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Environmental Assessments Tips: When Faced With a Phase II

During the due diligence period for a single-tenant build to suit, if the Phase I Environmental Site Assessment (ESA) identifies any likelihood of contamination in the soil, groundwater or a vapor intrusion condition, then ordering a Phase II ESA is the smart next step to investigate further.

Phase II ESAs (Sub-Surface Environmental Testing)

The purpose of Phase II ESA is to confirm the presence or absence of harmful contaminants in the subsurface beneath a property.

>>LEARN MORE ABOUT HOW ENVIRONMENTAL ASSESSMENTS FIT INTO THE COMMERCIAL DEVELOPMENT PROCESS

Dependent upon the findings of the Phase I ESA, of course, here’s a list of some of the more intricate sampling and analysis methods to be aware of before Phase II is conducted.

 

When-Faced-with-Phase-II

What’s Best for the Site

Typically, a Phase II ESA includes sampling of one or more media including indoor air, soil, soil vapor and/or groundwater for contaminants or metals. The media and contaminants sampled and analyzed as part of a Phase II ESA are highly dependent on the historical use of the site. For example, sampling at active or former dry cleaners will almost always include soil, groundwater, and soil vapor sampling and focus on the contaminant, Tetrachloroethylene (PERC). 

Sampling at gas stations would typically focus on gasoline and diesel range contaminants and possibly heavier oil range contaminants if automobile service was conducted onsite as well. For other sites, like shooting ranges or industrial sites, metals in soil and groundwater might be the main focus of the investigation.

So, important factors to consider when designing the scope of Phase II are soil type, depth to groundwater, and location of historical features that may have contributed to contamination.

 

Quality Over Quantity

A robust Phase II ESA scope will provide a copious amount of sampling; however, depending on the problem you are investigating, a minimal scope could be appropriate to identify any contamination. Having this information is usually enough for you, or your lender, to determine whether the site presents an acceptable risk. With that said, keep in mind that some lenders have their own required scope for Phase II that must be followed. 

A quality Phase II ESA will investigate the concerns identified in Phase I in a way that helps you make a risk decision in a reasonable amount of time for a reasonable cost while using standard scientific investigative techniques.

 

Do Your Research

Environmental records are not a part of a Phase II ESA; however, Phase I conducts a very thorough search of historical and regulatory records and will always take the most current environmental regulation into consideration. Keep in mind that a property that was deemed uncontaminated a decade ago may not pass the test by today’s standards. 

An example of this is vapor intrusion regulations. These regulations have become more stringent in the last decade. A property that received closure more than a decade ago may not have had vapor intrusion investigated as part of the closure and it may be necessary to reinvestigate the vapor pathway.

 

Consider an Environmental Safeguard

Whether a Phase II ESA identified contamination or not, you may want to weigh out the option of environmental insurance. It may serve as good protection if there’s a chance your operations could cause contamination after commencing. It could also help if there is a possibility of unknown environmental issues – such as a previously undiscovered underground storage tank.

There are many well-documented toxic tort suits that have resulted in large losses to owners and operators. Environmental insurance can mitigate these types of cases; however, it is important to ensure that continuing operations are operating in accordance with applicable environmental regulations.


When your lender requires a Phase II ESA to determine if your property as an acceptable amount of risk, be cognizant of all the above-mentioned items before ordering it. Following through with the key elements in your scope, backed with the expert support of a developer and an environmental consultant, will aid in preventing future property devaluation and risk.

Tags: Commercial Real Estate Development Process Due Diligence

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