Retail and restaurant owners face unique challenges in site selection and development, and one crucial component of that is environmental due diligence. If your job title includes the terms “Real Estate Coordinator”, “Construction Supervisor” or “Director of Development” it is likely that part or all of the responsibility for completing environmental due diligence activities falls on your desk. Your role may be administrative in procuring a qualified Phase 1 Environmental Site Assessment (ESA) consultant or perhaps technical as the reviewer of completed reports. The quality of the report can often be indicative of the experience of both the Environmental Professional (EP) and the consulting firm. Identifying and utilizing a third-party provider who understands the risk management process for retail clients is critical.
Common Environmental Concerns
Perhaps more so than any other type of property, retail and restaurant properties seem to come in a variety of “flavors” and “packages”. They range from small, in-line tenant spaces to single-tenant out lots to mega-malls and large box properties. Each of these types of retail property includes a distinct level of risk with respect to environmental issues. Some environmental concerns that are common to retail areas include:
Drycleaners – Is there a cleaners in the shopping center currently? Was there previously? Drycleaners frequently use solvents and other potentially hazardous chemicals that can contaminate the soil, groundwater or indoor air through malfunctioning equipment, spills or even intentional dumping. Often the timeframe in which the drycleaners existed will give clues as to what types of cleaning chemicals were used. Sometimes the same cleaners might move tenant spaces within one shopping center, so you may need to be doubly diligent in whether these areas have been contaminated (perhaps with Phase 2 Subsurface Testing).
Auto Shops – Auto servicing operations use many petroleum and hazardous substances, and poor housekeeping or subsurface features (trenches, oil-water separators, storage tanks, etc.) could pose a risk for contamination. Certainly a stand-alone auto service center may warrant additional scrutiny, but sometimes big box stores also have oil change facilities.
Gas Stations – Fuel underground storage tanks (USTs) and associated equipment can pose a risk from leaks, spills, overfilling, and there are lots of questions that must be addressed. Is there a gas station on the property? Newer gas stations have much improved equipment that minimize the risk for leaks, but nothing is fail proof. Do you have proof that the equipment has passed tightness and leak tests? Also, was there a first generation gas station there before? That is pretty common. Is there a documented release at the facility? How about nearby stations? Even off-site gas stations may pose a risk from contamination migrating towards your property. A prime concern with off-site gas station releases is vapor intrusion into the indoor areas of your property, which could pose a health risk to occupants.
Level of Due Diligence
Accordingly, the appropriate level of environmental due diligence may also differ. Typical factors that may assist in determining what level of environmental due diligence to complete include location, property type/size/age and current and historic use. For example, an Environmental Transaction Screen (ETS) may be an acceptable choice for an initial screen on low-risk sites (say, leasing a space in a new development on raw land in a rural area) whereas a full Phase 1 Environmental Site Assessment per ASTM E1527 is the logical choice for a soon-to-be-developed retail property that is located on a major intersection in an older part of town. For older urban areas, the property history can be long and often complicated or surprising. It is particularly important to have a detailed historical review of these properties (via a thorough Phase 1 ESA) to determine whether the property was used for environmentally “risky business” in the past. It is also not uncommon for large infill retail developments to be built over known contaminated sites or “Brownfields”, that have a set of requirements that must be maintained to “cap” the contamination underground and keep occupants safe.
Timing of Environmental Review
The timing of “when to order” environmental due diligence services is often overlooked in the overall real estate transaction process. When is the proper time within a real estate transaction or development to begin and complete the appropriate environmental due diligence? Most real estate professionals understand that the primary purpose of environmental due diligence is to satisfy various criteria relative to regulatory liability. However, a certain advantage to conducting this due diligence near the beginning of the transaction process is the ability to use the conclusions of the Phase 1 ESA report as part of the criteria in making a business decision as to whether or not a specific site is a viable option. For example, if an ESA report concludes that a specific parcel was formerly a gasoline station, then that client may decide that the risk and possible costs associated with further evaluation including Phase 2 Subsurface Investigation are too great to move forward with the transaction. Making this decision early in the process allows the client to pursue alternative sites while still achieving the goals of a development or expansion schedule.
We utilize the environmental due diligence process to protect the assets of the corporation by identifying, evaluating and minimizing the environmental risk associated with owning or leasing a specific property. It is important that some level of evaluation be performed. Third party providers that understand the environmental risk management process of their restaurant and retail clients are able provide the best and most appropriate service.