Loan Services

Records Search with Risk Assessment (RSRA)

 

The Small Business Administration (SBA) requires an Environmental Investigation of all commercial Property upon which a security interest such as a mortgage, deed of trust, or leasehold deed of trust is offered as security for a loan or debenture.  The type and depth of an Environmental Investigation to be performed varies with the risks of contamination.  For SBA guaranteed loans with a loan amount of more than $150,000, the Environmental Investigation must, at a minimum, begin with a Records Search with Risk Assessment (RSRA).  A Records Search with Risk Assessment means and includes (1) a search of the government databases identified in 40 CFR § 312.265 for an AAI compliant Phase I, as well as, a search of historical use records (for example, aerial photography, city directories, reverse directories and/or fire insurance maps) pertaining to the Property and Adjoining Properties; and (2) a risk assessment by an Environmental Professional based on the results of the records search as to whether the Property is either “low risk” or “elevated risk” or “high risk” for Contamination.  All RSRA reports prepared by SDC are conducted by Environmental Professionals at the time of the request.  This avoids relying on dated data (some as much as three months old) often included in computer generated reports. Why is this important?  The decision you make utilizing outdated information from these other sources may miss information that could alter the decision-making process, increasing risk and potential liability.

 

Transaction Screen Assessment (TSA) 

 

A Transaction Screen Assessment (TSA) is an Environmental Investigation pursuant to the most recently adopted standard practice for limited environmental due diligence established by ASTM International, currently ASTM E1528-14. The basic elements of a Transaction Screen include: (1) an interview with the owner or property manager of the Property; (2) a visit to the Property; (3) completion of an environmental questionnaire, and (4) a review of government records and historical sources available in online databases. Additionally, SBA requires that an Environmental Professional supervise the site reconnaissance and conclude either (a) the risk of contamination at the site is so minimal that no further investigation is warranted; or (b) there is risk sufficient to warrant additional investigation.  If during the research and development of the TSA, files are identified for the Subject Property, SDC can expand the scope of work to include a file review.  This allows SDC to take a tiered approach to assess the property instead of automatically recommending a Phase I ESA.  The TSA should be used as a tool for identifying any current or past potential environmental concerns at sites perceived to be a low risk or other sites for which Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) landowner liability protection is not a concern. The E 1528 makes a clear distinction between a Phase I ESA, aimed at establishing CERCLA liability protection and a TSA which provides limited environmental due diligence that can be performed at lower cost by the user but provides no CERCLA liability protection.

 

Phase I - Environmental Site Assessments 

 

SDC prepares all Phase I Environmental Site Assessment (ESA) reports according the American Standards for Testing and Materials (“ASTM”) E 1527-21 which complies with the EPA’s (AAI) All Appropriate Inquiries federal regulations (40CFR Part 312).  The Phase I ESA expands upon the research and development of the RSRA and TSA reports to include a determination on the presence of recognized environmental conditions at the Subject Property.  The term recognized environmental conditions (REC) means "(1) the presence of hazardous substances or petroleum products in, on, or at the subject property due to a release to the environment; (2) the likely presence of hazardous substances or petroleum products in, on, or at the subject property due to a release or likely release to the environment; or (3) the presence of hazardous substances or petroleum products in, on, or at the subject property under conditions that pose a material threat of a future release to the environment." The term is not intended to include de minimis conditions that generally do not present a material risk of harm to public health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies.  If further investigation of a REC is warranted, SDC will provide a detailed description of the recommendation.

 

Phase II - Environmental Site Assessments

 

A Phase II-Environmental Site Assessment (ESA) is conducted in those cases where contamination is strongly suspected by one or more parties or where a Phase I assessment has demonstrated a sufficient level of probability that problems could exist at the site.  SDC can perform initial subsurface sampling in order to test for the presence/absence of contamination (a limited scope investigation), or perform a full Phase II ESA established by ASTM International, currently ASTM E1903-97 (2002). SBA will recognize a Phase II ESA conducted in accordance with generally-accepted industry standards of practice and consisting of a scope of work that would be considered reasonable and sufficient to identify the presence, nature and extent of a Release.

 

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Phase III – Environmental Site Remediation

 

A Phase III-Environmental Site Assessment (ESA) is the remediation/clean-up phase of an existing environmental liability at a property. A typical Phase III remediation may involve the following components:

 

• Removal and disposal of existing contaminated area(s) through a variety of methods.

• Onsite treatment of contaminated soils, groundwater, and waste streams.

• Implementation of waste reduction plans, environmental management systems, and other at source remedial measures.

• Toxicological and Ecological Risk Assessments on contaminated properties where standard remediation methods are not practically feasible.

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A Phase III remediation is usually based on findings and conclusions outlined in a Phase II investigation. The Phase III remediation is often the final step in transforming a property with environmental liabilities back into an appreciable asset.

A Phase III remediation is generally required when an environmental concern has been identified on a property. The environmental concern may involve:

 

• Exceeding contaminant concentrations for various compounds as outlined in the applicable state/federal guidelines.

• Contamination is potentially migrating off of the subject property onto adjacent properties.

• Contamination that has the potential to cause an adverse health related impact.

• A remediation requested by a regulatory agency (cleanup order).

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Phase III remediation is site specific and may range from physically removing the environmental concern, to leaving it in place and developing site specific contaminant criteria (i.e., Site Specific Risk Assessment Approach) or a combination of the two.

 

Phase III remediation is generally the most expensive and time-consuming stage during the environmental assessment process. It will require substantial financial commitment by the property owner/mortgagor/tenant, or a combination of these parties.  In many instances, the Phase III remediation will itself be a staged process, combining the elements of Phase II investigation procedures with Phase III remediation procedures and a possible monitoring and evaluation on a long term basis.

 

SDC has considerable experience conducting Phase III remediation projects.

 

ASTM E1527-21 Non-Scope Issues

 

Non-scope issues as per the ASTM E1527-21 Standard Practice for Phase I Environmental Site Assessment include, but are not limited to, asbestos-containing materials, radon, lead-based paint, lead in drinking water, wetlands, regulatory compliance, cultural and historical resources, industrial hygiene, health and safety, ecological resources, endangered species, indoor air quality, biological agents, and mold.  These non-scope issues can have significant impacts on property value, owner/lender liability, and business risk.  SDC can custom tailor specific investigations of non-scope issues to ensure our clients’ best interests are protected.  Common investigations include:

 

Asbestos:  The term "asbestos" describes six naturally occurring fibrous minerals found in certain types of rock formations. It is a mineral compound of silicon, oxygen, hydrogen, and various metal cations. Of the six types, the minerals chrysotile, amosite, and crocidolite have been most commonly used in building products. When mined and processed, asbestos is typically separated into very thin fibers. When these fibers are present in the air, they are normally invisible to the naked eye. Asbestos fibers are commonly mixed during processing with a material which binds them together so that they can be used in many different products. Because these fibers are so small and light, they may remain in the air for many hours if they are released from the asbestos containing material (ACM) in a building.

 

Asbestos became a popular commercial product to manufacturers and builders in the early 1900's to the 1970's. Asbestos is durable, fire retardant, resists corrosion, and insulates well. It is estimated that 3,000 different types of commercial products contain some amount of asbestos. The use of asbestos ranges from paper products and brake linings to floor tiles and thermal insulation.

 

Intact and undisturbed ACM’s do not pose a health risk. Asbestos becomes a problem when, due to damage, disturbance, or deterioration over time, the material releases fibers into the air.  For structures with potential ACM’s SDC can conduct an Asbestos Survey prior to scheduled demolition or renovation.

 

Lead-based paint:  According to the United States Department of Housing and Urban Development, after 1978, lead based paints and plumbing products became less prevalent in building materials, and lead-based paints no longer were sold.

 

SDC can conduct sampling of building materials with potential lead-based paint to determine if the paint would be classified as lead based paint (LBP), as defined by applicable laws and regulations. If LBP is present, the appropriate controls and measures must be instituted during any construction activities to protect site workers and ensure that LBP materials are appropriately managed off-site.

 

Indoor air quality:  One of the most common risks to indoor air quality is vapor intrusion.  Vapor intrusion involves chemicals of concern (COC) that may migrate as vapors into existing or planned structures on a property due to contaminated soil and groundwater on the property or within close proximity to the property.  Lawsuits throughout the country have brought vapor intrusion into the spotlight as a significant concern for environmental, business and legal risk.  SDC can conduct indoor air quality sampling along with soil gas sampling to help determine the risk presented by potential COC.

 

Mold:  Mold spores are not considered to be hazardous materials; therefore, government agencies have not regulated them nor established permissible exposure levels. General scientific consensus contends that indoor bioaerosol types should be similar to the natural outdoor environment and concentrations should be less than, or equal to, outdoor concentrations. Consultants do consider the presence of certain mold types to be indicative of chronic or prolonged water/moisture damage to indoor building materials and consider indoor concentrations of common molds, significantly greater than similar outdoor concentrations, to be causes for concern for the building owner and to building occupants. 

 

Fungi will generally grow on organic and cellulose-based material, such as wood or drywall paper and will not grow indoors unless their moisture requirement is met. The detection of fungi on a sample of building material does not necessarily constitute the proliferation of fungi on that material. Positive (elevated) samples may warrant additional investigation, supplemental testing or corrective measures. 

 

SDC can conduct sampling and provide professional opinions and recommendations made in accordance with generally accepted industry standards, engineering principles and practices designed to provide an analytical tool to assist the client.

 

Property Condition Assessments: SDC performs Property Condition Assessments according to ASTM Standard E2018-08 along with Commercial Building Inspections for lenders and real estate investors. SDC's professionals inspect the subject property in order to understand the condition of the building. A Property Condition Assessment Report is generated discussing each building system and its condition.

 

Our Commercial Building Inspections comply with the scope of work specified in ASTM E2018 and includes a comprehensive visual inspection of the building's construction including the following: building structure and foundation, roof condition and remaining useful life, building envelope, ADA accessibility, electrical panels and wiring, tenant improvements, pavement systems, plumbing fixtures and piping, heating, ventilation, and air conditioning (HVAC) systems, elevators and conveyance systems, and landscape, irrigation, site grading & drainage. 

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Radon Assessments: Radon is a naturally occurring radioactive gas that is produced as the uranium present in soil, rock and water breaks down over time.  Radon gas is found throughout the United States and can seep into homes through air and water posing a health risk.  Specifically, the US EPA estimates that exposure to radon gas in the home is responsible for 20,000 lung cancer deaths each year.

 

Any structure can have high levels of radon gas.  The US EPA has prepared a map to help identify high-risk radon areas (http://www.epa.gov/radon/zonemap.html), which divides the country into three Radon Zones; Zone 1 being predicted to have higher levels of indoor radon concentrations (on average), and Zone 3 being predicted to have lower levels of indoor radon concentrations (on average).  This map is helpful in screening for higher risk areas; however, high levels of radon gas have been found in each map zone and site specific testing is the only way to accurately identify your level of risk. SDC has Radon Specialists on-staff who are knowledgeable and qualified to answer your questions.

 

Wireless Towers: According to the National Environmental Policy Act (NEPA) as set forth by the Federal Communication Commission (FCC) (47 CFR Part 1), SDC conducts compliance assessments for the wireless industry on cell tower antenna facilities. The NEPA reports, which document the investigative research mandated by NEPA, are often required with a Phase I Environmental Site Assessment prior to the installation of communication tower sites. The NEPA report includes an evaluation of eight primary points as defined within Section 1.1307 (a)(1) through (8) to determine the cell towers impact on the following: wilderness areas, wildlife preserves, endangered and threatened species, designated critical habitats, historic places, Native American religious sites, flood plains, wetlands and surface features. Antenna towers are also evaluated within the guidelines set forth by the FCC in relation to high intensity white lighting as well as radio frequency radiation for proposed towers in residential neighborhoods.  In order to comply with the FCC requirements, SDC conducts the following services: ASTM Transaction Screens (E1528-14), ASTM/AAI Phase I Environmental Site Assessments (E1527-21), NEPA Checklists/Environmental Assessments, SHPO/THPOs Reports, and Visual Impact Assessments.

 

SDC has vast experience interacting with various state and federal government agencies, including State Historic Preservation Offices (SHPOs), the United States Fish and Wildlife Service (USFWS), Tribal Historic Preservation Offices (THPOs), and Native American tribal groups.

 

Zoning Reports: A Zoning Report is a great add-on to any due diligence service that SDC provides – so you can deal with fewer vendors at once. Most real property transactions require a Zoning Report along with the battery of other essential services (Phase I ESA, Property Condition Assessment, ALTA Survey, Real Estate Appraisal, etc.).

 

A zoning report is a necessary part of many real property transactions because the current owner is responsible for existing zoning violations.  If the property being sold is a restaurant in an area not zoned for that purpose, this piece of information could affect the outcome of the sale.  Zoning laws do not end at usage regulations; oftentimes cities and municipalities have provisions on setback requirements, the height of a building, building materials, parking spaces required, etc.  SDC’s Zoning Reports take all of these into consideration as well as other regulations; such as the Americans with Disabilities Act (“ADA”).

 

Survey Services: SDC is a coordinator of American Land Title Association (ALTA) Surveys, Boundary Surveys, and Topographic Surveys across the United States for use in commercial transactions. We effectively handle, and facilitate the coordination of surveyors, title, ordering, process, product and delivery. We manage the entire process of acquiring your survey and can effectively manage single-site or multi-site transactions. Our extensive network allows us the flexibility to provide a registered professional surveyor for any site location, nationwide, with competitive pricing. We will coordinate all questions and comments from all transaction parties with the site surveyor, and furnish reliable timely surveys all from one point of contact.

 

Methane Surveys: High methane gas is present in the soil in much of Southern California. Areas more prone to high methane gas concentration include: former oil fields, landfills, and areas with high natural petroleum deposits.  Buildings above high methane gas areas are at risk of accumulating methane and therefore becoming an explosive risk. These risks can be mitigated without proper vapor barrier design; however, before spending money on a vapor barrier, most developers and home owners are well served to perform a Methane Survey first.

 

Site Characterization: Effective Site Characterization requires experience, knowledge of geology, and an understanding of the nature of the chemicals released. In some instances a site requires multiple drilling events to characterize a release. When hiring the experienced professionals at SDC, you can be assured that the value of the client's dollar is of utmost concern and that our technical expertise is being applied with this in mind.  Subsurface investigations include: soil vapor analysis, soil borings, groundwater well installation, nested wells installation, iso-concentration maps, NCP Compliant Data, quality control, preliminary endangerment assessments, analysis of sensitive receptors, fate and transport modeling, and risk assessment.

 

Post-Default Environmental Investigations

 

SDC can prepare post-default environmental investigations reports needed prior to loan liquidation.  The Small Business Administration’s (SBA’s) liquidation policy, SOP 50 51 3 took effect on November 15, 2010.  SOP 50 51 3 outlines the elements of a “post-default environmental investigation” to be conducted by the 7(a) lender or CDC prior to taking title to any property behind loans in liquidation status. Chapter 9 outlines a tiered process for conducting environmental due diligence ranging from a Questionnaire to a Records Search with Risk Assessment to Phase I and Phase II ESAs. The general process, much like SOP 50 10 5(D), involves:

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1. At a minimum, an Environmental Questionnaire and a Records Search with Risk Assessment; or a Transaction Screen.

2. For any properties where underground liquid fuel storage tanks are located, a Phase I ESA is required.

3. If there is a NAICS code match for “environmentally sensitive industries” under Appendix 4 of the SOP 50 10 5(c), the investigation must begin with a Phase I ESA.

4. If the lender is taking control of a business that handles hazardous substances, the investigation must also include an environmental audit to determine whether the business has the required environmental permits and is otherwise in compliance with applicable environmental laws.

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The liquidation policy also reflects the special consideration given to properties that once operated as gas stations or dry cleaners given the high correlation between these types of operations and potential costly soil or groundwater contamination.  Page 55 of the SOP 50 51 3 indicates that the post-default Environmental Investigation should include a Phase II ESA if the gas station or dry cleaning facility is more than five years old. 

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Environmental Policy & Procedure Review

 

A manual is a living set of documentation, and it is not unusual for a properly written manual to remain without revision for extended periods of time. However, there may be instances when improvements, changes or alterations become necessary. Procedures, more often than policies, require periodic maintenance based primarily upon the recommendations of personnel who use them on a daily basis. Careful consideration must be applied to edits, updates or modifications to ensure that proper control is still maintained. The final authority for the acceptance of revisions or modifications lies with management.
 

Environmental standards are constantly evolving.  Over the 26 years that Sierra Delta Consultants, LLC has been in business we have helped many different clients update their environmental policies and procedures by providing technical reviews.  A review can help ensure that the proper policies are in place to protect the financial institution against financial risk associated with environmental liabilities.

 

Environmental Due Diligence Training Seminars

 

SDC offers custom tailored training seminars to keep clients up to date on emerging issues in the area of environmental due diligence.  Whether looking to gain a better understanding of the ASTM standards or staying up to date on the SBA’s most recent SOP revisions, SDC has the unique ability to simplify complex issues and keep clients up to speed on all relevant standards.