THE VALUABLE PHASE I SITE ASSESSMENT: ASSIGNING REAL RISK TO TRANSACTION ENVIRONMENTAL ISSUES

With the sustained growth of the region's economy, it is obvious that the volume of real estate transactions in the area has increased. Similarly, the volume of Phase I Environmental Site Assessments which we are conducting has grown accordingly. As a key component of our business, RT continues to develop new strategies which set our Phase I product apart from our competitors.

What Defines a Valuable Phase I?

The goal of the effective Phase I is not to simply identify potential problems. Many assessments commonly fail to include what the buyer and seller really need from the report, which are recommendations and conclusions as to precisely what the identified issues mean to the transaction. Too often, the results of a Phase I site assessment merely state the obvious features of a property which are of potential concern. In many cases, the property owner or potential buyers is, to a degree, already aware of such risks.

The challenge of the effective Phase I report, and the characteristic which gives it real value to a client is the way that it defines the liabilities associated with the features which pose potential concerns. While at first this may seem like a subtle difference, it is in fact an extremely important extension of the report which many companies fail to provide. It is important, then, for an effective Phase I to keep in mind the goals of the reader. That is, when a potential purchaser or buyer is reading a Phase I, they are thinking, OK, now what does this mean to my transaction?

Take for example, a relatively common observation: suppose that a property has an out of service underground storage tank on site. It is not enough for a Phase I Assessment to simply report that a UST is on-site, and list its age, size and contents. This is, in fact, of no real assistance and can hold up the transaction. The valuable Phase I, after noting that the UST is present, also addresses the following important factors: What is the nature of the upcoming transaction? What, if any, documentation can be provided to address the condition of the UST? Are there any indemnifications or other agreements in the upcoming transaction which would affect the determination of this tank as a risk? And finally, what would be the potential costs (i.e. effect on the transaction) associated with the investigation and/or tank removal to eliminate the risk?

As illustrated above, perhaps the most important part of an effective and valuable Phase I is that the individual preparing the Phase I must understand the dynamics of the transaction itself.

Future Planned Use

In additional to the nature of the transaction, the future planned use of a subject property can affect the determination of what potential risk an issue poses. The future planned use of a property can help to determine the real risk of such issues as the presence of potable wells, lead based paint, fluorescent lighting, waste or debris piles, and many others. Effectively considering this factor can help to define whether these issues are of great or little concern. These decisions become of particular importance when potential environmental concerns are identified inside a building or structure, such as the presence of lead-based paint or asbestos-containing material. In these circumstances, the valuable Phase I will address the following questions:

• What is the client's role in the pending transaction?
• What degree of public or private occupancy or use of the property is planned?
• Is the structure to be partially renovated, fully renovated or demolished?
• Is there to be continuous or part-time residential occupancy of a building, and will children be on the property?
• What is the cost of the abatement of the risks found, and how will it affect the upcoming transaction?

All of these factors, when properly considered, help to create an assessment that is of real value to the client. Essentially, the value is derived from the assignment of real, quantifiable risk to the issues found on a property. Since these quantifiable items are often factors into the price of a property as part of transaction, it becomes a very important part of the negotiation and closing process.