Last week, I attended the Environmental Bankers Association meeting in Old Town Alexandria, VA. It was particularly fun for me to attend since it was being held just blocks from where I lived as a college grad in my 1^st job at an environmental consulting firm. The meeting attracted environmental risk managers from large banks like Wells Fargo, Bank of America and BB&T—as well as the environmental consultants who conduct due diligence for them.

Below (in no particular order) is my list of notable quotes, followed by key points I made in my own presentation there:

• People out there in the market are looking for reasons not to do deals. [Larry Schnapf, NYC-based attorney and fellow commonground blogger]
• We’ll see more bank failures this year than last. There are fewer environmental issues on the assets of failed banks in current downturn versus previous (1988-1993), reflective of better environmental due diligence [Gordon Stoner, FDIC]
•  The FDIC has unique requirements that go beyond AAI in their SOW for environmental due diligence on the property assets of failed banks, including special resource identification, chain of title and testing for LBP and asbestos [Michael Hein, FDIC]
• A good lender policy doesn't just require environmental due diligence at the point of origination, but also property inspections conducted on a regular basis [Bill Magrini, OTS]
•  HUD’s policy requires that if no definitive conclusion is reached in the Phase I ESA, then a Phase II is required. By the end of June, HUD will release new underwriting guidelines that shift more responsibility to lenders.  [Charlene Vines, HUD lender]
• Asbestos is still the bane of my existence…In July, Freddie Mac will be releasing a new guidance document for environmental risk management. [Richard Meyers, Freddie Mac]
• The FDIC’s new approach for selling failed banks’ assets sounds like a full employment act for environmental consultants [Kerry Semonsen, Los Padres Bank]
• I would argue you should always recommend a Phase I before you lend. Why would you lend on any commercial property without doing a Phase I? [Richard Parli, Appraisal Institute]

And, from my own presentation on the state of the market and distressed asset due diligence:

• 2010 is the year people are peeking out of their bunkers to see if the coast is clear to do deals again.
• Overall there’s a growing sense of optimism and less fear, but a lot of caution, and caution’s good.
• The forecasted ‘garage sale’ on distressed assets never happened but just in the past few months, more assets are moving that weren’t just a few quarters ago.
• CRE prices are stabilizing, and a small blip upward here is actually a very big one in investors’ eyes if it signals prices are now longer in free fall.
• Healthier banks that have been playing defense for the past year are starting to set ambitious goals for lending and are picking up debt financing cautiously. The focus is on stable properties in strong markets, often with existing clients.
• 4Q09 was a turning point for the Phase I ESA market. Starting then, the volume each quarter has been stronger than the corresponding quarter of the previous year. Strongest markets have been FDIC-related due diligence, SBA lending (until very recently), telecom network expansion and traditional CRE deals coming gradually back (see accompanying graph)
•  Geographically, where you find distress, you find higher-than-average levels of Phase I ESA activity. EDR’s ScoreKeeper on Phase I ESA volume correlates very closely with data from our sister company, Trepp, on where problem CMBS loans are, as well as where Real Capital Analytics says the highest volume of distressed loans are (Orange County, Dallas, Atlanta Tampa, Phoenix).
• Very little of this distress has been resolved, and is likely to bleed slowly into the market over time. Right now, an estimated 11,650 properties are in distress and fewer than 1,700 have been resolved.
• There’s a wide variety of due diligence being done on distressed assets. Some still fly by the seat of their paints and probably always will but overall more attention is being paid to risk management. As one attorney told me last week, with interest rates so low, some buyers aren't doing as much due diligence as they should and are then surprised when their "bargains" don't turn out so well.
• Lenders are seeking EPs who can offer solutions to environmental issues, who can be advisors and talk to their lender clients about risk and help them understand what a REC might mean to the bank and its borrower.
• In the space of a few years, buyers have shifted from a mentality that no risk was too big to one in which no risk is too small.
• Social media is great for expanding overall awareness about environmental risk. All posts I've seen recently on LinkedIn: someone looking for an expert on vapor intrusion, a buyer asking whether that former gas station next door is a deal killer, a lender looking for an opinion on how important it is to look at environmental issues created by the current owner of a property behind a non-performing loan.
• Optimism is the market is building cautiously. More EP firms are hiring than this time last year. More are thinking about new office locations. More investors are “kicking the tires” of potential deals.
• The market is starting to crawl back but be cautious in your forecasting. Forget about 2006-07. We're moving back to 2004-05 levels, but it’s going to take some time for the market to get back some sense of balance and normalcy.  

All in all, the EBA meeting was a good mix of socializing and time well spent with professionals in the environmental risk field. It’s a crowd w/ a history (many of whom have been attending since what one called “the good old days” when they’d motor down to Tijuana drinking until the wee hours). Kudos to Jeff and Tacy Telego for bringing together a solid program and an engaging group of risk management professionals.