EDR’s Managing Director, Market Research Group, shares her insights on the state of the environmental due diligence market, emerging trends and the strategic challenges faced by environmental consultants in today’s market.
I love the week before the Super Bowl. The betting pools. The sneak peeks at the ads (have you seen the tear jerker about the puppy yet?). And it's perhaps the only time that the worlds of football and commercial real estate analysis overlap.
Every year at this time, former NFL star turned commercial real estate exec, Roger Staubach (Americas executive chairman for Jones Lang LaSalle) releases his prediction for the winning team.
The quirky part of it all is that his methodology doesn’t hinge on stats about what’s happened on the field this season. It is entirely based on….office property vacancy rates. It's as simple as this: The team city with more vacant office space wins. I’m not kidding. Say what you will, but you can’t argue with results.
Over the past 13 years, according to JLL's analysis, teams in cities with the higher office vacancy rate have won the Super Bowl 62 percent of the time, including last February when Baltimore (15.5 percent) edged San Francisco (11.8 percent vacancy).
So this year, Staubach’s prediction is for a Broncos win. Why? Denver’s vacancy rate is 13.9 percent and Seattle’s is close behind at 12.5 percent. Staubach is pretty confident, too:
“As a student of both football and commercial real estate, I can tell you that this vacancy rate hypothesis is absolutely the real deal. When it comes to picking a winner, you can throw everything else out the window.” To be fair, he did also tip his hat to Broncos quarterback Peyton Manning calling him “one of the greatest NFL quarterbacks of all time.”
If you want another predictive methodology, the Census Bureau’s trends analysis shows that in the past 14 years, the city with the smaller population has won 10 times. Denver ranks 23rd on the list of the most populous cities in the U.S. Seattle, ranks 22nd, again giving Denver the slight edge.
There are certainly crazier ways to pick a Super Bowl winner. Using an ape in Utah (Seahawks). Two psychic manatees in Florida (1 Seahawks, 1 Broncos) Puppies on Jimmy Fallon (Broncos). Or the more scientific, Vegas odds (Broncos).
I’m not a huge football fan and, to be honest, I couldn’t pick either team’s quarterback out of a line up, but I’m putting my friendly wager on Denver. This is the fourth year that Staubach has made this prediction, and he was right on the first three. We’ll know Sunday if he goes 4- 4.
Best of luck to those of you betting on Sunday’s game on whatever strategy you employ. May the best team win!
If you were giving attorneys advice , what would you tell them about what they should or shouldn’t do to ensure meaningful Phase I environmental site assessments?
I just got an email from long-time colleague and friend, Elizabeth Krol, the service lead for CB&I's national due diligence team at CB&I (formerly Shaw). If you know Elizabeth, you know she’s the kind of person you naturally want to help because she’d do the same for you in a heartbeat. She’s on a panel at a Boston Bar Association meeting in late October and has been asked to compile a top 10 list of things attorneys should (or shouldn't) do to facilitate environmental due diligence.
Here’s your chance to give advice to attorneys. To get the juices flowing, here are a few:
What else? Anyone have any good ones for Elizabeth? Much appreciated!
If you’re a fan of that quintessential American junk food known as the Twinkie, you’ll be happy to hear that they are poised to make the “sweetest comeback ever.” So, too, may the market for flipping properties.
This week’s Wall Street Journal “Deal of the Week” involves a portfolio project that could signal that investors are more confident buying high-risk commercial real estate portfolios to flip for a profit.
The deal involved 140 properties acquired at a steep discount by Hackman Capital Partners LLC, an investment firm that specializes in turning around distressed industrial properties. Hackman was one of approximately 400 parties that submitted bids for Hostess’ assets, but only one of two willing to buy the entire portfolio. The company’s plan is to resell most of the real estate in the next 12 months in what it hopes will be a “sweet profit.” The portfolio includes bakery plants, warehouses and storefronts in some 34 states--a portfolio of assets that some called “Hostess’s leftovers” given that the sale is one of the last chapters in unraveling the assets of the Hostess empire.
During the bidding process, other interested buyers raised significant environmental concerns, but none could match what Hackman offered: an immediate cash purchase of all of the assets “as is” with no due diligence.
Purchasers of other real estate from the former icon are already dealing with environmental issues. One that acquired a former Hostess maintenance facility in Indianapolis, IN is installing a sub-slab depressurization system (SSDS) to deal with a petroleum issue stemming from a leaking petroleum UST on an adjacent property . According to Brad Willy at Terra Vapor, “the new owner is mitigating vapor-related issues pertaining to the petroleum contamination, and will be using Terra Vapor's VĪPR Monitor Program to monitor the SSDS over time, which will help the stakeholders save time and money while addressing any potential health concerns."
It remains to be seen what type of improvments or investments Hackman will make to the properties before trying to sell them--or what environmental issues will surface. Will the risk pay off for Hackman? Will it really be a sweet deal or real estate junk food? Hopefully when these 140 properties go back on the selling block, the buyers will have both eyes wide open and identify any soil, groundwater or vapor issues upfront rather than after taking title.
Some of the biggest names in the property assessment market broke into the just-released 2013 ENR200, Engineering-News Record’s annual ranking of the Top 200 Environmental Firms. Topping the list every year are the mega-firms in the environmental space—leaders in design/build, water/wastewater, remediation, nuclear waste and engineering. Here you'll see huge firms that do all types of international work, but also compete in the property assessment space; companies like URS, TetraTech, AECOM, Golder, The Shaw Group (now part of CB&I), Cardno ATC (just named #1 on Zweig White’s 2013 Hot Firm List), ARCADIS, ERM and others.
Outside the top echelon, you'll also see some other stand-outs in our industry among this year’s ranking:
It’s encouraging to see our niche of the broader environmental consulting market get some attention in a nationally-recognized publication like Engineering News Record.
We’re putting the finishing touches now on EDR Insight’s Mid-Year Market Trends Update, which includes a number of positive developments from the commercial real estate investment and lending world in the first half of 2013. If these developments continue and nothing derails the market’s continuing recovery (like rising interest rates), then the property assessment firms that made the ENR 200, as well as smaller ones, should see even more growth in the second half and beyond.
My congratulations to the firms on this year’s list.
Today I moderated a live EDR Insight webinar on vapor intrusion risk, titled Sorting Out the Implications of U.S. EPA VI Guidance. We had more than 1,000 attendees tuned in from across the country. The main purpose was to dial into everything that’s been happening on the vapor front of late, including:
We brought in the “big guns” to give everyone a run-down of what these developments mean for today’s real estate deals. Here are a few highlights and notable quotes from the event:
"No longer can VI be ignored, delayed or downplayed. Plenty of attorneys are out there arguing that vapor should have always been part of a CERCLA-driven Phase I."
"It is unclear when the U.S. EPA will issue final VI guidance. I don't think it will be this year. It may not even be in '14."
There are significant differences in state-by-state responses to the federal guidance that EPs should be aware of. Illinois and Arizona are two states that selectively ignore certain components of the EPA guidance.
Be aware that there are post-closing requirements under CERCLA that make owners responsible for limiting exposure from contamination including VI-related risk. Determine how best to structure a long term stewardship and/or Institutional Control Plan to manage residual COCs and potential future risks using the new EPA IC Guides and policy as part of closure strategy.
Interestingly, David is not entirely convinced we will have the new E 1527-13 standard. "E 1527-05 sunsets this year. Period. There will be a new Phase I standard this year whether they adopt the -13 revised version or reballot E 1527-05.”
"There were 177 comments submitted in May/June on the 2013 draft, most out of concern that the guidance will screen in most (or all) sites with VOCs. Many complained about ‘overly conservative’ VI screening levels.”
(For anyone interested in the public comments submitted on the VI guidance, Dave’s slides have great links to the comments.)
Blayne Hartman, Hartman Environmental Geoscience, and a nationally recognized expert on soil vapor sampling, soil vapor analysis, and vapor intrusion.
Blayne presented interesting continuous monitoring data for PCE in indoor air to show how professionals are tracking properties over time for “vapor intrusion events.” There are "new real-time monitors for vapor that allow you to watch data come in from anywhere."
“The most important ingredient for cost effective and efficient VI investigations is the experience of the person/firm doing the collection. Do they have prior experience? Is it a routine part of their services, or an occasional part? Do they put experienced people in the field who can think or junior staff who aren’t well versed? This applies to the consultant and their subcontractors.”
“The most common mistakes are made by inexperienced practitioners conducting vapor intrusion assessments.”
“My predictions and previews of the vapor intrusion pathway for the next few years:
Craig Brown and Brad Willy tag teamed from TerraVapor, a vapor mitigation system technology firm.
Their slides include terrific examples of vapor mitigation systems installed at commercial and residential properties. In all three examples, former dry cleaners were adjacent to the property with vapor issues.
Like David, Craig and Brad echoed the point that "Monitoring is a key part of long term stewardship in EPA's draft OSWER guidance."
"Key lessons learned in our experience installing vapor mitigation systems is that there are many different approaches. Every building is different. Site specific data is crucial to getting the best designed system.”
If you missed it, a replay of the event and a look at the speakers' slides are posted here.
And, for the live twitter feed.
Thanks to Blayne, David, Brad and Craig for their fantastic insights!
On today’s monthly call of EBA’s Risk Management Committee, I drew attendees’ attention to a few recent things in the news—all of which are directly relevant to property assessments. For those not on the call, I post them here as well:
Environmental professional Chuck Merritt on Long Island just wrote an article in the New York Real Estate Journal titled Environmental Due Diligence: How to Work Effectively with a Bank's Consultant. In it, Chuck highlighted the headaches that come up when RECs lead to Phase II recommendations, factors that can impact the price estimates that come in for Phase II work…and the importance of ensuring upfront that the Phase II ESA truly address the lender’s risk. Chuck gives some good examples of cases where a lender’s consultant and the borrower don’t always see eye to eye and how problems can be avoided for a more efficient due diligence process. A quick read, and one worth checking out.
Last week we published an EDR Insight brief that took an in-depth look at the role PCAs are playing in today's transactions. We had involvement by a number of EBA members, Bill Tryon, Mike Kulka. Also Key Bank’s Dave Drummond and Sean Dundon. It explored why PCAs are more important than ever as the market struggles out of a protracted downturn, largely due to deferred major maintenance and replacements, which can significantly impact the value and cash-flow of properties. The piece dug into what PCAs bring to the table, why lenders should care more about them now especially as a tool for better defining gaps or estimates from the appraisal. More lenders are using PCAs to take a snapshot of the condition of the building and determine the necessary replacement reserves for the future, but as with Phase I ESAs, there are certain triggers for PCAs and every project is not created equal--meaning price and level of effort can vary widely.
Partner’s Jenny Redlin authored an article in CP Executive titled Lender Due Diligence Requirements Not Easing Yet in which she commented on the Fed’s April survey showing that banks are, on average, easing standards on commercial and industrial lending. She notes that “Though this may be true for some aspects of lending, it does not seem to be the case for the physical due diligence standards for managing environmental and engineering risks in commercial real estate lending.” Her observation is supported by the EDR Insight 1Q13 quarterly survey data referenced in the article showing that, in the climate of intense regulatory scrutiny over the last few years, "risk tolerance is holding fast to the high levels of the past few quarters. Smaller community banks are revising or upgrading their environmental policies—and even in some cases, adopting their first-ever guidelines." It will interesting to see whether, as lending and transactions rev back up, property due diligence standards will loosen again back to the level of 2006. For now, while new loan originations are increasing, the order of the day still seems to be tight risk management practices.
EDR colleague, Bob Dearborn, sent this article Bill Would Let CA Cities Decide on Open Records my way from the west coast. Maybe some of you out in California are already aware of this. I wasn’t. The governor is considering a bill that would allow local governments to “dramatically restrict” the information they release to the public without explanation. It would make it optional for local governments to comply with deadlines and other rules when they receive requests for public records. Current law requires them to respond within 10 days and cite reasons for needing more time or rejecting a request. At a time when agency file reviews are in the spotlight surrounding the clarification language in the ASTM E 1527 revisions--and turnaround time pressures on environmental professionals are at an all-time high--this is not exactly good news. I was just talking to Duncan Anderson at Odic yesterday about technologies he uses in the field and he said that “what can really hold up Phase Is are agency records reviews.” He relies heavily on mobile scanning functionality to scan documents, turn them into pdfs that he can then email from the field. If this bill passes, and agencies in California aren’t answering data requests, there’s not much technology can do to help you. Curious to see if this bill works its way to final.
Those are my highlights for June. Love to hear your input on any of these. Have a great month.
Is winning projects today just about price? Or something deeper?
A conversation I had with a principal at a leading environmental due diligence firm at EDR’s Annual Client Summit in Arizona earlier this month involved taking the issue of pricing pressure a step further. “Let’s stop talking about price competition,” he said, “And start talking about meeting the needs of clients. Different consumer segments have different needs.” The implication was that the one who meets clients’ needs better than the next guy wins. Environmental professionals can be terrific technical experts, coached Bryan Flanagan, this year’s keynote speaker, yet many have never had formal training on how to sell that expertise (and their experts) to potential clients.
Who are the winners in selling property assessment services? And more importantly, why?
When I got back to the office, it was with great interest that I read a study that was just published by RAIN Group, a sales consulting, training and performance improvement company based in Massachusetts. It had this provocative—and timely—title What Sales Winners Do Differently. I knew of RAIN Group already because I’d spent some time with one of its authors, Mike Schultz, several years ago when he spoke at a prior summit. I know first-hand how well Mike knows sales and how passionate he is about it—two things that usually go hand in hand.
The simple premise of RAIN Group’s research was this: to explore what sellers are doing currently to win the most sales. To find out, they studied what the winners of more than 700 actual B-to-B sales opportunities (from buyers responsible for $3.1 billion in annual purchases) are doing to win the sale, and what they do differently than the sellers who come in second place from the perspective of buyers.
Their results are interesting. Sales “winners” sell not just differently from second-place finishers. Radically different.
Based on Mike’s findings, here are the top three factors that most separate winners from second-place finishers:
What This Means
Consider these findings from EDR Insight’s 1Q13 State of the Property Market Assessment survey:
I did ask Mike what his views were on the role of price in the analysis and here's what he had to say:
"Indeed some buyers will always just want price. As long as someone is willing to give it to them, they'll get it. Simple supply and demand. But we all know some players in environmental services won't go there. Their prices are higher, and they get them.
"1. They won't deal with buyers in the segment of the market that only want price.
"2. They bring something else to the table that the buyers are willing to pay more for.
"The question is what? The answer is different for everyone. Better ideas? Service? Quality? Value add in some other way?
"The only absolute is this: Those who believe price is the only way they can compete are doomed play the price-only game. Until you can change your mind that you offer something more, you'll never be able to convince buyers they should pay more."
The RAIN Group research identified the 10 winning traits shown in the graph below as the ones that separate the winners from the second place finishers. If you made a concerted effort at your firm to focus on the ones identified as the most impactful in terms of sales success, how much less of a factor might price play?
Good food for thought and you won’t have to haggle to read more from Mike’s report, either. It’s free and worth a look.
About RAIN Group
RAIN Group is a sales consulting, sales training, and sales performance improvement company. They help companies around the world unleash the sales potential of their teams. Receive more free research, insights, and tips from RAIN Group on the RAIN Selling Blog and sign up for their newsletter.
Last week I presented my state of the market address at EDR’s Annual Client Summit. The week before, I asked our mix of registrants to characterize the state of the market in their own words. There were only three rules:
Some had a tough time with rule #1 and sent a paragraph. Only one found rule #2 impossible, and the majority followed rule #3 beautifully (trained by market to be fast responders, I suppose). Here’s how the input shook out: the state of the market in the unedited words of today’s environmental professionals and risk managers at financial institutions.
So, are the dog days over? Yes, I think so. The market—in a number of noticeable ways—is looking a little more predictable, and in many ways, better.
What I presented in Arizona was my own characterization of the state of the market in 10 words or less (well, technically 11, counting “and”):
These pressures are part of the world we’re in right now when companies are trying to make money any way they can in a tough market. Pressure gives firms in opportunity to differentiate and figure out a way to meet clients’ needs better than anyone else through efficiency, personalized service, trust, expertise and services.
I am optimistic. It’s a very exciting time for our market. After a prolonged period of uncertainty, we’re seeing a revival of investor confidence as the economy continues to recover. Opportunities for property assessment services are growing not shrinking. There are strong drivers, strong competitive pressures and the need for greater sophistication.
The dog days, I believe, are over.
Nothing gets environmental due diligence consultants fired up more than the topic of price competition for Phase I ESAs. Our latest survey of environmental professionals for 1Q13 asked about pricing pressure. Sixty percent of respondents indicated that they “usually” or “almost always” feel pressured on price for their Phase Is. Three out of five! In certain sectors of this industry, price competition is intense. It’s enough to make any consultant bank his or her head against the wall, scream profanities, maybe even cry. It is the fortunate few who can charge a reasonable rate for their services. How do they do it?
Over the past few months, I’ve been doing some outreach to environmental professionals in the field to get their take on this controversial topic. At a Dallas lunch in March, I was joined at the table by six local environmental professionals and Bryan Flanagan from Zig Ziglar.
Most of the EPs around the table agreed that price competition varied by client type, and the lending sector was incriminated as one of the most price-sensitive in the industry (“They say they want a trusted advisor in their EPs, but then they treat us like vendors by nickel-and-diming us on price.”)
Samuel W. Johnson, PG PhD, Principal Environmental Professional, Targus Associates, Dallas summarized market segmentation in this way:
“There is no one ‘market’; prized clients are incredibly quality-sensitive, where ‘quality’ is defined by their main objectives (i.e., fast and right, no stone unturned and completely supported, or just so we can sell it in three years). However, even the most conservative and demanding clients have to deal with partners who are more concerned with saving $100 on fee or work that’s ‘good-enough’ to make their commission. These latter issues seem to come and go with transaction volume and are much less a difficulty when everyone is buying (not now)."
Other consultants had this to say on the topic:
Commoditization vs. Differentiation
Conversations about price competition almost always lead to the topic of whether Phase I ESAs have been commoditized. In economics, a true commodity by definition is quite simply a “class of goods for which there is demand, but which is supplied without qualitative differentiation across a market.” One that is indistinguishable from another.
One of my favorite quotes on differentiation comes from Nestor Benavides, President, EMG: “Purdue branded and charged a premium for chicken – I have not a doubt in my mind, that Phase Is are far more differentiated than chicken.” Nestor made an important distinction: “We need to be careful not to confuse price sensitivity with commoditization.” Not all clients or all types of Phase I ESAs are created equally. Clients vary in the scope they require, needs, schedule, and risk tolerance. These parameters open the door for firms to differentiate. Differentiation comes in many forms: level of staff training, professional experience, responsiveness, efficiency, use of technology, workflow processes, local expertise, completeness and accuracy of reports, understanding of how environmental due diligence fits into the needs of the client/deal—and the list goes on.
On the topic of commoditization, fellow commonground blogger Mike Kulka, founder and CEO of PM Environmental did not disappoint. “Do you want to sell a commodity in your profession? I am not embarrassed to say that I do look for the lowest price of a gallon of gas or milk but never for my accountants, attorneys, insurance providers, laboratories, drillers or excavators.”
Competing in a price-sensitive market, say the experts, comes down to value and yes, selling. “I spent less than 5 minutes today selling the value proposition to a prominent/successful restaurateur and repeat client,” Kulka said. “The guy asked if I could match the timing of another bid (one week turnaround, no terms or conditions). My reply quite frankly was to point out why I thought the guy could offer a fast cheap report (he has no real clients, works out of his house, no insurance, has no technical degree, and his work would never be accepted by a bank). I pointed out SBA loans are complex and it’s worth it to pay more for more quality. I’m happy to say I won the project with two weeks more turnaround and much more money. It just proves that you can sell value if you deliver value and can state your case.”
And that brings me back to the coach who also joined me at the Dallas lunch: Bryan Flanagan. He is a well-known coach with Zig Ziglar in Plano, TX who has a loyal following of people who’ve trained under him to learn the basics of value-based selling. He gives fabulous advice and when he was up here at EDR headquarters last week I asked him this: How can you possibly sell a value proposition to someone who’s not receptive to it? It starts, Bryan advised, with a conversation with the prospective client on what the objectives of the project are, and what they want the outcome to be. In Dallas, he used the analogy of a premium vehicle with all the bells and whistles versus a basic vehicle. If there’s no relationship with this prospective client but it looks like a good piece of business, start with what they want, ask questions to discover their needs. Through this process, if you can put the client in the “premium vehicle” that meets their needs, he/she might pay more for it. But if the prospective client’s goal is just to get the “cheaper vehicle,” and low-price is the only variable in his/her mind, then you may say, “I’m not your guy” and walk away. To hear Bryan in his own words, here’s the video on a too-windy day in Milford, CT.
For more advice on what separates the winners in the selling process, here’s a terrific blog by a great guy named Mike Schultz who spoke at EDR’s Client Summit a few years ago.
“Differentiation,” Schultz said, “often starts with marketing, but it’s in the selling process that it truly comes alive.” His firm, RAIN Group, analyzed just over 700 business-to-business sales made to buyers who represent $3.1 billion in annual purchases from various industries. The purpose of the research was to find out what sales winners do differently in the selling process compared to the sellers that didn’t win. One area they studied was the buyers’ perceptions of what they believe led them to buy from the winners. The three differentiation factors that not only scored near the top of the list but DOMINATED IT were:
Differentiation is therefore not only helpful, it’s critical. Read Mike’s blog for tips on how to do it.
So what these experts say is that the successful salespeople are the ones, even in the face of strong competition, who can differentiate and communicate value in terms that matter to clients. “If we are not able to define the different needs of our clients, and the different benefits of our products and services,” Benavides says, “then we cannot expect anyone else to.”
So, what makes your Phase I ESA deliverable different? What makes it better that the rest? And how comfortable are you telling someone that?
Every now and then here in New England, Mother Nature forces us to change our routines. Such was the case last Friday morning when I woke up to my driveway looking like the picture below.
Gorgeous, but it left me home-bound.
A day of working from the home office on what was likely our last snow day of the season granted me the opportunity to catch up on 100s of news emails, including one from colleague, Bob Dearborn, containing an attachment someone had sent him from a symposium in Colorado. As my snowy day progressed, and then through the ensuing weekend, I found my thoughts going back to that email. Words of wisdom worthy of passing on here to my readers.
The author documented this list of lessons learned in his first 80 years:
Taking time to pan back and reflect on our goals, our lives and our priorities is important and, in this case, Mother Nature forced it on me and I loved it.
Hard to believe we're two months into the year year and it’s March already. Before the weekend, I wanted to share my fave content from this week. Check them out, share them w/ colleagues, or comment on them below.
1. Debbie Andrews at Marketri down in Philly posted a great blog this week, How Professional Services Firms Can Excel at Content Marketing Without Jeopardizing Billable Time.
Her point was: you are all technical experts with valuable insights to share but limited hours in the day to do any kind of content marketing. Her blog has some valuable tips on topic ideas that won’t make much of a dent in your billable hours.
This webinar was just posted today by the folks at Fulbright and Jaworski, tackling the benefits of comprehensive due diligence that goes beyond Phase I ESAs on M&A deals—which are heating up by the way.
3. What do AEI, Terracon, Golder and Enercon have in common with Starbucks, Marriott, Google and Whole Foods?
They're all employee owned and the benefits are many. This EDR Insight brief outlines why principals at environmental firms that have gone this route think it's helped them attract and retain top talent, and has made employees feel more empowered and engaged in the company's business success.
4. Will robots change real estate? How about underwriting?
If you came to a Due Diligence at Dawn workshop this fall/winter, you saw first-hand evidence of how technology is revolutionizing our industry—site visits can become interactive activities using drone helicopters you control from your iPad or iPhone. You can even invite your clients along to see the property along with live, aerial views from the comfort of their offices.
5. Wednesday I trekked down to New Jersey to teach two tracks (E 1527-13 revisions and the ’05 AAI rule) at a 2-day Environmental Audits course run for years by friends/colleagues Vinnie Agovino and Bill Nehls. It was gratifying to see a mix of newcomers to the industry and veterans just looking to “hit refresh” or as one said “brush away the cobwebs.” My favorite “overheard” comment was:
“I don’t submit bids for Phase I projects. I’m too busy. My price is my price. It doesn’t change based on who the client is or the economy. It is what it is. They can take it or leave it. Some take it, some don’t. Who cares? I’m busy!”
I'm headed out to our Cincinnati DDD next week, a metro still struggling to see job growth or make the strong market recovery that we’re seeing in other metros the DDD bus has visited, like Boston, Chicago, Dallas and others. Hope to see some of you there!
During yesterday’s monthly call of the Environmental Bankers Association’s Risk Management Committee, I shared an update in three areas:
1. Originations Up, Up, Up (But Slowly)
There were some great stats and forecast data that came out of the MBA’s CREF convention in California last week. Everything I heard from Rob Barber, our CEO who was in attendance, and MBA’s head of research was that the general attitude there was one of “looking forward to growth in lending on commercial properties, much more than looking backwards as was the case at the events of the past few years.” Investors, lenders and originators who attended are all looking for opportunity this year. The data MBA unveiled there painted an improving picture on the lending front:
Looking ahead, the MBA forecast calls for loan originations to increase by a more sedate 11% in 2013 to $254 billion—then building slowly up to $289 billion by 2015.
2. Lenders Speak Out on Phase I ESA Pricing and 2013 Forecast
You may have heard that Connecticut got absolutely pummeled by a mammoth storm last Friday night. Just the day before, 150 of us convened in downtown Boston for EDR’s Due Diligence at Dawn workshop. I moderated a panel of environmental risk managers from TD, Citizens and a small community bank. A few highlights that bear repeating here:
3. EPs: "Keep Your Eyes Wide Open on Vapor"
Lastly, I want to also draw your attention to a webinar EDR Insight hosted Tuesday for about 400 EPs and lenders. We had three great attorneys speaking (Bill Wagner, a fellow commonground blogger; Joe Maternowski and Stuart Lieberman) on the topic of vapor-related risk. They each spent a fair amount of time on a topic being debated a lot out there right now: and that is the role of vapor migration in a Phase I ESA.
The point they all made was that on certain sites, like those on or near old dry cleaners, it might make sense to look at the potential for vapors to migrate during the Phase I ESA. Obviously sampling for VI gets you into Phase II territory but as, one said, the Phase I is the first cut and if you miss it there, you don’t typically go back unless something forces you to--and that's never good.
Lieberman, in particular, was firm in his advice to environmental professionals, saying “AAI cannot ignore vapor. It is very hard to construct a good faith argument suggesting that appropriate inquiry could ignore vapor migration/intrusion when there are reasonable bases for concluding that there may be a VI issue…No longer can you have 1 eye open and 1 eye closed on this topic.” As a practicing attorney, he said, “It is almost malpractice at this point for an attorney involved in a real estate transaction where we might have vapor presenting itself who does not put in writing a suggestion that testing be done so that when a third party files suit saying they got some disease [due to vapor], I know I have myself covered. Consultants better be doing the same thing. They better be putting something in writing. And they should not sign a report, in my humble opinion, that a complete Phase I ESA was done if at least the suggestion was not made that vapor be looked at. The case law is just starting to evolve.”
I'm admittedly biased, but all three speakers did a fabulous job. The replay is posted on EDR’s events page and the slides are here. If you’re uncertain about how to treat vapor migration—or how to talk to your clients about vapor-related risk—it’s worth a listen.
Back to shoveling my way out of the work that piled up while I was trapped at home for five days this week, thanks to Storm Nemo!
Happy belated new year, everyone!
I rang in the new year skiing in the Berkshires. On my first run down from the summit, it was impossible to miss a huge wind turbine spinning away just off the trail. All around the base lodge were displays and banners about the turbine and the resort’s commitment to green energy. It’s the first private US business—and the only ski resort—to invest in its own megawatt class wind turbine. They are obviously proud of their reliance on wind energy and want customers to know about it. Here in New England, skiers have a lot of options within a relatively short drive (2-3 hours) so it’s a competitive market. I was curious about how much of a strategic edge that turbine gives them. I poked around a little at the customer reviews on yelp and more than a few referenced how pleasantly surprised skiers were to see a mountain committed to reducing its energy use. Then I reached out to Jim VanDyke, their VP of Environmental Sustainability, and he had this to say:
“The turbine generates about one-third of our annual energy use, but as much as a full ½ in the winter when the wind blows the strongest and we use the most energy for things like lifts and snowmaking.”
“Our energy costs had increased by over 50% and we have pretty much max’ed out our conservation measures…so we started looking at alternatives.”
“I don’t know if it gives us an edge, but in the guest surveys we conducted for the following two winters after the turbine was installed, 23% of the guests said that the wind turbine and/or our environmental initiatives affected their (the guests’) decision to come here. That is quite a statement.
“Now, the turbine is certainly noteworthy and a cool thing to see, but I think it has become part of why Jiminy has seen an increase in skier visits over the last 5 seasons, even in light of terrible and unusual weather patterns for the regional ski industry, with great guest service, great snowmaking and grooming and all the neat things we do in the summer. And, of course, why we are having this exchange.”
It got me thinking about environmental due diligence firms that have gone the extra step to adopt green technologies. The two names that come immediately to mind are my co-bloggers Mike Kulka, PM Environmental and Joe Derhake, Partner Engineering and Science.
A few years ago I visited Mike after our Detroit Due Diligence at Dawn and got a cool tour of their new office space—built on a former brownfield—just as they were going through the LEED certification process.
And just a few months ago, Joe blogged on Partner’s new green building headquarters with a video featuring staff talking about the design and building features.
What I think is so strategic about companies making this kind of massive investment and commitment is that it not only cuts their operating costs but positions them as first-hand experts in both site redevelopment and energy efficiency. And in terms of attracting talent, you have to think it gives them an edge over other firms to offer prospective employees the chance to work in a cutting-edge workspace.
These are exciting times as companies harness new green technologies and start leveraging them to their strategic advantage. It is clear whether it’s in the ski industry, retail, fast food, environmental due diligence or any other industry, green matters more and more—and those who are innovative and use it to their advantage will be the stand-outs.
Thanks to Jim for his input on the turbine and if you’re ever near the Berkshires, go visit him at Jiminy Peak!
One of the great things about working in such a large, fragmented industry like ours is that any one of the thousands of companies in it can grow and prosper. And some are. I have watched over the past several years how different consulting firms in our industry are responding to a tough market. Some complained. Some got busy. Some kept doing what they’ve always done. Others tried new approaches. Some bemoaned pricing pressures. Others found ways to justify a higher price or improve efficiency. Some aggressively waited for the phone to ring. Others hit the proverbial pavement.
I believe there are five characteristics common to the environmental due diligence firms that have managed to buck the trend and grow in this downturn. And these companies come in all sizes. Small ones. Large ones. Local shops. Regional players. Right up to national or even international firms. Across these different size categories, there are similarities that make the stand-outs, well, stand out. I call them the Top 5 Strategies of Winning Firms, and I covered each of them during my presentation at this fall’s Due Diligence at Dawn workshops in nine cities across the country.
Right at the top of my list is that if you are working at a winning firm, quite simply:
You get out there.
By that, I mean the top performers are doing everything they can to get out there in front of potential clients.
Back in the days of the 2006 high tide, everyone was busy. Companies got referrals by virtue of all the work they were already doing. The phone was ringing. This is how it was at the environmental consulting firm I worked at in the DC area before I took a job at EDR. We responded to bids for the types of projects we always did with many repeat clients. We won most of them and that was enough to keep our staff billable full-time—and then some (especially at the end of the fiscal year). We didn’t really prospect for new business. We really didn’t have to. Business found us, mostly through referrals or rebids on successful project work.
After 2008, business for many firms dried up. And the opportunities out there became a lot more competitive. The market has transitioned from the cost cutting period that started with the collapse of Lehman Brothers in 2008 and continued through 2010/2011. We are now in a period where firms are reinventing growth through business development and marketing in a tough economic environment where there is stiff competition for a limited number of projects. Winning work in a smart, effective way is more important than ever. Now, if firms don’t prospect, they put themselves at the mercy of the market. If it’s up, so are they. But if it’s down, they are, too.
That’s why it becomes so important for firms to embrace marketing and getting out there a core part of their company culture. It’s a way of taking control of your business, rather than letting the market control it for you. Winning firms are thinking every day of how to get their names out in front of the people who matter to their business. They are doing it in clients’ offices. In social media. At local conferences. On their websites.
Yet marketing can be very challenging to many engineers. Did you get into the environmental due diligence field to be a marketer? Probably not. But you need to learn how to share your expertise using today’s tools to win business.
I know a lot of consulting firms are challenged with getting their names out there so I invited marketing expert, Debra Andrews, Founder of Marketri LLC, to kick off the new year with a free EDR Insight webinar titled In-Bound Marketing: The New “In” Thing for Environmental Professionals on January 15th.
I first met Debra when she spoke at a conference I attended in Fort Myers this fall. Her presentation was thought-provoking, and that’s an understatement. I walked away with five pages of ideas. Five pages! She graciously agreed to come up to EDR's home office to give a live presentation. Every day, Debra is out there working with clients in service firms—many in the architecture/engineering/construction sector—on developing how they are going to differentiate themselves, who they will target to get results and how to set their firm apart by taking advantage of inbound marketing opportunities.
What I really liked about her presentation is that she kept a roomful of older veteran engineers engaged for a full 45 minutes. I also noticed that many, like me, were actively taking notes. And everyone walked away with strategic ideas for elevating their firms’ visibility and building bridges between their technical expertise and clients who can use it.
The end of the year is the perfect time to pan back and reflect on what worked for you over the past year and what didn’t. Are you doing all you can to make your firm a stand-out? Are you doing all you can to get your firm’s good name out there? To tout the expertise of the great people on your staff?
Mark your calendars and join us for some thought-provoking insight that might help you jump start your strategic planning in the new year!
From today’s call of the Environmental Bankers Association Risk Management Committee, here is my list of the month’s top developments from the world of commercial real estate, property lending and environmental due diligence:
Commercial real estate is continuing its slow but steady recovery.
In the midst of some pretty widespread fears about the U.S. economy approaching a fiscal cliff, property transaction volume is still slowly improving. The 2012 numbers for the year, however, will likely reflect a flattening out of growth. Deal volume came back strongly over the past several years with rates in the double digits, but in 2012, the pace slowed to single digits. This is partly due to the recent decline in distressed asset activity. Also, the transactions coming to market today are competitive and as a result, buyers have pulled back a bit. Looking ahead to 2013, growth, albeit slow, is expected.
Bank lending is coming back.
On the property lending front, banks are getting active again, but are showing a lot of caution. Financial results for publicly owned institutions for the third quarter show that provisions for loan losses are falling, which means they have more money to lend. Also, a growing number of banks have cleared their distressed assets and are starting to grow again. At the same time, demand in the marketplace is increasing, driven in large part by the low interest rate environment and the expanding need for refinancing. Insurance companies are also providing financing, but only to the “best of the best” properties. The CMBS sector is growing again. The good news here is that lending options for property acquisition and refinance are increasing for many borrowers—and that has been a long time coming.
CMBS volume, however, needs to be stronger than it is today if we are going to successfully deal with this coming wall of debt maturities. Experts at EDR’s sister company, Trepp, estimate that nearly one-third of the debt coming due in the next five years is underwater, meaning it has a face amount greater than the value of the property. Plus, a significant amount of debt is at higher LTV rates than what is currently being underwritten (i.e., greater than 75% LTV) so borrowers will need to bring more equity to the table, which for some, could be extremely challenging.
Risk aversion remains at high levels.
On the risk management front, banks are still risk averse and showing preference for lending on the safest investments and on properties that do not have a high level of associated risk. One trend evident in EDR Insight’s recent surveys as well as our fall Due Diligence at Dawn workshops across the country is that, for many banks, the environmental due diligence and underwriting has not changed recently. For many, it has been tight for years, but what is changing is that lenders had been ignoring portions of their environmental policies until recently. Compliance is now mandatory and is being monitored very closely. Particularly at the smaller bank level, we continue to hear comments about new environmental policies being rolled out to address environmental issues on commercial real estate. For some banks, this is a significant event.
3Q12 Survey Results Released
EDR Insight is about to publish the results of our two latest quarterly surveys of both the environmental professional and the lending sectors in tomorrow’s biweeklies. A few early findings:
A few highlights of EPs had to say about work in the lending sector”
“Lenders are under growing pressure to build their portfolios so we’re seeing very tight TAT pressure on both Phase Is and Phase IIs. They’ll have Phase IIs done but only if it’s fast.”
“Banks are looking to stay competitive especially with so few good deals out there.”
“Some clients are willing to pay more for less uncertainty; requesting more sampling/analytical data to backup findings.”
Preparations for E 1527-13 underway.
EDR Insight just released a brief on what the proposed changes might mean (1 for EPs, 1 for lenders) so if you have not seen them, both are posted on our Resources page. For a thorough discussion of the proposed areas of revision, you can listen to a replay of a webinar given by Anthony Buonicore last week.
As I told Jeff Telego the other day, my presentation at the January EBA conference will focus on my list of forecasts for the new year. (Given that it’s in New Orleans, I thank Jeff for not putting me early in the AM.)
Have a GREAT holiday everyone! And I look forward to seeing many of you in the new year!
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