Scotsman Guide - November 2008 Commercial Edition

Due Diligence is Necessary

Continued from Page 36

shoddily or rushed through at the last minute. Even if time and money are tight, some form of environmental due diligence can be done. Quick, cost-effective screens can be performed right from a desktop computer.

Common blunders when evaluating environmental issues include:

1. Going with a low-cost Phase I site-assessment-provider: When a full-scale Phase I environmental site assessment is in the cards, many choose an environmental firm based on price. Going with the cheapest provider has the obvious advantage of cost savings, but it may result in a shoddy job. In the past few years, there has been a trend toward the commoditization of Phase I assessment: There are mills producing inadequate reports for a minimal fee. Quick-and-dirty screens can lead to crucial

missed information, and saving a few-hun-dred bucks doesn’t look so good when facing thousands of dollars in cleanup costs. If the deal calls for a Phase I assessment, make sure to hire an environmental professional who is qualified to conduct assessments under the U.S. Environmental Protection Agency’s All Appropriate Inquiry (AAI) rule and who is experienced in assessing properties for recognized environmental conditions and other risks.

2. Rushing the report: Although they can sometimes be prepared more quickly, Phase I assessments generally require three to four weeks to complete. Before they prepare the report, environmental professionals not only must visit the site but also must talk to past owners, operators and the like. They also should request information about the site

environmental professional enough time to request and receive site information.

3. Relying on old reports or making as-
sumptions about the deal: Never assume
that a deal is free from environmental

problems and that a Phase “Tighter due-diligence practices allow ^I ^is ^simply ^a ^formality. ^N^o_{ne knows where theassess-}all parties in the deal to understand the extent ment will lead until all the and potential costs related to the exposure ^facts ^are ^in. ^And ^don’t ^rely_on _outdated, _inaccurate _orin a timely manner. If problems arise, ^{incomplete reports. Industry}standards assign a one-year deal terms can be restructured.” shelf life from the date of property purchase for the environmental inquiry, with a 180-day shelf life for certain components. Make sure your report is current. Changes in site conditions since the report was prepared could significantly alter the property’s environmental contamination status.

4. Ignoring the past: Environmental professionals who are called upon to review work of their peers most often cite poor historical reviews as the most common problem they encounter. For the purpose of determining environmental risk, a site’s history is just as important as its current use. A doughnut shop may look innocuous, but it could have big environmental problems if it used to be a dry cleaners.

5. Believing a Phase I environmental site assessment is all-inclusive: Designed to help the user avoid liability under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), a Phase I is not a catch-all screen of every environmental issue that could affect a property. Those issues outside the scope of a Phase I include things such as mold, asbestos, lead paint and vapor intrusion. An environmental professional can help determine whether taking on additional assessments is prudent.

from various governmental bodies, which takes time. Demanding a faster turnaround may compromise the environmental consultant’s ability to obtain information, which leads to data gaps. Gaps in data can

compromise the quality of the assessment; furthermore, they must be accounted for and explained. The sooner you order the Phase I, the better. Everyone is facing schedule pressures, especially in the wake of the credit crunch. But tighter underwriting standards are the norm, too. Plan for at least a couple of weeks to give your

Looking For An Experienced, Stable Commercial Partner In

These Unsettled Waters?

We can help. We’ve been there for the past 25 years. And we’ll be there for you tomorrow.

Since 1981 Ocean Capital has helped mortgage

brokers secure funding for small balance

commercial properties such as convenience stores,

hotels, motels, auto repair shops, light industrial

and other unique property types.

Whether you have experience placing

commercial deals, or you are a residential

broker looking to diversify into the commercial

space, we can help. With our quick, one-step

submission process, we do all of the work and

pay you handsomely in the process. To learn

more or to place a commercial deal, call us today.

And let’s get you on board.

”Our years of experience and strength in this current environment will serve you well.”

John Murphy Chairman, Ocean Capital

Bottom line

Commercial real estate volume is down significantly, but deals are still getting done. While brokers and their lenders may face greater challenges than usual, there are plenty of prudent practices they can employ to make good deals while they wait for the economy to improve.

Skimping on due diligence, while perhaps an attractive short-term option, is myopic. Because environmental issues are complex and often hidden, a detailed environmental desktop report — or a thorough inspection by a qualified environmental professional when the deal requires it — is a prudent practice. It should be considered for every commercial real estate deal.

• Owner-occupied commercial mortgages to $2MM

• Up to 85% financing

• Credit scores as low as 500

• Low minimum debt-service coverage required

• Limited documentation required

Past Articles

Call now for a fast evaluation and approval of your deal!

1-877-337-3757 www.oceancapitalonline.com

by Environmental Data Resources

“Setting the (Data) Standards,” Jack Huntress, commercial edition, March 2008 “Meth Labs: Getting Clean,” Dianne Crocker, residential edition, April 2008 “Managing a Meth Mess,” Dianne Crocker with Joe Mazzuca, Meth Lab Cleanup, commercial edition, June 2008 “When Something’s in the Air,” Derek Ezovski, residential edition, August 2008 “New SBA Document Means Business,” Derek Ezovski, commercial edition, September 2008