TORRANCE, CA—“The perception of environmental risk has shifted,” says Joseph Derhake, CEO of Partner Engineering & Science, Inc. “The industry acknowledges that understanding and managing environmental risk wisely is a necessary core competency to stay competitive in today’s market.”
Derhake’s assessment is buttressed by the results of a reader survey for which GlobeSt.com teamed with Partner Engineering to gauge the commercial real estate sector’s response to environmental risk. The survey follows up similar studies that Partner Engineering undertook in 2008 and 2012, and demonstrates an evolution in the industry’s thinking about the subject.
Compared to four years ago, a higher percentage of respondents see risk management due diligence as a higher priority than they assigned to it previously—40% in this year’s survey, compared to 23% in ’12. A key factor behind this shift in priorities is greater awareness of environmental concerns, such as vapor intrusion risks.
“We have better techniques today to help us understand the extent of contamination,” according to one survey respondent. “With better tools, the industry can make better-risk adjusted decisions.” Adds Derhake, “It appears that the CRE community isn’t doing due diligence because regulations require them to or out of fear of liability, but because they acknowledge that investing in assessing environmental issues upfront can actually help them make better business decisions.”
Along with that deeper understanding, there’s also a better-stocked arsenal of techniques to address environmental issues. “There are more solutions to environmental risks now. The no-solve outcome and total loss of property is a very limited concern today,” as one respondent put it.
That doesn’t mean there’s no risk of loss or other consequences associated with environmental concerns. Seventy-seven percent of survey respondents said they’ve seen deals fall through as a result of environmental issues, with the highest percentage of respondents saying the issue fundamentally changed how different parties saw the deal. Nearly one-quarter said they had lost money as a result of the deal collapsing.
Observes Jenny Redlin, principal with Partner Engineering, “These responses show that most deals died as a result of lack of consensus—either on the environmental issue itself, or on who was willing to work around the issue. A good consultant can bring parties closer to consensus by thoroughly defining the issue and possible solutions.”
Conducted by ALM Marketing Service this past August on behalf of Partner Engineering, the survey also delved into what it takes for a consultant to make the grade. It quoted Robert Lindemann, assistant VP/environmental coordinator and reviewer at Investors Bank, as saying, “To me, competitive pricing is important. But I rely on having a strong relationship with a qualified consultant who I can trust to manage environmental risks in a way that supports our business goals.”
Respondents to the online survey ran the gamut of GlobeSt.com’s audience. The owner/investor and broker groups each comprised 22% of the respondents, followed by lenders with 17% and developers with 12%. A white paper summarizing the survey’s findings, titled “Changing Perceptions: Environmental Risk Today,” is available by clicking here.