An Example Of Why A Phase 2 Environmental Might Be Required

"The lender required a phase 2 environmental simply because there had been a dry cleaner drop-off/pick-up location in one of the units a few years back. There was absolutely no dry cleaning done at the site and yet the lender still insisted on the phase 2 environmental report. It almost killed the deal."

This "story" was relayed to me about 2 years ago by an associate of mine who is a vice-president with CB Richard Ellis, one of the top commercial real estate investment firms in the world. If it hadn't come from such a credible source I may not have believed it. I knew first hand that environmental contamination (and "potential" contamination) was of great concern to all parties involved in commercial real estate, but this seemed over the top. The "store" in question was simply a pick-up and drop-off point for a dry cleaner. These types of storefronts are everywhere. People drop their clothes off and then the clothes are shipped out to a central facility that actually does the physical cleaning. Therefore, logic tells us that there would be no environmental threat present at the storefront.

Nowadays, the simple mention of the word "dry cleaner" or "gas station" in a phase I report and the commercial mortgage lender will almost immediately require a phase 2. Even over the past decade, lenders have become much more cautious when it comes to environmental contamination. ( See my personal story on this subject ) Nobody wants to open themselves up to the risk of potentially being responsible for the remediation of an environmentally contaminated site.

My recommendation to you is to take a page from the lenders notebook.

If in doubt, walk from the deal or pay the money and have a phase 2 environmental report completed.

The last thing you want is to end up owning a contaminated site. Keep in mind; once you are on the title of a contaminated property, you could be liable even after you sell the property.

Want to learn more about the environmental assessment process? Download my free report Environmental Site Assessment Case Study in which I walk through a real life example of a property that I owned, how it went through the phase 1 and 2 process and how it was affected by a nearby site remediation.

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