc.). These services include the installation of monitoring wells, and the acquistion of both soil and groundwater samples. Addtionally, we can sample hazardous waste from drums, pits, tanks and lagoons, as well as taking wipe samples from interior or exterior building surfaces.

    Remedial Design & Implementation

    ESA provides full turnkey remedial design and implementation services. Proper remedial design is needed to effect remediation to an appropriate level. While "the appropriate level" is relative to each project, it usually means designing a program to meet the minimum requirements for compliance so the fewest dollars are spent. Remedial designs include soil excavation and disposal or recycling, soil reuse plans, drum removals (both surficial and buried), groundwater cleanups, lagoon closures, building decontamination (PCBs and other hazardous materials including asbestos), and bioremediation.