Top 5 Challenges Lenders Face in Environmental Due Diligence

EDR surveyed 819 financial institutions that provided insight into the Environmental Due Diligence (EDD) challenges that they face. REPSG is a full service, customer conscious environmental firm that has the following commentary related to the below mentioned lender challenges:

 

Challenge #1: Environmental Reports and Risk-Based Decisions

  • Interpreting environmental results and knowing which risks to be concerned about
  • Finding out what the EP’s opinion is and determining whether the subject property has any environmental issues the bank should be concerned about

At REPSG, all EDD is performed by personnel who have many years of experience and meet the AAI and ASTM E1527-05 qualifications and can make coherent professional, environmental decisions. We make sure we understand the lenders risk tolerance and their overall lending goals. Our reporting is structured to clearly define what a Recognized Environmental Condition (REC) is and if it is a concern for the property in question. We clearly define the risks and recommendations in our reporting and follow up with the lender to ensure that any questions they may have are answered.

 

Challenge #2: Internal Education & Training

  • Understanding the importance of EDD in the context of the overall lending process
  • Educating senior management and loan officers

At REPSG we are very experience with lenders and their vary degree of EDD knowledge. We make sure that every lender understands the important that their personnel are knowledgeable and understands all of the potential EDD concerns and how it is a critical component of the bank’s overall risk management practices. We have meet with many lenders and presented case studies and conveyed the importance of knowing many risks involved with inadequate EDD or the choice not to require any EDD. We are contracted by many banks to perform a third party review of EDD reporting to endure that the EDD assessment was conducted in compliance with AAI and ASTM E1527-05 standards and that our professional judgment and that of the report writers professional judgment coincide with each other. Our goal is to make sure the lender understands their environmental risk.

 

Challenge #3: Turnaround Time

  • Meeting the challenges of efficiently conducting EDD

At REPSG, we know what items required for EDD take time and therefore have a system down that allows us to efficiently turnaround an EDD assessment to meet the client’s needs and the AAI and ASTM E1527-05 standards. The federal, state and local review of records is one of the most important and time consuming requirements of EDD, which REPSG makes a priority during our EDD research. We have experience turning around an assessment anywhere from two days to two weeks.

 

Challenge #4: EDD Decisions

  • Balancing EDD costs against risk tolerance
  • Determining appropriate EDD levels

At REPSG, we are very focused on what our customer’s ultimate goals and needs are for the property. We emphasize for them if the site’s history will pose large environmental risk and expense and if the risk is manageable through the longer and more intense regulatory process or possibly the more simplified construction and disposal process. Being able to breakdown the risk and type of management for a site can clarify the level of environmental liability related to the size of the loan.

 

Challenge #5: Competitive Issues

  • Justifying EDD costs to customers
  • Requiring borrowers to pay for a Phase I when a competing bank doesn’t.

At REPSG, we encourage lenders to compare our comprehensive EDD assessments to others. This comparison justifies the need for the assessment as well as being able to pass on the costs to their customer. We are very focused on producing a site-specific assessments tailored to identify the RECs and risks involved at each property.

Reviewing the ASTM Phase I ESA Standard

ASTM LogoThe American Society for Testing and Materials (ASTM) is a standards organization headquartered right outside of Philadelphia in Conshohocken, PA. ASTM publishes technical standards for a range of products, materials, and services. REPSG conducts our famous Phase I Environmental Site Assessments (ESAs) in accordance with the ASTM Phase I Standard entitled “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” This standard is commonly referenced as E 1527.

ASTM E 1527 was last revised in 2005, when the United State Environmental Protection Agency (USEPA) released the ‘All Appropriate Inquiries Rule’. According to the ASTM by laws, standards must be updated at least every eight years, and beginning last fall, an ASTM Task Group has been meeting to once again review the text of E 1527. Revisions to the standard have been proposed that would strengthen and clarify the requirements of E 1527.

Some of the key proposed updates to E 1527 were highlighted by Environmental Data Resources (EDR). Three of the proposed revisions include:

  • Introduction of the term “Controlled Recognized Environmental Condition.” Past soil and/or groundwater contamination which had been remediated would be classified as a CREC. This designation will be addition to recognized environmental conditions (RECs) and historical recognized environmental conditions (hRECs).
  • Expanded discussion on how vapor encroachment should be addressed in a Phase I ESA. In the new E 1527 draft, a vapor plume is proposed to be treated as any other source of contamination. (ASTM published a vapor encroachment standard in 2010 entitled “Standard Guide for Vapor Encroachment on Property Involved in Real Estate Transactions” E 2600-10. Stay tuned for upcoming blog posts about vapor!)
  • Clarification about when regulatory file reviews need to be completed during the course of a Phase I ESA.

The ASTM Task Group is anticipated to publish the updated E 1527 in 2013, but the standard will have to be approved by the USEPA.

As E 1527 evolves, REPSG will continue to provide the most current, highest quality reporting to its clients. If you have any questions about what these updates will mean for you and your property, drop us a line! Each of us on the Phase I team have copies of E 1527 and E 2600 within arms’ reach (and no, I’m not kidding!)

NJDEP Remedial Priority Scoring

NJDEP Remedial Priority Scoring System – What You Need to Know.

You might be reading this post because you just received a letter from the New Jersey Department of Environmental Protection (NJDEP) letting you know that you have been identified as the responsible person for conducting a remediation and that the NJDEP will be ranking your project using the Remedial Priority Scoring (RPS) System. This is not a cause for alarm and you are not alone. This system will be used to rankNew Jersey’s approximately 12,000 sites and the scores will be made public via the NJDEP’s website. Buyers, lenders and insurers can be expected to review a property’s score before proceeding with a transaction. As a result, the accuracy of a property’s score is of paramount importance.

What is New Jersey’s new Remedial Priority Scoring (RPS) System?

RPS is a computerized model that is designed to help the NJDEP categorize contaminated sites based on potential risk to public health, safety or the environment. Once the RPS Score is determined it is catalogued for relative ranking with sites with similar scores and placed into Categories 1 through 5. Category 1 represents the lowest score and thus the least potential risk through Category 5 which represents the highest score and thus the greatest potential risk. It should be noted that the information used by NJDEP will be derived solely from electronic databases maintained by NJDEP, based on reviews of already received letters, this creates the potential for erroneous assessments as these databases may not contain the most accurate and current information. Steps should be taken to make sure your site has the correct score.

What Should You Do If You Have Received a Letter from NJDEP on your Remedial Priority Ranking?

If you have received a letter from the NJDEP regarding your ranking it is important that you work quickly with your LSRP to make sure the information is accurate. You have until August 10, 2012 to utilize an online feedback loop in order to have your ranking recalculated.

If you have not already retained an LSRP for your Site or are unfamiliar with the LSRP program, a Licensed Site Remediation Professional (LSRP) is now required to be retained to insure that remediation is being conducted according to NJDEP requirements. An LSRP is licensed by the State ofNew Jerseyand is required to adhere to strict guidelines to insure that remediation is completed with environmental, ecological and human receptors in mind. Once retained, in addition to insuring an adequate and efficient remediation from start to finish, an LSRP can provide detailed reviews of remediation that has already begun before moving it forward to completion. It is in this capacity that an LSRP can be tremendously useful in identifying errors in the RPS score.

Have you received a letter from NJDEP on your Remedial Priority Ranking? What’s been your experience been with the process? I would love to hear from you. If you have further questions about how to handle this process, feel free to post them in the comments section below or email me at jcutright@repsg.com.

Welcome to Our New Blog!

 

Welcome!

Today, the launch of this blog represents a complete transformation of the original company. With our accumulated skills and experienced homegrown staff,  we consider ourselves a  dominant turn-key environmental compliance services company for large, medium and small companies in the region in and surrounding Philadelphia providing peace of mind in uncertain situations and transforming precarious environmental issues into predictable possibilities.

I am honored to have such a smart, knowledgeable and energetic staff that is willing and able to provide valuable stories, updates and insights regarding the so-called mysterious world of environmental regulatory compliance. This blog is mainly for our customers to give them an edge on what’s happening in an ever changing regulatory climate. We also welcome those who are just browsing to join in on the conversations that dominate our days. The conversations will likely focus on the black, the grey and the white of environmental regulations, remediation and compliance.

We will zero in on issues that impact environmental compliance on real estate –specifically regarding soil, groundwater, and indoor air quality. Hopefully there will be something that catches your interest or directly relates to your past, current or future experience. Our staff has diverse backgrounds and experience so we will try to explore every facet of our business. We will also look to explore and discuss the perils of our customers businesses such as real estate development, management, banking, general contracting, or specific industries like oil, transportation or manufacturing.

In 1981, my partner, Jerry Naples started a company to address new environmental regulations.  In 1989, Jerry “walked the walk” and purchased a 60-year old local oil terminal in southwest Philadelphia, which we cleaned up and still call home. By the early 1990s, the company evolved into an important spill response contractor for major transportation and oil companies; which was sometimes lucrative, but was also harrowing and hectic, to say the least.  At the same time, we began to understand the maturation of our market and focused on efficient fixed-price contracting for soil, groundwater and indoor air remediation.  As we gained understanding of the bigger picture and the needs of our customers, we also began to take on a consulting and management role which not only allowed us to be a smart contractor, but at the same time be a hands-on, practical and valuable consultant.

With that said, I’d like to officially welcome you to REPSG blog and invite you to engage with us in whatever way you are most comfortable—email, Facebook, Twitter, LinkedIn or by simply picking up the phone. We welcome your comments and look forward to hearing from you!

NJ Appeals Court Rules NJDEP Acted Beyond Their Powers under ISRA and SRRA

A New Jersey state appeals court ruling issued Friday, July 6, 2012 said the New Jersey Department of Environmental Protection (NJDEP) does not always have the authority to require owners or operators of industrial sites to certify the land is “clean” before it is sold and redeveloped. Since the passage of the Environmental Cleanup Responsibility Act (ECRA) in 1983, the NJDEP has required property owners to remediate contamination before the land could be sold, transferred or the industrial facility operating at the site could be closed. Many laws have been issued in the past decades to define and revise this cleanup process, including the Industrial Site Remediation Act (ISRA) of 1993 and, most recently, the Site Remediation Reform Act (SRRA) of 2009.

According to the ruling by the three-judge panel of the Superior court of New Jersey, The NJDEP went too far when officials informed Des Champs Laboratories Inc. that in order to sell their Livingston, NJ property, the company had to certify that, to the best of the owners’ knowledge, contamination on the property had fallen below a certain level. The NJDEP was enforcing a provision of NJAC 7:26B 5.9, most recently amended by the NJDEP in May of 2012.

The court’s decision stated that:

 “We conclude that the department, despite its important regulatory role and its expertise over environmental matters, acted in the present context beyond its legislatively delegated powers,”

The three-judge appellate panel also said that no action can be taken on the sites for 30 days, giving time for a potential appeal to the state Supreme Court.

The case centered on the NJDEP’s rejection of Des Champs’ request for a ‘de minimis’ quantity exemption from ISRA’s requirement for site investigation. The court ruled that the state cannot require a landowner to investigate soil and groundwater conditions at a property when the landowner has affirmed that only insignificant (‘de minimus’) amounts of hazardous materials were historically used at the site.  However, the court was clear that the ruling was not intended to limit the NJDEP’s authority to enforce other environmental statutes, most notably the Spill Act. The NJDEP has not announced whether or not they intend to appeal the ruling.

REPSG will continue to follow this story and the response of the legal community to this ruling. Look for follow up posts. Please feel free to post your comments and responses here. Any confidential questions regarding ISRA compliance, SRRA or the recent May 2012 amendments or issues on your projects can be directed to blog@repsg.com and one of our qualified professionals will respond quickly.