When purchasing or refinancing a commercial or industrial property, it is important to understand what lenders often require as part of their environmental due diligence. Having this knowledge prior to purchasing or refinancing a property can make the process much smoother and will provide a better understanding of the environmental risk and liability associated with the property.

Typically, lenders will look for one or more of the following three documents:

  1. Phase I Environmental Site Assessment (ESA): A Phase I ESA provides an assessment of the evidence for potential or actual environmental impacts at a property based on various sources of information. Sources of information include a visual inspection, review of site history and information from regulatory bodies, and review of the surrounding properties. The results of a Phase I ESA will establish the potential requirements for further environmental investigation.
  1. Designated Substance Survey (DSS) or Hazardous Building Materials Survey (HBMA): A DSS or HBMA is carried out to determine if designated substances or hazardous materials are present at a property which may pose an issue relating to the health and safety of its workers. A visual inspection is carried out to determine if hazardous materials such as asbestos, lead, and mercury are present, and quantify the amount present and assess the potential risk to workers.
  1. Property Condition Assessment (PCA): A PCA is carried out to identify major defects in materials or systems which may require expenditures beyond routine maintenance at a property. A visual review is carried out as part of a PCA and includes assessments of the windows, doors, roof, structural elements, and mechanical, electrical, and fire safety systems.

Knowing that these documents are typically expected, a potential purchaser can work with a qualified consultant to have them prepared prior to refinancing. Thus reducing the stress and headache of meeting a deadline and being able to move through the deal with a much better understanding of site conditions.

 

Written by Matt Huson

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