Environmental Due Diligence
Large banks often have an environmental risk manager (or department) on-staff. What about all of the banks that don’t want the unnecessary overhead or that simply don’t have need for a full time environmental manager? Where do they turn for environmental risk management? Several years ago, the Michigan Bankers Association (MBA) asked this question. A good answer didn’t exist.
The solution appeared to be a company that could offer environmental risk management advice on an out-sourced, as-needed basis. Would this be an environmental consultant or a law firm? Each group had advantages and disadvantages, and neither seemed to have a focus on the unique problems encountered by lenders.
With the creative assistance of lenders, Huron Yeoman Consultants was designed to partner senior professionals with expertise in lending, finance, environmental engineering and environmental regulations. Yeoman Group now offers solutions to banks on an out-sourced basis, avoiding the need for an in-house engineer or geologist.
Today, we serve a multitude of lenders throughout the state. Not foreseen when created, however, was the value of the concept to realtors, developers, investors and industry. Huron Yeoman Consultants is growing by leaps and bounds, serving you better every day.
For your benefit, the following environmental services we provide are defined:
Environmental Lender Package
The Environmental Lender Package is a new product that consists of a government environmental database search as well as history of the property packaged. If the property is located in an urban area, Yeoman Group will look at historic fire insurance maps and historic city directories. If the property is in a rural area or the previous is not available, Yeoman Group will review historical aerial photographs. After review, a summary of findings and opinions will be included in the report.
ASTM (American Society for Testing & Materials) Transaction Screen
The ASTM Transaction Screen Report provides a measure of flexibility to its users, while supporting the innocent landowner defense to CERCLA liability. (It is not currently settled as to whether this tool will satisfy all requirements for the “innocent landowner defense”.) The transaction screen costs significantly less than a Phase I site assessment and may be performed by an environmental consultant or by any other person (if properly trained). The ASTM Transaction Screen Process consists of a questionnaire containing approximately two-dozen questions and more than fifty pages of explanatory material. The questionnaire is to be completed in conjunction with a site visit and uses responses from the property owner or operator as well as the inspector’s own observations. A government environmental records search and some basic historical research (generally fire insurance maps) are also part of the ASTM Transaction Screen standard.
Phase I Environmental Site Assessment (ESA)
The Phase I Environmental Site Assessment (ESA) consists of six major parts: a government records review, site reconnaissance, interviews with key personnel, detailed historic research, title search (or the equivalent) and the preparation of a narrative report including the professional opinion about recognized environmental conditions. The Phase I report does not include invasive testing.
Phase I Environmental Site Assessment Update
A Phase I ESA (or an ASTM Transaction Screen) performed within 180 days prior to the anticipated closing date may generally be accepted without modification or update. A Phase I ESA or Transaction Screen more than 180 days old may be merely updated, as appropriate, thereby saving substantial costs to the customer. Update of a Phase I ESA requires, at a minimum, an updated database search, a new site reconnaissance, new interviews with local officials, and new interviews with the owner and the operator.
Phase II Environmental Site Assessment
The Phase II Site Assessment is an investigation designed to confirm or deny the presence of contamination, identified as an item requiring further inquiry in the Phase I report or the Transaction Screen. Unlike the Phase I, the Phase II investigation includes invasive sampling of soils and/or groundwater.
Baseline Environmental Assessment – Michigan
A Baseline Environmental Assessment (BEA) is an evaluation of environmental conditions which exist at a facility located in Michigan at the time of purchase, occupancy or foreclosure that reasonably defines the existing conditions and circumstance at the facility, so that in the event of a subsequent release there is a means of distinguishing a new release from existing contamination. (A “facility” is defined as an area, place or property where the residential cleanup criteria have been exceeded.)
This is a commonly used term to describe the actual cleanup or remediation of a site until such time as analytical testing indicates that no further action is required under appropriate regulations.
Environmental Compliance Audit
In those situations where hazardous chemicals are handled in significant quantities on-site, a hazardous materials handling audit is advised. The environmental compliance audit is advised in conjunction with periodic reevaluation of properties on which hazardous material is being handled.
The above mentioned environmental information must be judiciously combined with and weighed in conjunction with other information such as:
The possible legal instruments that may protect the Lender against environmental risk (indemnity, escrowed monies, insurance, etc.).
- The solvency of the borrower.
- The loan to value ratio.
- The market value of the property.
While the environmental risk cannot ever be exactly calculated in dollars, a close approximation can be reached to assist in the decision as to whether to proceed with the loan or to walk away.