Sunday night, a few hours before the midnight EST deadline, I finished my second week of the six-week Due Diligence University course. In part due to being on the road at the Environmental Bankers Association meeting last week, I got behind in my one-module-a-day pace and did four modules (file review, municipal offices, site visits and interviews) in one sitting. (I don't recommend this.)

For each module, the process goes something like this: read background material (usually detail on what E 1527 or AAI requires), listen to a pre-recorded presentation from an EP on the in's, out's and pitfalls of each component of Phase I research, take a quick quiz, and then participate in a discussion thread that answers the instructor's questions on a particular topic. 

So far, the course has been a really interesting intensive on specific elements of Phase Is--several of which I never really gave much thought to (e.g., what do you do if you show up for a visit to a municipal office and they can't see you for 10 days? Or what do you do if you get to a site visit and find out that what your client told you was 1 building with 5 tenants is really 5 buildings each with 20 tenants?). I like the forums the best. This is where I'm learning the most from other EPs (new ones and veterans alike).

In this week's DDU forums, the assignments were to share our experience in the following:

• crazy site visit experience
• interesting or challenging time interviewing someone

As I read what my classmates wrote, I was reminded of a commonground thread awhile back where EPs shared their unusual (and in some cases, macabre) site visit stories. I recall creepy posts about dead bodies, skulls, ghosts and another unmentionable that still makes me cringe.

Here are snippets from some of my favorites posted by classmates in DDU last week:

• "One of our field scientists had a body guard who carried a baseball bat escort him during one of his site visits in a really rough neighborhood in Detroit."
• "I do enjoy site visits. If not for them, there is no way I would have been able to get a first-class tour of a tulip farm, RV manufacturer, fish farm, or former copper mine...not to mention all those former gas stations and dry cleaners."
• "I was once at a paper mill with a sign out front notifying everyone of the number of days since someone was hurt or killed."
• "Lots of homeless in vacant urban buildings of course, but I am more frightened at some of our rural sites with 'squatters' because our region also has a meth lab problem." 
• "While conducting the exterior walk, we heard what we thought was a nail gun going off. Minutes later when several police cars arrived, we found out it wasn't a nail gun but a rival gang conducting a 'drive by' on a resident of the property. That effectively ended our site inspection for that day."
• "On a Phase I for a telecommunications company putting cell phone antennas on buildings in DC, I had to go on the roof of the US Import/Export bank located within view of the White House.  Before I could go up, I had to be cleared with the Secret Service so they knew I wasn't breeching security or endangering the safety of the President.  I was told that I had 15 minutes to do my site walk ... I took 10."  
• "I stumbled into an illegal gambling den in the back room of a barber shop in the Bronx. I just played dumb and pretended like it was totally normal, and got out quickly."
• "I had a seller/tenant offer to put a flat screen plasma TV in my truck if I gave the site a clean bill of health."
• "I have had lots of challenging interviews with residential property superintendents with limited English. I've had to resort to a form of sign language or Pictionary that consists of pointing and drawing pictures of tanks, barrels and such."

And now for my absolute favorite:

"I had a site contact repeatedly lick and even eat a small piece of pipe insulation in order to "prove" to me that it was not asbestos. Lab results later determined that it was in fact asbestos."

I never realized how scary, life-threatening, creepy Phase I work was until I took this course. Advice classmates gave the rest of us included: Don't go on site visits without pepper spray. Bring a flashlight. For Pete's sake, tell someone where you're going and when you'll be back.

Site visits can be scary. That alone seems to be to be worth charging $2,000 or more. And, this confirms that I could never be a Phase I professional. I'm too chicken, and furthermore, I have a new-found respect for all of you EPs out in the field.

This week in DDU: modules on user responsibilities, historical review (a whopper), geology/groundwater (yikes) and common contaminants.

I'm writing this on a plane back from the Environmental Bankers Association's January meeting in San Diego run by the always-charismatic, Jeff Telego. The conference gave me the chance to catch up with some of the leading Phase I environmental consultants and commercial real estate lenders in the country--and I have to say, most were in pretty upbeat moods. (It wasn't the sunny weather, either. Mother Nature delivered a monsoon that brought intense wind, rain and eventually, downed palm trees.)

I was asked to give a presentation on the state of the commercial real estate market and distressed assets, which I titled: Is There Light at the End of the Tunnel? My answer to that question was "Yes, it's just a very long tunnel at this point."

Clearly, commercial real estate is in bad shape and it's going to take years to sort it all out. Yet, here we are on the threshold of 2010 and, for a number of key reasons, I believe the Phase I environmental site assessment market is in better shape now than it was last year at this time. Consider these facts:

• Credit is beginning to trickle back into the market. Based on a survey of 150 lenders that I did in early December, one-third expect to do more commercial real estate loan originations this year than last.
• The rate of decline in property prices has noticeably slowed since early 2009.
• 650 new funds were launched last year with more than $80 billion in capital specifically looking for opportunity in commercial real estate.
• In November and December, large investors who were quiet six months before came off the sidelines and closed deals.
• The CMBS market breathed the first signs of life in almost two years during the last two months of 2009.
• More property owners and lenders, feeling increasing pressure to sell, are finally putting properties on the selling block. Until now, the tired phrase "extend and pretend" has been the more widely-adopted strategy in the hopes of a better tomorrow. This is changing, and in this case at least, change is good.
• Lenders are moving forces into place to have due diligence conducted on what is expected to be a significant wave of foreclosures.
• The economy's no longer hemorrhaging jobs in the six-digit figures every month.

Phase I ESA activity this year will continue to be driven largely by foreclosure work for lenders facing record-high loan defaults, and FDIC-supported work as bank failures climb. Work in these two areas carried the Phase I market in 2009, and compensated for deal flow that was down 67% below 2008 and a staggering 90% below the 2007 high. Will deal flow go up this year, too? I believe it will, but the extent is dependent on all of these factors:

• The speed at which lenders put properties up for sale.
• The availability of borrowed capital at terms borrowers can accept.
• Price discovery. (Right now there are no comparables for buyers, so if you were looking at an office building, say, in San Francisco, you'd have no comparable pricing benchmarks because recent transaction volume is so low.)
• A narrowing of the pricing gap between buyers and sellers.
• A return of confidence to the market.

Despite all of these moving parts-and how long it'll be before commercial real estate fundamentals improve, I still do feel that the Phase I ESA market is better off now than at the start of 2009. If you don't believe me, look at this graph.

Remember late 2008? Look at the volatility the Phase I ESA market saw right after AIG and Merrill Lynch died, and investors ran for the hills. This was when firms started laying people off by the dozens, and no one was smiling at conferences like they were at EBA this week.

Flat is the "new good," and it feels pretty good compared to the negative volatility we saw at the end of 2008.

And I'm not the only one who thinks so. Among the people I talked to at EBA, there seemed to be a sense of relief that 2009 is over, and some very cautious optimism for 2010. They came from all parts of the country, and most reported an overall thawing in demand for their services as the market emerges from the freefall of last year. (And as Mike Kulka pointed out, more awareness about environmental risk on the part of community lenders.) Let's hope it continues. And, as I prepare a webinar for next week, I'd love to hear whether any consultants out there agree with what I heard at EBA this week. How do you feel about the market as we head into 2010? Better or worse than last year at this time?

Dianne

I'm at the end of week 1 of the 6-week Due Diligence University course. I've tackled 5 of the 26 modules:

• history of due diligence
• drivers, tools and users
• commercial real estate 101
• standards
• communication

Having never taken an online course before, it's been interesting to navigate my way through. You get one week to go into each module, read the content, answer a forum question (much like the discussion threads here on commonground) and then take a quiz. Grading is instantaneous and you can take the same quiz as many as 4 times (haven't needed to exercise this yet). I'm in with about 40 other students, ranging from a few colleagues of mine, EPs just starting out, others who've done Phase Is for a few years to veterans and a lender who've been involved in due diligence for decades. It's a pretty diverse group but some similar interests too. Outside of work, we run, garden, cook, raise kids (or in one case, will start doing this in about 2 wks), go fly fishing and myriad other things.

The biggest challenge of course is squirreling away an hour of uninterrupted time per day to tackle a module so I don't fall behind.

Here's an example of the things DDU forced me to furrow my brow over this week:

- thinking of an example when a standard (like E 1527-05) impacted my life outside of work (buying a toddler car seat)

- calculating an LTV ratio on a commercial real estate loan

- placing due diligence appropriately into the timeframe of a real estate transaction (is it before or after purchase and sale agreement? is it different for equity vs. debt financed transactions?)

- deciding whether you get more out of an in person communication or an email (you have to pick ONE)

Tough stuff, but I made it.

Next week, I subject myself to modules on:

• file review
• municipal offices
• site visit
• interviews

Since my due diligence experience is limited to a few site visits, I'm more than a little concerned about how I'll fare against the experienced EPs in the class. If I need a life line, I'll let you know.

More to come...

I'm speaking next Tuesday at the Environmental Bankers Association meeting San Diego on the State of the Real Estate Market and Due Diligence for Distressed Assets.

Anyone attending?

And if any EPs out there want to share their experiences this past year conducting due diligence for lender clients, I'm ALL EARS. Topics I'm weaving into my comments include:

• the "elephant in the room"...intense price pressure (thx to all of you who weighed in on commonground discussions on the topic)
• trends in banks' environmental polices (and the regulatory forces driving those changes)
• what's driving demand from lenders for environmental due diligence

There will also be some good sessions out there on workouts, foreclosures, sustainable development, banker/consultant relationships, green building carbon risk and brownfields.

I'll report back when I learn out there, but welcome any input as I pull my slides together this week.

Also side note: As of yesterday, and for the next 6 weeks, I'm carving out time to be a student again (after more years than I care to admit). It feels right to start the new year sharpening my sword as a student of DDU with about 40 EPs of varying levels of expertise. This week, I'll be studying (and, gulp, being tested on) these topics:

• history of due diligence
• drivers, tools and users
• commercial real estate 101
• standards
• communication

Wish me luck!

I've been with my present employer for 11 years, and prior to that, with a DC environmental consulting firm. In that time, I can honestly say that I've never gotten choked up at an office holiday party.

Until now.

Last night our CEO was announcing the winners of our "Superlative Awards" to employees who received the most votes from all of us in a variety of categories. With each name called, the honored employee dutifully went up, took their Oscar-like trophy, shook hands with the CEO and sat down.

Things changed when the "Most Likely to Help a Colleague" award was announced. The recipient, an account executive named Noel Roman, shocked us all when he wrapped his 6 foot-plus frame around our CEO to embrace him enthusiastically with both arms. Noel said a few kind words and sat down.

It was when Noel's name was called for a second award that he brought the room to a standstill. This was the big one, the final one of the evening...our company's "MVP."

Noel repeated the hug, and then paused in front of us. He looked at the ceiling for what seemed like a long while. The room fell silent. The side conversations stopped. We all looked at him expectantly. Then he looked back at all of us and spoke in a voice that was ever-so-slightly cracking with emotion.

What he said went something like this: 

"We all come to work together to the same place for the same reason. It's all of us together, working to strengthen the company together. So, I feel like I am accepting this award for everyone here."

In one fell swoop, he changed the tone of the whole event. He was honored. He was humbled. And, best of all, he reminded us all why we do what we do every day.

Noel is one of those unique individuals who brings enthusiasm to his work every single day. But it goes way beyond that. He was the only one to offer help to one of my colleagues as she struggled moving heavy boxes a few months ago. He was among the first to volunteer his time to take the 6-week Due Diligence University Course in October because he knew that it would help him do his job even better. Last year he was among a small group specially selected by an executive committee to participate in the company's first internal mentoring program. A few years back, a team of us trained for the New Haven Labor Day 20K road race, and even though he didn't feel adequately trained by the time race day arrived, he had committed to it, drove an hour at 7am, showed up with his characteristically upbeat smile, and completed a tough race. He's always there with a pleasant attitude, always interested in more than just "how's it going?"

These attributes are not ones that are learned in company training. They're inherent and unfortunately, all too rare.

Last night, Noel raised the camaraderie quotient of our holiday party ten-fold. I thought about what he said during my entire 40-minute drive home. It felt particularly meaningful coming at the end of a pretty tough year in an industry heavy with uncertainty about the present--and anxiety about next year. As someone else said, "I haven't felt a warm feeling like that in a long time." Nor have I.

I hope all of you have a "Noel" in your midst. If not, I hope you get one.

Happy holidays

I have to admit I had a rather childish reaction to Obama's media attention this week that he was telling big bankers to lend more. He's specifically pressing them to take "extraordinary" steps to increase lending to small businesses and homeowners as their payback for last year's bailout. I know he's the most powerful man in America, but will banks start lending just because he told them to? Where's the hammer? ("if you don't eat your veggies, no dessert") Under the glare of the spotlight, here were some reactions from the big banks:

• Bank of America said it will increase lending to small and mid-size businesses by $5 billion next year over what it lent to them in 2009.
• JPMorgan Chase announced a similar increase in early November and recently experienced an increase in new applications for loans.
• Wells Fargo expected to increase lending in 2010 as much as 25 percent.

The pressure from inside the beltway also stressed not just a call for more lending but for stringent underwriting (hopefully good news for environmental due diligence), "lest there be a repeat of the bad lending practices that contributed to the financial crisis to begin with." The mandate from Obama made for attention-grabbing headlines as our media engines did what they always do...latching onto one phrase that quickly loses impact from overuse ("fat cat bankers," in this case). It didn't really surprise me that lenders promised to lend more when they had a camera in their faces after their presidential meeting, but only time will tell whether Obama's strong words will have any positive impact on breaking the access to capital.

The problem I see is that the government's encouraging more lending on one hand, while discouraging it on the other. Outside this top echelon of lenders, federal regulators actively telling small community and regional banks not to lend so that they meet the requirements for keeping capital on their books. (Banks that loaned $1 million based on the value of the property being used as collateral need more capital to cover that loan when the value of the property drops to $750,000.)

Last week I spearheaded my own effort to find out whether banks were lending on commercial real estate, and what their expectations were for next year. During our first "break-out-the-shovels" storm of the year, I spoke at a webinar on key trends in commercial real estate lending. All the lenders listening in were asked to answer two questions:

1. Is your institution currently issuing commercial real estate loans?
2. How do you expect commercial real estate loan originations at your institution in 2010 to compare to 2009?

Respondents included a cross-section of lenders ranging from small community banks to large national/international institutions. Based on 145 responses, only nine percent indicated that they were not issuing any commercial real estate loans right now. As for next year, about one-third expected higher lending volume next year (4% "significantly higher") while only 28% expected lower lending volume (15% "significantly lower"). [see attached graphic]

Also, I invited Cathy McGowan from Wells Fargo to speak on her bank's due diligence practices at our briefing for environmental consultants in Philadelphia last week. She indicated that while they're doing more pre-foreclosure work this year and less new lending, expectations for 2010 specifically on commercial real estate lending were for "more" not "less."

I interpret the forecast from these 145 lenders as a sign that things on the lending front will improve next year, at least modestly--but an improvement nonetheless. And in other good news this week, it looks like the SBA's appropriations for lending is getting a boost. The agency's now slated to get $687 million in new appropriations for the 2010 fiscal year, $137 million more than last year, and $174 million more than in 2008.

Not sure it warrants popping the cork just yet, but still worth passing along as this bad year winds down.

I wrote a blog at the end of the summer about the bankruptcies of GM and Chrysler. In it, I wondered about the fate of the contaminated sites left behind as these companies filed for Chapter 11 protection. Some of these sites span thousands of acres and have a long list of acronyms characterizing their contamination. In today's market when a buyer can get commercial real estate for a song (assuming they have their own cash, of course), why would anyone touch these properties and risk liability exposure? 

I got the answer to some of my questions from the Wall Street Journal today. Who knew there was an "auto communities recovery czar" tasked with helping communities in struggling auto states cut through the red tape and bring contaminated sites back into reuse? His name's Edward Montgomery and he was brought into Flint, MI to make magic happen when concerns about high cleanup costs stalled the redevelopment of an abandoned auto factory there. His solution was to carve out the part of the 700-acre site with the worst contamination and clear the rest for potential sale to investors. The problem, he said, is "you have this big site right in the middle of your city, and it becomes an symbol of failure when it used to be a symbol of success." By his account, GM and Chrysler have about 110 brownfield properties on their list of assets for sale. If he's as good as they say about getting deals that would've taken years done in months, it could set a new standard for site cleanup. Since I wrote that blog, a swath of old chemical plants and refineries in Delaware became the latest victims of the recession.

On top of these mammoth manufacturing facilities, there are literally thousands of inactive auto dealerships across the country. Last week I had the pleasure of catching up with Neil Chandler at Golder Associates (Mt. Laurel, NJ), a due diligence professional I've known for many years, who reached out after my GM/Chrysler blog. For the past 15 years, Neil's been working with one of the big three auto manufacturers, and now manages their dealership program doing Phase Is, Phase IIs and other types of environmental work on their dealership properties. He attended our workshop last Wednesday in downtown Philadelphia, and bravely and generously agreed to answer a few questions for me on camera after the event about the impact that the recession has had on his work in this area. Watch our interview here.

Companies that manage commercial real estate are increasingly under pressure. Some will completely collapse in this recession, others will be acquired by stronger firms, and still others will be foreced to pare down their number of properties. This adds up to more environmentally stressed sites hitting the market. We can only hope that more experience with these types of transactions will move them along faster and translate into more work for consultants. 

[And special thanks to Neil for fearlessly sharing his thoughts on this topic.]

Yesterday in the context of a conversation about how intensely price-competitive the market for Phase I environmental site assessments has become, a commercial real estate lender asked me:

"How am I supposed to tell the difference between a good Phase I consultant and one who is less qualified?"

It was a great question. Not all consultants are created equal and there's no national certification program to help her make this distinction. My advice went something like this:

There are some really fantastic firms, and some not-so-fantastic ones that are desperate for work right now and will do anything to get it. Best you can do is to conduct your own due diligence of any consulting firms that want to be on your institution's approved list:

1. Ask them to provide you with an SOQ.
2. Compare the qualifications of their Phase I staff with the definition of "environmental professional" in EPA's All Appropriate Inquiry rule (or ASTM E 1527-05). This is particularly important if the bank is seeking CERCLA liability protection.
3. Specifically ask for the qualifications of those professionals at their firm who are given responsibility for doing site visits.
4. Ask what kind of training their firm provides to Phase I staff, and how they make sure staff is up-to-speed on the latest environmental due diligence regulations, standards and technical know-how.
5. Ask to see a sample Phase I report of theirs and review it for completeness, quality, thoroughness, level of technical expertise, data gaps and typos (my pet peeve).
6. Ask them what value they would provide to your bank. If they respond by telling you how cheap their rates are, be wary. And, on the topic of price, any offers of AAI-compliant Phase Is for less than $1500-1800 should raise a red flag. A consultant promising one as low as $1000 or less probably isn't going to deliver a quality report that will meet your needs or the liability of your institution or borrower.
7. If you're an SBA lender, ask for evidence that they understand the environmental guidelines in the SBA's SOP (and be sure they're aware it's been updated). An environmental reviewer with the SBA who spoke recently at a conference noted problems getting quality work from consultants. He said most "just don't get the SBA policy," some seem to "get it a little," and just a few "really understand the requirements."  Also make sure upfront that they're comfortable signing the SBA's reliance letter (you don't want to find out after the Phase I that they won't sign it).
8. Make sure you work with firms who understand your institution's scope of work and risk tolerance, as well as any non-scope issues you care about, and that they have a basic understanding of the lending process.

As with everything in the world, you get what you pay for. If it sounds too good to be true, it probably is. And when a bank's own liability is at stake, more than a little due diligence of potential vendors is warranted--especially in today's cut-throat market.

So, how ready are you to answer these 8 questions if a prospective client asks for them?

It seems like there's been a lot in the news about manufactured gas plants. A few weeks back, I posted a "what is this?" pop quiz to see if anyone could identify an MGP in an old photo. Shortly after that, an environmental firm near here issued a PR notice on a project they won to do environmental site assessments and remediation work on old MGP sites in New England, New Jersey and New York. 

Then Monday one of my news feeds on vapor intrusion picked up on a controversy surrounding alleged contamination from a former MGP in Cape May, NJ.

You don't want to be the mayor of Cape May, NJ right now. A utility there is in the process of remediating a former coal gasification plant that operated in town from 1853 to 1937. After cleanup, the utility will relinquish ownership of several properties to the city. The property transfers being done with full indemnity with oversight from the state DEP. The selected cleanup method will involve the installation of a containment wall and monitoring wells around the most contaminated area, with some soil removal.

A few weeks ago, the "nation's foremost expert on former coal gasification sites" made waves by coming out publicly to say that MGPs typically dumped waste in a 4- to 5-block area from the main operation. He went on to note that the town has public housing projects that may have been built on these former dump sites. It didn't help that the local paper also pointed out that the town's planning board turned down a 2006 application from a developer to build condominiums on a site just north of the plant, when the then-mayor noted that there had been health problems in that area for years. There's also a 2003 report on contamination in the "saturated zone" (the footprint of the gas plant), documenting naphthalene detected as high as 6,300 mg/kg.  

It's not surprising that the utility came out refuting the expert's opinion, noting that a comprehensive physical analysis of the former gas plant site and the surrounding areas is in the works, and reassuring the public that proper remediation will be conducted on any areas affected by the operations of the plant. Based on a "thorough review of historical records of the site," the utility does not believe there were any dump sites on properties adjacent to the gas plant.

There's some interesting technical detail in the articles I linked to--worth a look especially if you've done Phase Is on former MGP sites...certainly a lot more technical data than you typically see in local articles. They also provided a mix of Sanborn maps that are being used to identify the location of old structures at the plant site (I put one below).

While this story raises awareness about environmental risks, you have to think it's got everyone in that housing development worried about whether they're living in harm's way.  And just today out of Seattle came a story about a project to build an affordable housing facility that was stalled when developers tested the soil and found the former gas station site was contaminated with 400 times the state cleanup standards for petroleum. The project's now on hold, pending the city undertaking a cleanup that could cost in excess of $1 million.

It's always disturbing to me to read stories about residential developments sited on contaminated sites.  Records of old MGPs, landfills, chemical plants, dry cleaners, gas stations and other environmental red flags are so much more prevalent than they were years ago--and so much easier to get--so the logical expectation is that over time, awareness about site contamination grows and fewer residences are built on hazardous sites. "Fat chance," says the cynic in me who's seen too many stories lately about people finding out the house they're making monthly payments on sits atop a toxic mess.

I do, however, take heart from a conversation I had yesterday with Dan Welby, a colleague of mine who regularly attends conferences for local governments; most recently, the brownfields show in New Orleans.  Municipalities, he said, have come a long way in terms of using environmental data and are getting more comfortable managing the liability of their land holdings. In the past, it was a huge undertaking for a city to map out its contaminated sites or find out what its historical footprint was. It the old days, they'd have to piece together old pdfs of Sanborns. Now it's much easier to map out multiple parcels, overlay historical data and highlight environmental red flags. Conferences for municipalities today typically have tracks to teach city officials how to build inventories of their sites, and a lot of you consultants out there are helping municipal clients do this. The key driver is EPA's brownfields funding. Applying for these dollars is an extremely competitive process. Last year, Dan said there were approximately 800 applications and only a little over 300 got funding. The onus is on a municipality to prove to EPA that they've got brownfields that need to be addressed, and those that do the research have the best chance of getting funding ("If you give us money, we'll clean up this former gas station with hundreds of people at risk around it.").  Those who don't do the research redevelop at their own peril. There are so many stories about cities that developed areas only to find out their mistake years later. One municipality down South undertook a highly-publicized redevelopment project, hit a UST that became a LUST, created a costly problem to fix and created needless embarrassment for the city.

Stories like the one about the Cape May MGP help to make records like Sanborns better understood and could result in them being more widely tapped into by those who play a hand in determining which contaminated sites get redeveloped into what type of uses. The optimist in me hopes that soon there will be no excuse for allowing housing developments to be built on sites with known contamination, but the realist in me knows we have a long way to go.

I love lists of top places. Best cities to work in. Most environmentally-friendly metros. Best cities for runners. Places to see before you die.

And now, thanks to the recession, we have Forbes' list of America's fastest-recovering cities. The magazine ranked  the top 100 metros based on data in five categories: unemployment rate, GMP (a measure of the size of a city's economy), foreclosures, home prices and sales rates. One common thread among the top finishers was an economy fueled by a diverse mix of industries. Omaha, NE was the big winner. Although it has an active financial industry, firms there didn't specialize in the types of riskier investments and exotic financial structures that "spelled ruin for metros like New York." Fellow commonground blogger Scott "New Job" Powell will be pleased to see his new Pittsburgh locale ranking 4th on the list, based on its ability to supplement an industrial sector decline with a boost from public-sector jobs.

I went into our ScoreKeeper model, which generates estimates of total Phase I ESA market volume for the 100 top commercial real estate metro markets in the U.S. and developed my own quick ranking of the top 20 markets for Phase I ESAs based on those that experienced the highest growth in I volume averaged over the past two quarters. Guess what? Omaha came in first on this list as well, registering an average 2-quarter growth rate of 62%. Admittedly, it's a relatively small market, accounting for only 111 Phase Is in the third quarter. The other one from Forbes' top 10 that made the list was Pittsburgh at 11th with 28% growth. Pittsburgh, along with San Francisco, were also the two biggest markets for Phase Is making my top 20 growth list.

What you won't find on the list are any of the largest Phase I ESA markets, like New York, Atlanta or L.A. (67th, 34th and 95th, respectively), that continue to struggle through the downturn. Geographically, the metros are a fairly diverse mix. The state with the highest number of metros making the cut was Florida, accounting for three, due to the high volume of bank failures and foreclosures, especially on multifamily properties down there.

I expect to see more of the top metro markets on this list in the coming quarters as the market is forced to deal with the mounting defaults of commercial real estate loans. Up until now, much of the work being done is on the residential/multifamily side. If not, there's always Omaha!

I just stumbled on a familiar face in an interview featured in the New York Real Estate Journal. Environmental due diligence professional Chuck Merritt is a consultant based on Long Island whom I typically see at industry events a few times a year.

The interview communicates an important point right off the bat: due diligence professionals are really part of the commercial real estate business. Check out the organizations Chuck belongs to: National Realty Club, Mortgage Bankers Association (MBA), U.S. Green Building Council (USGBC) and of course, ASTM.

Asked what he views as the most overlooked opportunity in real estate right now, Chuck answered the move toward green buildings. He feels so strongly about it that he went through the grueling process of earning his LEED Accredited Professional designation.

He also highlighted the changing client mix in the market today and the importance of consultants being aware of who the key players are in their area. I wholeheartedly agree. The clients you served in 2006 and early 2007 probably aren't doing much now...and aren't likely to. So it's critical to track who's looking to invest in commercial real estate next year and position yourselves with them now, hopefully before other consultants do.

"Re-inventing yourself and the services you provide your clients can help you navigate through turbulent times." Well said.

NOTE TO READERS:

I'm off for the holiday festivities. Thanks to all of you for your readership and continued participation in commonground. Enjoy the Thanksgiving holiday!

If you've been reading my blog, you know I'm a strong proponent of consultants doing everything they can to live where clients live. By this, I mean going to conferences in your target client markets, reading what your potential clients read, connecting with them in online communities (LinkedIn, Active Rain) and learning as much as you can about the issues that matter to them. 

The latest consultant I saw doing this authored an article in the New England Real Estate Journal, titled Avoid Environmental Roadblocks When Purchasing a Property. Right out of the gate, he mentions two of the worst environmental offenders  (dry cleaners and auto body repair shops). Then he hits on what every real estate purchaser wants: a deal to go through smoothly. Now that he's got their attention, he outlines a few good rules of thumb that I know you can all relate to:

1. Don't assume the deal will close quickly (i.e., start environmental due diligence with enough lead time that red flags can be adequately dealt with....not a few days before you want to close)
2. Conduct the assessments needed and leave enough time for adjustments to the terms of sale to be made
3. Avoid rush decisions (if it seems too good to be true, it probably is)

He closes with a reassuring statement that a knowledgeable consultant and careful planning can save purchasers from the financial consequences of undiscovered environmental conditions.

He doesn't go into a lot of technical detail in the article, and any consultant worth his or her salt could probably fire off an article like this one fairly quickly. But to readers of this regional commercial real estate journal, they get valuable information on the importance of environmental research, and with any luck, they'll remember it before their next deal (especially if it's on or near a dry cleaner or auto body shop). The best part for the author is that he's probably the first guy they're going to call, assuming they don't already have a trusted consultant.

It takes great initiative to get an article like this placed in a client publication. What should be a strong incentive for environmental due diligence professionals to follow his lead in their local markets is the fact that not many other consultants do this type of thing. This means that you can potentially reach a strong target market and well be the only consultant those clients see talking about environmental due diligence. A little visibility goes a long way, especially in today's market!

At our client briefing in Seattle last week, I was reminded not to assume that just because someone does Phase Is, they automatically know what ASTM is. A consultant approached me after my presentation and asked, "What is this ASTM? And what business do they have deciding which Phase Is make the cut or don't make the cut? or telling me how I should do a Phase I?" This blog's for him.

ASTM is a huge international organization dedicated to writing consensus-based standards for just about anything, from the textiles used to make your shirt or car seats to the concrete and steel used in the bridges you drive every day to the wallboard in the walls of your home and office---and a million other goods and services. ASTM's E50 Committee on Environmental Assessment, Risk Management and Corrective Action was formed in 1990 and now has about 1,000 members. They meet twice a year, usually in April and November, with about 70 members attending over three days of technical meetings. The Committee has jurisdiction of over 35 standards that "have and continue to play a preeminent role in all aspects commercial real estate transactions, corrective action, pollution prevention and beneficial use."

Hundreds of consultants, attorneys and users of environmental due diligence volunteer their time to ASTM to collaborate on defining industry standards of practice. These are people who are deeply committed to environmental risk management, many have been in the industry since the "wild West" days prior to the first E 1527 standard. They can debate terms like REC, de minimis and the significance of data gaps until the cows come home. Many can cite every section of E 1527 by heart. I've attended a number of these meetings and they can be as uneventful or exciting as watching golf on TV. Debates crop up that are extremely technical--sometimes heated--and always in the spirit of ensuring that ASTM's standards are current, balanced and consistent.  

The Phase I ESA standard is their most-used standard (E 1527-05). The fact that after months of indepth scrutiny by a regulatory-negotiation committee tasked with writing the federal All Appropriate Inquiries rule, the U.S. EPA recognized E 1527-05 as acceptable protocol for meeting AAI is a tribute to the effort that went into E 1527 by ASTM's members. Since the standard first came out in the early 1990s, it's been revised numerous times in accordance with ASTM's bylaws, which require periodic review of every standard. Every revision is the result of detailed debates at the bi-annual meetings and a balloting process among members. There must also be representation by producers of Phase Is as well as users. This time-tested process of writing standards of practice based on stakeholder input is why ASTM's standards are so widely respected. EPA's AAI committee went through the standard with a fine-toothed comb, tore some sections apart, but then concluded in the end that, although not perfect, there was no better out tool out there for assessing a property for environmental conditions for the purpose of qualifying for CERCLA liability protection. 

Now, E 1527 is approaching another milestone in its evolution. Every eight years, ASTM standards must be reviewed, and then either updated, re-approved without revision or retired. This is the first time since 2005 that the standard is being scrutinized to determine if it still accurately reflects current practice. Are data gaps adequately addressed? recommendations? is the definition of environmental professional sufficient? are there any non-scope issues that should be added? and on and on.

The last meeting just happened in Atlanta last month. If you haven't been involved in ASTM, now's a good time to jump in. Joining is easy, inexpensive, and with minimal efforts, give you the chance to have a voice in the standards you use every day. It's also a good thing to have on your resume, stay current with technical issues and a valuable way to build up some professional visibility. If you want to join or are thinking about joining, there's a nice guy at ASTM I've known for years named Dan Smith who told me today he'd be happy to answer any questions.

I don't get anything out of you joining ASTM, but I do strongly believe in the process behind writing these standards. It's not dissimilar from our political process. I have a brother-in-law who was born in Argentina and for years during the Bush-then Clinton-then Bush years, I had to listen to him rage against the political machine at family dinners. He wasn't a citizen, didn't vote and therefore, in my opinion, didn't have grounds to complain about what he got. I'm proud that he's since taken the test to become a citizen, now doesn't miss a chance to vote and I'll gladly debate with him over Thanksgiving dinner next Thursday. I feel the same way about ASTM. You don't like something in E 1527? Speak up, get involved, vote for/against or forever hold your peace. These standards aren't written in a vacuum and there's an opportunity to have a say in the outcome.

[At the October meeting in Atlanta, groups met on Phase Is, vapor intrusion, a new building energy performance standard and green remediation. For more information on the goings-on, read a summary I just finished after talking to a bunch of members who went down there.]

Just a short blog from me today to pass along a headline about environmental disclosure during an M&A deal.

British Petroleum sold a plant in 2004 to another company, who then sued BP after a sewer line broke and unleashed wastewater, and corroded tanks leaked acid.  Flint Hills Resources (the acquirer and plaintiff in the case) charged BP with hiding and misrepresenting the plant's condition before selling it. According to details of the suit, BP “made verbal representations regarding environmental compliance, mechanical integrity, and production capacity and then embodied many of those representations in the agreement." (BP was cleared of misrepresenting the plant's production capacity.) Flint Hills paid $225 million for the plant, and sought $100 million in damages in the suit. Based on this week's ruling, BP's on the hook for $41.7 million, but already announced plans to appeal the ruling. BP insists that it performed due diligence in its inspections of the plant before selling it.

Cases like this hammer home the importance of doing indepth due diligence upfront and not taking anyone's word for anything. This becomes all the more significant this year and into 2010. The longer this dreaded recession drags on, the more distressed M&A deals we'll see as companies cave under the pressure of their already-taxed balance sheets.

AND...if M&A trends affect your world, read this Wall Street Journal blog with these promising stats:

• 33% of businesses are likely/highlikely likely to acquire other companies in the next 12 months
• 25% will do so faster than that
• 63% expect acceleration of industry consolidation in next 12 months

Enjoy!