Everything You Ever Wanted to Know About RSRAs.
A Record Search with Risk Assessment (RSRA) report is a faster, less expensive form of environmental due diligence which was developed by the Small Business Administration (SBA) for lending money on commercial properties. Lenders wanted to lower the substantial transaction costs they felt were a barrier to lending. The SBA recognized that there are different levels of risk regarding commercial properties depending on the historic use. For example; a building that was used for retail, built in the last ten years on a plot of land that was formerly a cornfield. In this case, it doesn’t seem to make sense to spend several thousand dollars to have a full Phase I ESA when something far less expensive like a RSRA will do.
Banks are in the risk business. They want to lend money and they know that their money is “at risk” until the last payment is made on the loan. Their fundamental concern is; “What are the risks that I’m taking and are they worth the interest I’ll make by closing a loan.” Thinking about the environmental due diligence process that banks go through, it's clear that they aren’t trying to protect the borrower. They are trying to protect the value of the collateral. In the case of commercial real estate lending, the collateral is the property they are lending on. They need to make sure the property is;
- worth more than the loan (Appraisal)
- the mechanicals all work and there aren’t hidden deferred maintenance issues (Property Condition Assessment (PCA)
- there isn’t an environmental problem in the soil or water (RSRA or Phase I)
Banks are sophisticated and are prepared, at times, to take on more risk in different ways. They may feel comfortable enough with the size of the loan, the value of the collateral or the historic uses of the property that they don’t need a full Phase I ESA. Under the right circumstances, having a smaller, faster and less expensive form of environmental due diligence is the right call.
- Low Cost - $450
- Fast – Five days or less.
A RSRA has the benefits of price and speed over the Phase I ESA. However, with those benefits come limitations. A Phase I ESA offers a limitation of liability from previous owners contamination. A RSRA does not. This distinction is important because the RSRA is also less thorough than a Phase I ESA. The lender or buyer is taking more risk based on a lower level of scrutiny. Even the environmental professional’s responsibility is diminished to only what is knowable based on the information in the databases.
The Eligibility Requirements:
Which properties are good candidates for RSRAs depends on the historic use. The Small Business Administration (SBA) maintains a list of North American Industry Classification System (NAICS) codes in what are called “Environmentally Sensitive Industries”. The list can be downloaded by clicking here. Generally speaking, the NAICS codes reference business types that use chemicals, petroleum or heavy metals. Most automotive uses are on the list. Your bank will know if a property is RSRA eligible before commissioning a RSRA because the borrower will have completed an environmental questionnaire.
The environmental questionnaire helps the bank to determine if they are eligible to use the less expensive RSRA. Typically, the questionnaire is delivered by the bank but if they don't have one of their own they can use one created by the environmental professional. Ours is attached here for your review.
The process flow for a RSRA is a bit complicated. We created a graphic to explain visually how the process works. You can find that graphic (PDF) by clicking here.
- Federal, State, County and Municipal environmental database review by a trained environmental professional.
- City Directory (Yellow Pages) search of the historical uses of the property.
- Historic Aerials review.
- Fire Insurance Maps. * (at the discretion of environmental scientist)
- A written report identifying the property as “Low” or “High” risk.
- Freedom of Information Act (FOIA) of fire department and city building department / code enforcement.
- Interviews with Owners / Occupants / Government Officials.
- Onsite survey by an environmental professional.
You can expect to have a RSRA done inside 5 days. If you are a volume customer or if you need a “Rush” RSRA, they can be done in forty-eight hours.
A RSRA typically costs $450. Volume clients can receive discounts.
RSRA Report Example:
We understand that we’ve talked a lot about the RSRA program. The question you probably have now is; “Can I please see what they look like?” Yes, you can click here and download a sample report. Notice that the document, not including the database reports, is only a few pages. The most important part is the sentence that describes the property as “Low” or “High” risk. If it comes back as low risk, you are good to borrow or lend. Should it comes back as high risk, you’ll need a Phase I ESA to put any lingering concerns to rest. However, if the scientist determines your property is high risk, we deduct $300 from the cost of a Phase I ESA because we will already have the database records needed for the next step.
RSRA Report Template:
We are super nice here at A3 Environmental Consulting and we’d like to provide a template of our RSRA report for other consultants to download and use as a productivity tool. However, we’d like to know who you are and see if we might be able to work together on projects in the future. To get our template, all you need to do is call us and we’ll send it to you as a word document. Call us at (888) 405.1742. Ask for Tim.
RSRA: Less Expensive Alternatives:
Sometimes you want just a 30,000 foot view of the environmental risk for a property. We have options. For $59 you can get an environmental screen. For an extra $40 you can have a professional review it and give you their opinion. You'll receive an email telling you if there’s anything to worry about. Sometimes that’s all you need. You can find out all about them by clicking here.
SBA Environmental Due Diligence
This infographic explains how each product required by the Small Business Administration differs from the other. You can download this as a PDF by clicking here.