Need Fast Environmental Due Diligence Reports?
Do you need fast environmental due diligence reports? Records Search with Risk Assessment (RSRA) have fast turnaround times. Faster than any other official environmental due diligence product. A RSRA is usually done in two to three business days but always take less than five. Environmental Screens are faster, done in 2 hours. But read on! There’s a lot more to know about RSRAs, Environmental Screens, and environmental due diligence.
Environmental Due Diligence
Environmental Due Diligence is the act of researching a commercial property before purchasing it. This is an especially important task for all-cash buyers of real estate. When a bank is involved in a transaction, they will make the borrower purchase a Phase I ESA. You’d think the bank is being kind by trying to protect the buyer. In reality banks are attempting to protect the value of the collateral for the loan they are making which is almost always the property being borrowed against. Banks also use Phase I ESAs to limit their legal liability of the environmental risks of previous uses. This has the knock-on effect of protecting the borrower too. The Bank’s major concern is that the value of the loan remains less than the value of the collateral. Environmental issues can greatly decrease the underlying value of a commercial property. That’s an enormous risk to a bank who’d like to get paid back for the money they lent out.
All-cash buyers by definition don’t need a bank. Often there is nobody to stop a transaction which has not had an environmental investigation. A good lawyer, if involved in the transaction, should know to council their buyer clients to get the proper inspections.
Why is Environmental Due Diligence Important For All-Cash Buyers?
Business professionals frequently have access to money from different places. It might be a large line of credit that they can tap at a moment’s notice. Sometimes there’s a large pool of cash that’s temporarily available. The temptation when faced with an opportunity on which they need to act fast is to grab that pile of money and apply it to a quick purchase. It’s often a trap for capital.
The buyer’s plan is to refinance into a fixed loan and get their money out or to pay off the line of credit, a line which often has a very important role absorbing cash-flow shocks. What inevitably happens is they go to a bank for the fixed loan and the bank asks if environmental due diligence was done during the purchase. The answer is generally, “No”. At this point the bank makes the all-cash buyer get a Phase I ESA. They find out they have some issue with the building. It might be a buried tank or a half dozen buried tanks. It’s at this point that the buyer finds out he or she overpaid for an environmentally compromised property. Between the environmental investigation and clean up (not to mention the liability which, yes, they purchased too) the property is worth far less than the buyer thought.
The Worst Part For All-Cash Buyers…
By far, the worst part of this very typical scenario is the fact that the buyer’s investment in the commercial property is now locked into the property, permanently in some cases. Depending on what the business pro needs the capital back for (like cash-flow stresses), this can be an acute and critical problem.
Quick Environmental Due Diligence:
The best environmental due diligence to do before a commercial property transaction is the Phase I ESA. They unfortunately take 10 business days to complete. We can do them faster than most other consultants and have frequently done them in five business days. However, there is an up-charge for the compressed turn-around time which may be a lot to swallow. Sometimes our buyers have less than five days to closing and realize they need some kind of environmental. The RSRA is a good option at this point to help with a go-no-go decision. It doesn’t limit your liability from previous owners and previous uses of the property but it goes a long way toward telling you if you should stop everything and take a longer look at your potential purchase’s environmental history.
Need Faster Environmental Reports?
If you need faster environmental reports you can check out our 2 hour response on environmental screens. They can be purchased by clicking here. You can read about them by clicking here. Remember when I said RSRAs are the fastest official environmental due diligence product? Environmental screens can help you make a decision, but banks almost never accept them in advance of lending money.
Read more about RSRAs.
There’s a lot more to know about RSRAs. If you want a complete understanding, check out: “Everything You Ever Wanted to Know About RSRAs“.