Phase 1 Environmental Assessment

A Phase 1 Environmental Assessment, commonly referred to as a Phase 1 or an ESA, is an important step in the process of buying or financing commercial real estate properties. It is a comprehensive evaluation that assesses the potential environmental risks associated with a particular property. The goal of this assessment is to identify any existing or potential environmental hazards that may affect the value or use of the property. These reports typically take 2-4 weeks to complete and can cost anywhere from $1,500 to $5,000.

What Is Included In A Phase 1 Environmental Assessment?

A Phase 1 Environmental Assessment typically includes a site inspection, a review of historical records, a review of federal, state, tribal and local regulatory databases, a review of state and local agency records, an interview with current and past property owners and an evaluation of the potential for environmental contamination. The site inspection involves a visual inspection of the property and surrounding areas to identify any obvious signs of environmental issues, such as spills, leaks, or other hazardous waste. Historical records, such as old aerial photographs, topographical maps, and environmental reports, are also reviewed to identify any past environmental issues or hazardous waste storage sites.

The report also evaluates the potential for environmental contamination by examining the property’s location, its surrounding environment, and the type of activities that have taken place on the site in the past. This includes evaluating the location of the property in relation to sources of contamination, such as hazardous waste sites, industrial facilities, or landfills. Some common uses of concern are dry cleaners, gas stations, vehicle repair shops, printing operations and manufacturing facilities. Some high-risk uses could affect the property for up to 40 years after the business vacated the property.

Why Is A Phase 1 Environmental Assessment Important?

A Phase 1 Environmental Assessment is an important tool for real estate investors and lenders because it helps them to make informed decisions about the property they are considering. By identifying any existing or potential environmental hazards, the assessment helps to determine the potential financial and legal risks associated with the property. This information can be used to negotiate better terms on the purchase or financing of the property, or to decide not to proceed with the transaction if the risks are deemed too great.

There are three main concerns that may be identified in the Phase 1, a recognized environmental condition (REC), a controlled recognized environmental condition (CREC), and a historical recognized environmental condition (HREC).  A REC indicates a known contamination or the potential for the subsurface to have been impacted by contamination. A CREC identifies that the property has been impacted by contamination which has been investigated and remediated although contamination remains and would require additional work.  A HREC identifies a release impacted the subject property which has been investigated and remediated meeting unrestricted use criteria.

The identification of a REC generally includes a recommendation for a Phase II Environmental Site Assessment. This follow up assessment provides a more in-depth analysis of the identified concerns and may include soil and water samples to confirm the presence of contamination.

In addition, a Phase 1 Environmental Assessment helps to protect the buyer or lender from potential liabilities associated with environmental contamination. If environmental contamination is found, the assessment provides a basis for negotiating financial arrangements to mitigate the risks associated with the contamination. The assessment also provides a basis for making informed decisions about the use and management of the property in the future.

Who Performs A Phase 1 Environmental Assessment?

Phase 1 Environmental Assessments are performed by qualified environmental professionals, such as environmental consultants or engineers. These professionals have the training and experience necessary to identify and evaluate environmental hazards and to prepare a comprehensive report on the results of the assessment.

It is important to choose an experienced and reputable environmental professional to perform the assessment. This will ensure that the assessment is thorough, accurate, and complies with relevant regulations and standards.

When Should A Phase 1 Environmental Assessment Be Performed?

A Phase 1 Environmental Assessment should be performed prior to the purchase or financing of a property. This will provide the buyer or lender with the information necessary to make informed decisions about the property. In some cases, the assessment may also be required by regulatory agencies or lending institutions.

These reports can be completed on many types of properties.  These typically include commercial buildings, industrial sites, agricultural properties, vacant lots and multi-family buildings.

Conclusion

A Phase 1 Environmental Assessment is an important tool for real estate investors and lenders. By identifying any existing or potential environmental hazards, the assessment helps to determine the potential financial and legal risks associated with the property. By choosing an experienced and reputable environmental professional to perform the assessment, real estate investors and lenders can make informed decisions about the property and protect themselves from potential liabilities associated with environmental contamination.

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