What Is A Phase 1 Environmental Site Assessment (ESA) in Commercial Real Estate?
What is a Phase 1 Environmental Site Assessment & Report? An Introduction.
From a real estate buyer’s perspective, the point of a Phase 1 Environmental Site Assessment (ESA) is to make sure the property you’re buying isn’t hiding any dirty (and expensive) environmental secrets.
The Phase 1 ESA does two things:
It analyzes the property’s current and historic uses.
It determines if petroleum products or other hazardous substances may have impacted the soil or groundwater.
Sometimes, a Phase 1 ESA is required before developing a property. Other times, it’s simply part of doing one’s due diligence during a real estate transaction. A Phase 1 ESA is a critical step to help you avoid costly surprises and liability issues with the property after purchase.
Is There a Difference Between the Terms “Phase 1” and Phase i/I?
First off, let’s clear up a point of confusion. There is no difference between a Phase 1, Phase I, or Phase i ESA. These are all just different ways to refer to the same process. However, there is a difference between a Phase 1 and a Phase 2 ESA, which we’ll elaborate on more below.
Who Conducts a Phase 1 ESA?
The person who conducts a Phase 1 ESA is referred to as an Environmental Professional (EP), or more commonly called an Environmental Engineering Consultant depending on who you contract with. An EP is trained in the research and identification of contamination risks and may be an independent contractor or an employee of a larger environmental consulting firm.
What Does a Phase 1 ESA Involve?
A Phase 1 ESA can be broken into three major steps: the site visit, the records review, and the report. Here’s what a real estate buyer can expect during each of these steps.
The Site Visit
During this step, your EP will personally inspect as much of the property as is reasonable and safe. During this visit, they may document signs of hazardous substances such as gas tanks, discarded chemical containers, unusual sheens, and unusual odors.
The Records Review
To get a full history of the site, many different types of records may need to be checked. During their research, your EP may review:
Aerial and satellite photography
Tax documents
Business records
Historic maps
Environmental records databases
In some cases, this step may also include interviewing witnesses with pertinent information. Essentially, anything that may provide insight into the presence of petroleum and hazardous chemicals on or near the property may be examined as part of the assessor’s research.
The Report
After all the research has been completed, the EP will compile its findings into a Phase 1 ESA Report on the property. This report will typically detail:
The investigation methods used
A description of possible contaminations and liabilities that have been identified
A determination on what further action, if any, is required
Sometimes, an up-to-date report is required to complete certain actions. In these cases, it’s important to note that a Phase 1 ESA Report expires 180 days after the date the environmental records database search was completed, but many times can be updated within the year rather than start new.
How Much Does a Phase 1 Environmental Site Assessment Cost?
The cost of a Phase 1 ESA varies depending on who you contract with, where your site is located, and the complexity of the site being assessed. A general range starts around $1000 and tops out around $6000.
What Happens After the Phase 1 ESA Is Complete?
The next steps after a Phase 1 ESA depend on the report’s findings. In the best-case scenario, the EP will have no concerns about the property or its history, allowing you to move ahead without fear of liability. However, even if possible contaminations are identified, that doesn’t necessarily mean you have to give up on your purchase.
To continue forward after a Phase 1 ESA has identified possible contamination, a Phase 2 ESA needs to be conducted. For certain transactions, regulators or lenders may also request additional due diligence investigations, like wetland studies or mold testing. The Phase 2 ESA itself is focused narrowly on determining the actual types and levels of contamination on the property.
Of course, you may also choose to step away after the Phase 1 ESA is completed. Some properties simply aren’t worth the cost it would take to clean them up. Your commercial real estate broker, along with the relevant experts, should be able to help guide you through the decision-making process and calculate when costs might outweigh the rewards.
What’s the Difference Between a Phase 1 and a Phase 2 ESA?
During a Phase 1 ESA, the goal is to identify possible contamination sources, both present and historic. It does not necessarily determine if contamination has actually occurred or measure its severity. That work takes place during a Phase 2 ESA.
During a Phase 2 ESA, the EP will collect samples from the soil, groundwater, and possibly building materials or debris. They will target their sampling at areas of concern identified during the Phase 1 work.
Once collected, the samples will be tested for hazardous substances. Both the type and the amount of contaminants need to be analyzed. Then the results will be compared to regulatory standards. Those standards will determine what action, if any, is required to make the property suitable for development. Like with a Phase 1 ESA, your EP will prepare a report at the end of the Phase 2 ESA which details their findings and recommendations.
Modern CRE Can Guide You Through the Phase 1 ESA Process
It’s normal to feel confused or even alarmed when a Phase 1 ESA report says your preferred location may be contaminated, but don’t panic. As a commercial real estate firm with decades of experience, we’ve seen it all (or most of it), and we can help you understand your options. We’ll help you choose the best path forward, so you can complete your acquisition with complete confidence.
