Why Due Diligence is Necessary
Strong environmental assessments make for strong deals
By Derek Ezovski, managing director, property-due-diligence group, Environmental Data Resources
Today’s lenders are scrutinizing every aspect of a deal to
make sure it is a good one. Environmental due diligence on commercial real
estate deals is more important than ever.
Brokers who are armed with the knowledge of basic environmental due diligence
can determine whether a property will make
a good deal — or a bad one — for their clients and lending partners.
property-owners or occupants, a site visit to
observe property conditions and a limited
■■ Desktop review: Environmental-data
companies compile, map and continually
update millions of federal, state, local and
the no-cost approach to environmental due
diligence, but it lacks outside verification.
For this reason, the questionnaire’s usefulness is limited.
Regardless of the method used, conducting thorough environmental due diligence
The importance of due diligence
Due diligence — the process of getting
as much information as possible about a
transaction before closing — is a proven
“When it comes to commercial real estate, one of the
most-common issues that impairs — or even kills —
deals is environmental contamination.”
Derek Ezovski is managing director of the property-due-diligence group
at Environmental Data
Resources. Before joining EDR, Ezovski worked
for FleetBoston Financial
and helped create the
environmental policy for the bank’s small-business-services division. Reach Ezovski
at (800) 352-0050 or at dezovski@edrnet.
com. To learn more about EDR, visit www.
way to avoid bad deals and litigation. When
it comes to commercial real estate, one of
the most-common issues that impairs — or
even kills — deals is environmental contamination. For this reason, lenders routinely require some sort of pre-purchase
Depending on the goals and the terms
of the deal, lenders can use one or more of
the following screening tools to check for
■■ Phase I environmental site assessment:
Prepared by an environmental professional,
a Phase I assessment includes a review of
available records for the subject property
and its surrounding area, a review of historical records, a site visit, and interviews
with past and present owners, operators
and occupants. The final report contains
documentation of all records reviewed, observations made during the site visit, results
of the interviews, an explanation of any gaps
in data and any recognized environmental
conditions uncovered. It also includes conclusions and recommendations.
■■ Transaction-screen assessment: Prepared by an environmental professional
or bank officer, the transaction-screen assessment consists of a questionnaire for
tribal environmental records culled from
public databases. Lenders can order and retrieve reports, which help identify environmental concerns on the target property and
its surrounding area for any U.S. location.
Historical information is also available.
■■ Environmental questionnaire: The property questionnaire is a basic document that
contains anywhere from 10 to 25 questions
designed to determine if a property has any
environmental conditions. The lender typically submits this document to the borrower
or seller for completion. As a result, this
environmental-screening tool represents
early in the deal gives brokers and their
lenders an advantage. By learning about
potential problems upfront, they have time
to address any issues before closing.
Tighter due-diligence practices allow all
parties in the deal to understand the extent
and potential costs related to the exposure
in a timely manner. If problems arise, deal
terms can be restructured, if necessary.
“Buyer beware” has a significant meaning in
the real estate industry. But sometimes environmental due diligence is dismissed, done
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