The economy is not out of the woodsyet, but the seemingly long slow recovery has led to some newtrends in the Phase 1 Environmental Site Assessment Due Diligenceworld. Phase 1 ESAs post-recession are seeing “tightening” onseveral fronts – risk tolerance, turnaround time, pricing – as wellas some different players in the market, leading to a new landscapefor environmental duediligence.

Environmental Risk Tolerance

During the recession, many bankswere burned by fast and loose underwriting, as well as leanenvironmental due diligence policies. Many found themselvesasking “How did this contaminated site end up in ourportfolio?” and “What do we do with this risk now?” As aresult, many portfolio lenders are tightening their due diligencepolicies and have a much lower risk tolerance. Agency lendershave also revised and tightened their Phase 1 Environmental scope of work, and there-emerging CMBS market is taking a second look at their policiesand procedures. We have seen this first hand manifested ashigher scrutiny of particular environmental concerns, such asasbestos and vapor intrusion.

In particular, risk tolerance duringthe foreclosure process is extremely tight as lenders are requiringnew due diligence be completed to help avoid liability not justfrom CERCLA/Superfund, but from arange of new issues (or rather, issues new to lenders) such asstormwater management. We are still seeing a lot ofpre-foreclosure Phase 1 ESAs of raw land that was slated forresidential development. Foreclosure on these sites requiresattention to whether the lender could be subject to fines foruncontrolled erosion/sediment run-off.