“Do I really need to follow that recommendation?” Part I

During the last tutorial – one in a series dedicated to answering your most common environmental questions – we addressed what environmental due diligence product is right for your deal. But should you always strictly adhere to a report’s recommendations if they seem overly aggressive and conservative? And what if there is no clear recommendation, leaving you to decide whether additional action is necessary?

More often that not, unpopular and expensive recommendations are wholly appropriate; other times, not so much. This is one of the reasons I started PVC – to take the guesswork out of the equation for lenders, and help you make educated, risk-based decisions. I’ll provide two examples, one in this post and one in the next, that illustrate this point.

Let’s assume you’ve ordered an EDR LoanCheck report for what is considered a low risk property – say, a multi-family residence in an urban area. The LoanCheck concludes the environmental risk posed to your collateral is “Elevated” because of the presence of a state-listed spill site (a former gasoline station) on a property situated approximately 250-feet from your collateral. The LoanCheck suggests a Phase I Assessment would be needed to further assess this condition.

So is a Phase I really needed? Maybe not, and it may take just a few relatively simple steps and short dollars to confirm that.

First, a check of available online records confirms that the collateral is not subject to conservative groundwater protection standards and that area topography appears to place the former gasoline station downgradient of the collateral.

Second, files available on the Massachusetts DEP’s website confirm that while a permanent solution has yet to be achieved for the spill site, extensive testing and groundwater flow data suggest the gasoline plume is migrating in the opposite direction of your collateral, as was anticipated by the area topography.

Based on this information, it’s logical to conclude that a Phase I is not necessary as a result of the release at the former gasoline station. Rather, some relatively limited online research was completed for a fraction of the cost and time it would have taken to complete a Phase I.

Next time we’ll present a case that involves a non-conclusive Phase I report, something that probably seems all to familiar to you.