Alternatives to the ASTM-1527-05 AAI Phase I Environmental Site Assessment

Many Lending Institutions involved with commercial real estate loans have come to depend on the ASTM 1527-05 (or AAI Standard) Phase I Environmental Site Assessment as a go-to report. The truth is lending institutions have other options available to them that are less expensive, quicker to complete and recognized, utilized and accepted by the USSBA, FDIC as well as the NCUA.

Each lending institution is responsible for developing, implementing, and managing an environmental due diligence policy that meets their risk tolerance levels and that is protective of their portfolio. Many community and regional lenders have been led to believe this requires the use of an ASTM 1527-05 (or AAI Standard) Phase I Environmental Site Assessment. However, format changes in the requirements at federal agencies such as the USSBA and FDIC not only allow but encourage a “step by step” approach to assessing environmental risk.

This tiered approach to due diligence is usually similar to the plan delineated within the United States Small Business Association Standard Operating Procedure 50 10 5 B. These programs give the lender the opportunity to identify risks at a property based on property type and use through the North American Industry Classification System Codes (NAICS codes). Lender’s then compare the NAICS code to their risk tolerance model and range of mortgage value to determine the appropriate level of due diligence to engage on the specific transaction.

The process continues with the lender assessing the level of risk determined by this process and either engaging an environmental consulting firm or its in-house team of environmental professionals to conduct the appropriate level of due diligence based on the aforementioned analysis.

Generally, this tiered approach (including the USSBA amended policy) starts with the owner/operator of a property filling in a questionnaire that is designed to identify potential concerns that may exist currently or historically at the subject site. Often times it is challenging for the lender to obtain the completed questionnaire. As part of our services, LCS includes this task within our EAQuick Loan Check report along with many other features that address environmental risk.

If the mortgage is supported by the USSBA and exceeds $150,000.00 the USSBA mandates the aforementioned Record Search with Risk Assessment or RSRA.

Under the USSBA policy an “elevated” report generally requires the lender to go to a full ASTM 1527-05 Phase I ESA.

However many banks that are lending without the USSBA support opt for a “desk-top review”, such as an LCS EAQuick Opinion report, that renders either a “low” or “elevated” risk assessment of the property as their initial step in this tiered process. If environmental issues, or questionable property uses are identified the lender than has the option with LCS to step up to the next level of due diligence under our progressive pricing format.

If the mortgage is not supported by the USSBA, our clients have opted to use one of several other options available to them such as the EAQuick Loan Check Plus report or the LCS Transaction Screen (Link) report rather than the full blown ASTM 1527-05 Phase I ESA. The cost savings to the borrower is significant under the LCS program and allows for continuity in service to the lender by dealing with the same individuals and firm with whom they started the process.

The LCS Transaction Screen report meets and exceeds the ASTM 1528-06 Transaction Screen process by providing many additional pieces of information, record searches, analysis and an Environmental Professional opinion with recommendations to the Lender on how best to proceed.

This product is so popular with our lending clients that many use the report on mortgages up to $3 Million in value rather than engaging either the All Appropriate Inquiry Phase I (USEPA 40cfr Part 312) or the ASTM 1527-05 Phase I ESA.

LCS has assisted several lending institutions in developing this model for their respective loan programs and has custom designed report packages based on the individual institution’s risk tolerance model, needs and environmental policy. LCS currently offers six levels of environmental due diligence reports for its client base. In many cases, LCS provides full service environmental support and management services to smaller lending institutions under our Out-Sourced Environmental Due Diligence Program packages.

Ultimately it is left to the lender to formalize an environmental due diligence policy that acknowledges the institutions risk appetite while balancing it with sound business risk decision making.

At LCS we ask ourselves everyday…”What is best for our client?”

LCS offers an extensive line of services to our lending clients that include policy consulting, risk assessment, construction monitoring services and development and management of master services agreements between the institution and its stable of consultants. All of LCS’ reports are backed by an experienced staff of environmental professionals with decades of experience and a $5 Million E&O insurance policy. LCS is an ESOP so when you call our firm you deal with an “owner” on every call. Please visit our website and feel free to contact us with any questions or for more information, sample reports and other available services.

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