Economic shockwaves caused by the coronavirus have affected borrowers and lenders alike. While many small businesses are unfortunately facing economic injury during this time of uncertainty, borrowers with more flexibility have a unique opportunity to refinance due to historically low interest rates. Although some aspects of lending markets have slowed, many lending entities are continuing to lend with refinancing deals pushing forward to rate lock. If you have good credit, solid payment history and meet lending guidelines, you have likely considered taking advantage of this option at this point in the pandemic.
Environmental Due Diligence – Another Phase I?
Most lenders will require environmental due diligence as a part of your refinancing application. While borrowers may already expect some processing delays, this could cause additional delays if you are not proactive. While you may have already obtained a Phase I Environmental Site Assessment (Phase I) when you acquired your property and this requirement may seem unnecessary or redundant, there are a few things to consider:
- Environmental conditions are not only associated with the existing underlying land but may change over time due to any physical changes to the property or the continued use of a property for the storage or use of petroleum products or hazardous substances;
- If you have tenants, they may be engaged in activities that have the potential to have caused environmental impacts;
- Releases may have occurred on adjoining properties, which could have caused adverse impacts to your property;
- The “shelf-life” of a Phase I ESA is 6 months per the ASTM standard.
- Environmental standards and regulations change; and
- Unqualified environmental consultants can make errors while conducting site assessments.
While every lender will have different requirements, ultimately, a Phase I helps manage your risk, avoid liabilities, and protects your property value. It is foundational in shielding your investment.
Lender Adaptations and Requirements
Massive loan restructuring and concessions coupled with current conditions may result in a high-volume of applications and delays in processing. Closing can be further delayed in anticipation of additional environmental assessment activities, which is why we recommend being proactive and understanding the environmental conditions related to your property early on in your decision to refinance.
Real estate has been designated an essential service in most states and of course, banks have remained open. As a support to such essential business services, environmental consulting professionals have had to adapt while conducting necessary site assessments and fieldwork. Good communication between the consultant and client is necessary for both parties to understand any circumstantial adjustments. This may include scheduling the site reconnaissance at specific times when there are fewer people on the property, needing the site contact present to open gates or doors, wearing gloves and masks (PPE), and maintaining social distancing. With everyone on an adjusted schedule and many out of the office, it may be challenging to reach individuals to obtain interviews or site records. Other facilities such as hospitals, nursing homes, and other long-term care facilities may not permit in-person assessments.
If you are considering refinancing, hiring qualified professionals to provide comprehensive and accurate reporting will help minimize delays and help you manage your risk. Braun Intertec has a great track record in real estate due diligence and experienced professionals specializing in Phase I Environmental Site Assessments. With much uncertainty during the COVID-19 pandemic, our consultants can provide quality, cost-effective services in a timely (and safe) manner.
Contact Our Environmental Consultants
For more information or questions, please give us a call or click the link below to fill out our Contact Us form.