Newsletter
HIG began creating short newsletters September 2009. We will continue to create these informative tidbits on a periodic basis. Click here to subscribe to our free e-newsletter!
Trends in Environmental Due Diligence
By Jeri Massengill, CEO – Historical Information Gatherers, Inc.
July 2011
According to our clients and lender contacts, noticeable changes occurred in the environmental due diligence arena over the past couple of years. Environmental professionals are doing increasingly in-depth assessments on all kinds of properties including single property acquisitions, multi-site property portfolios and area-wide redevelopments spearheaded by cities and counties. In addition to this steady uptick of work, the amount of due diligence work being conducted for lenders looking to restructure loans and foreclose on properties remains high.
Phase I Environmental Site Assessments (ESAs) are being conducted for properties and for loan amounts that in the past would have been approved with just a walk-through of the property by a loan officer. Properties ranging from gas stations to large-scale industrial facilities are undergoing comprehensive environmental compliance audits at a higher rate. In the past, many of these environmentally “high-risk” properties were acquired or financed based solely on a Phase I ESA performed by a firm that submitted the lowest bid.
As compared to four years ago, risk management policies set by real estate investors and lenders have become more stringent. Our clients are spending more time and resources reviewing historical property information to determine if past property uses have resulted in contamination inside buildings or in the subsurface. They are interviewing more people about past property uses and some are even conducting web searches to look for articles and photographs that indicate illegal disposal activities or environmental contamination associated with the company or property they are assessing.
At a recent conference I asked the speaker, a community banker, how their environmental due diligence policies have changed in light of the commercial real estate credit crisis. With a tone of regret he said, “Our policies are being set for us by the regulators and we have to do what they tell us to do.” Why are bank regulators involved? Environmental attorneys and bank regulators have noted that a disproportionate amount of loan defaults related to environmental issues have been incurred by regional banks and small community banks. These banks often do not have staff qualified to discern the difference between incomplete or inaccurate reports and high-quality reports prepared by a firm who has their client’s best interests in mind. I recently heard a quote attributed to a banker that went something like this: Retaining a firm to do a cheap Phase I ESA may be the most expensive mistake a lender can make.
So what does more regulation of lender environmental risk policies mean? It can mean more upfront costs associated with a loan and can also involve a slightly longer loan approval process. However, if good quality environmental due diligence is conducted prior to loan approval, it can lead to fewer loans defaulting as a result of health-risk issues or contamination that were not uncovered prior to purchase of the property. Furthermore, it can help initiate the clean up of contaminated properties leading to the improvement of our community’s natural resources and in some cases, the indoor air we breathe.
If you are in the CRE business and are struggling to understand the nuances of environmental due diligence, let’s talk!
Jeri Massengill can be reached at 952-235-2004 (ext 118) or at jerim@historicalinfo.com
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Target Field – A Brownfield Redevelopment Success
March 2011
This article celebrates our friends and clients who helped make the new home of the Minnesota Twins baseball team a reality. Target Field was awarded the 2010 Brownfield Renewal Award for Economic Impact and some members of the team will be present next month at Brownfields 2011 in Philadelphia to attend the awards ceremony. Congratulations to all who helped turn this north Minneapolis brownfield into a center of activity and renewal in our hometown.
Background - The site of the new Minnesota Twins baseball stadium was a classic inner city “Brownfield Site”. What is now called Target Field was formerly a parking lot covering over 20 feet of urban fill polluted with petroleum, heavy metals and polynuclear aromatic hydrocarbons from many years of previous industrial and commercial uses. Detailed environmental and geotechnical assessments were conducted by a variety of consultants to characterize the environmental conditions and geologic stratigraphy. When it was completed, over 250,000 cubic yards of polluted fill soils were disposed of at local landfills and numerous deep steel pilings were required for the foundation which was built on the soft, compressible soils of an ancient buried river channel.
McGrann Shea Carnival Straughn & Lamb attorney Carla J. Pedersen is lead real estate counsel for the Minnesota Ballpark Authority, the public entity that owns and leases the Target Field property to the Minnesota Twins. Ms. Pedersen, assisted by Associate Christine L. Mennen, was instrumental in drafting the Development Agreement, Grant Agreement, Ballpark Lease Agreement, Parking Lease Agreement, and all property related agreements associated with the acquisition, development, and operation of Target Field. Their involvement with the project also included handling the complex title registration process and the creation and filing of a registered land survey subdividing the property based on the various uses on the site, including several public transit options.
Andrew Leith of Hennepin County Environmental Services conducted review of numerous documents prepared for the various parcels that now comprise the baseball stadium property. Dr. Leith was the county’s environmental project manager and oversaw the environmental work performed by DPRA (Phase 1 ESA), Peer (Phase 2 ESA and RAP) and AET (RAP implementation).
Peer Engineering, Inc. was retained by Hennepin County to conduct the pre-acquisition Phase II environmental investigations of the various properties being assembled for the Minnesota Twins Stadium project, prepare the response action plan/environmental contingency plan (RAP/ECP) for the project, and work with the Minnesota Pollution Control Agency (MPCA) Voluntary Investigation and Cleanup (VIC) and Petroleum Brownfields (PB) Programs to facilitate obtaining required regulatory approvals. Peer’s work was completed on a fast track basis to meet the project’s aggressive property acquisition timeline and construction schedule. Peer’s Project Manager for the project was Ken Larsen, Executive Vice President and CFO of Peer Engineering.
American Engineering Testing, Inc. (AET) was retained by the Minnesota Ballpark Authority to provide pre-construction geotechnical exploration and engineering services as well as environmental monitoring and geotechnical services during soils remediation, geotechnical soils correction/placement and foundation construction activities. AET also provided environmental services related to the removal and disposal of asbestos containing materials and underground storage tanks and construction materials testing for the Plaza Bridges over Interstate 394. AET completed the RAP Implementation Report in early 2010 with MPCA approval received in March of 2010. The AET team was comprised of Jeff Voyen, PE (Geotechnical Project Manager), Kate Kleiter, PG (Environmental Project Manager) and Dick Stehly, PE (Construction Materials and Lead Project Manger).
