{"id":1004206834,"date":"2018-02-13T07:29:19","date_gmt":"2018-02-13T15:29:19","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004206834"},"modified":"2022-12-07T14:49:58","modified_gmt":"2022-12-07T22:49:58","slug":"optimizing-environmental-due-diligence-in-cre-transactions","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/optimizing-environmental-due-diligence-in-cre-transactions\/","title":{"rendered":"Optimizing Environmental Due Diligence in CRE Transactions"},"content":{"rendered":"<p>By Sanyu Kyeyune<\/p>\n<div id=\"attachment_1004206838\" style=\"width: 510px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-1004206838\" data-attachment-id=\"1004206838\" data-permalink=\"https:\/\/www.commercialsearch.com\/news\/optimizing-environmental-due-diligence-in-cre-transactions\/dan-2\/\" data-orig-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg\" data-orig-size=\"3007,2959\" data-comments-opened=\"0\" data-image-meta=\"{&quot;aperture&quot;:&quot;2.2&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;iPhone 6s&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;1518446090&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;4.15&quot;,&quot;iso&quot;:&quot;200&quot;,&quot;shutter_speed&quot;:&quot;0.05&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;1&quot;}\" data-image-title=\"Dan\" data-image-description=\"\" data-image-caption=\"\" data-large-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?w=1024\" class=\"wp-image-1004206838\" src=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg\" alt=\"Dan\" width=\"500\" height=\"492\" srcset=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg 3007w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=300,295 300w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=768,756 768w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=1024,1008 1024w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=1536,1511 1536w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=2048,2015 2048w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=150,148 150w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=696,685 696w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=1068,1051 1068w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=1920,1889 1920w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/02\/Dan1.jpg?resize=427,420 427w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><p id=\"caption-attachment-1004206838\" class=\"wp-caption-text\">Dan Spinogatti<\/p><\/div>\n<p>To accurately determine the extent of environmental impact on a property, it&#8217;s important to understand both current and historical tenant operations, cautioned Dan Spinogatti, senior vice president of real estate services with EBI Consulting\u2014an environmental and engineering due diligence firm. Addressing attendees of the Mortgage Bankers Association CREF\/Multifamily Finance Conference in San Diego, he presented some of the biggest environmental risks for each property type.\u00a0<\/p>\n<h2>Environmental risk factors, by\u00a0asset type<\/h2>\n<p><em>Multifamily<\/em><strong>: <\/strong>Often, the environmental hazards that affect apartment communities are caused by contamination from neighboring areas, such as air-quality issues created by nearby manufacturing facilities. These risks tend to be more pronounced in legacy buildings, including Class B and C communities and public housing.<\/p>\n<p>\u201c<em>When we work with <a href=\"https:\/\/www.multihousingnews.com\/post\/first-step-to-expanding-affordable-housing-more-research\/\">agency financing groups<\/a>\u2014Freddie Mac, Fannie Mae, HUD\u2014they provide very prescriptive scopes of work, which require extensive in-unit testing for things like radon, asbestos and lead-based paint<\/em>,\u201d Spinogatti explained. And because these types of investments often include a capital improvements component, they are likely to involve renovation work, which increases the risk of unearthing hazardous substances.<\/p>\n<p><em>Office<\/em><strong>: <\/strong>Especially in older office buildings, emergency power generators may be kept in underground storage tanks to conserve space and prevent fires. But when these tanks leak, the risk of contamination magnifies, necessitating thorough environmental due diligence.<\/p>\n<p><em>Retail<\/em><strong>:<\/strong> The growing trend among retail investors of repurposing former big-box stores for recreational uses\u2014like indoor racing tracks\u2014calls for heightened attention to environmental due diligence. And dry cleaning shops continue to create long-term problems, thanks to the chlorinated solvents used in operations. Slow to degrade, these substances can easily migrate through concrete and soil, contaminating groundwater.<\/p>\n<p>Similarly, an environmental site assessment of a space previously occupied by an auto repair business\u2014such as Sears, which faces considerable\u00a0<a href=\"https:\/\/www.commercialsearch.com\/news\/economy-watch-some-12k-stores-at-risk-of-closure-in-2018\/\">bankruptcy risk this year<\/a>\u00a0and operates Sears Auto Centers nationwide\u2014can uncover such issues as the presence of underground storage tanks containing petroleum products.<\/p>\n<p>In both of these cases, further investigation is required, increasing time and cost for investors.<\/p>\n<p><em>Industrial<\/em><strong>: <\/strong>Facilities that process metals or chemicals, including those that manufacture\u00a0semiconductors or other electrical components, face amplified environmental risks. Tenants of these properties often store the substances that factor into their operations in underground storage tanks, which can\u00a0degrade or pill\u00a0and disperse toxic chemicals.<\/p>\n<h2>Property condition assessment<\/h2>\n<p>From the lender&#8217;s perspective, properly pricing the loan requires determining whether the borrower has adequately sized their potential investment\u2019s replacement reserve. The property condition assessment needs to take into consideration the extent to which immediate repairs will be required, the expected useful life of systems and cost estimates for property improvements.<\/p>\n<p>\u201c<em>The property condition assessment could lead the lender to hold back funds from the loan until the borrower makes certain repairs,<\/em>\u201d Spinogatti noted. \u201c<em>That&#8217;s why\u00a0it\u2019s so important to make sure the report has the correct scope of work applied for that use.<\/em>\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Environmental and engineering expert Dan Spinogatti outlines considerations to improve assessment of environmental risk to keep real estate deals on time and on budget, during the Mortgage Bankers Association CREF\/Multifamily Finance conference in San Diego.<\/p>\n","protected":false},"author":1245,"featured_media":1004206838,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,21825,21783,23891,21742],"tags":[39101,34040],"class_list":["post-1004206834","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-finance","category-investment","category-national","category-latest","tag-ebi-consulting","tag-mortgage-bankers-association"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v24.6) - 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