Tip O'Neill, the late Speaker of the House, is credited with the quote "All politics is local." I'd argue that all environmental due diligence is, too. I have a new-found respect for researchers who comb through deeds and titles at local courthouses across the country after an AUL training workshop I sat in on this week. 

This morning the point was brought home again when one of my google news feeds brought me to a Brooklyn community website, Brownstoner. Amid posts about a coffee shop, installing a patio, flea and farmers markets sat an exchange by someone who is considering a property adjacent to contaminated sites, but utterly clueless about what this might mean to his own liability. He ended up getting some good intell about local sources of environmental data, the importance of due diligence and government agencies that might be able to help. Without this avenue of communication, where would he be? Probably buying a site that could cost him dearly down the road.

When I was doing client briefings this past spring about the sorry state of the market, one of the things I urged attendees was to do EVERYTHING they can to get tied into their local market. If new investors are about to come on the scene, one of the best ways to find out who they are is to put out some feelers. Local community websites like the Brownstoner are great ways to get tied in. Another I saw recently is The Real Corner, a commercial real estate site. They're setting up groups that would let you link into Indiana's market or Southern California's. It's new so there's not much there yet, but you get the idea. There are so many sites like this sprouting up across the country.

As Rob just brought up in his latest blog, changing market conditions demand changing strategies. I couldn't agree more. While the market downturn means EPs are fighting for a piece of a smaller Phase I ESA market, technological advances allow us myriad ways to get more visibility for our expertise than ever before. Usually for free.  It's worth spending a little time to find out about them, tune in and throw in your two cents when you're so inclined. They can be a great way to tie into the players in your local market. Who knows? It might just lead to your next project.

Have a great weekend, all. I'm looking forward to some great old-fashioned New England baseball (several states away from my Red Sox-loving spouse).

LUST has been getting a lot of attention in government circles recently (and I'm not referring to the latest governor's scandal involving an international tryst under the guise of hiking the Appalachian Trail).

On Saturday, the author of the Caucus blog of the New York Times wrote this tongue-in-cheek statement: "Unfortunately, LUST is just about as *** as an oil spill in your bathtub." 

What's been making headlines is that EPA was busy last month doling out the $200 million allocated to the federal LUST program under the stimulus package. Although EPA was required to obligate LUST Recovery Act resources by September 30, 2010, the agency sought to do so by a July 17, 2009 deadline in the spirit of the urgent need for job creation. So, that's accounts for the recent headlines about a million bucks to one municipality here, a few million to another municipality there. Even Guam got LUST funding to the tune of $138,000.

Also in the spirit of rapid job creation, states are now under pressure to expend their allocations quickly. If not, they risk being penalized for a "failure to perform."

And they are required to spend the money under a pretty strict set of guidelines referred to "the arrestingly titled:"

Guidance to Regions for Implementing the LUST Provision of the ARRA of 2009.

The funding can be used for "shovel-ready projects (sites ready for assessment and cleanup) that are typically orphaned or abandoned sites, where the owners/operators of the sites are unknown or unable to pay," as well as "staff management and oversight activities that will leverage additional cleanups." EPA has a lot of hoops to jump through to meet the transparency requirements of spending ARRA dollars, as outlined in its plan submitted to the Office of Management and Budget. The document also contains a list of states getting the highest allocations (California, Florida and Texas).

So, how does $200 million measure up against the LUST problem in the U.S.? Drop in the bucket.

There's a backlog of just over 100,000 leaks that have been identified but not yet cleaned up. So the $200 million would cover those provided the average cost of cleanup per leak did not exceed $2,000. Fat chance.

Instead, EPA estimates that the $200 million in LUST money in the stimulus law will pay for "at least 1,600 cleanups."  That's an average of $125,000 per cleanup.

In terms of the scope of the LUST problem, you need only look at the map I uploaded at the end of this blog. It shows LUSTs in the valley of the Phoenix metro area as mapped by the AZ Dept. of Environmental Quality, which just received $3.2 million in stimulus money. That funding should help clean up a few of these sites.

I came across some up-to-date stats on the universe of sites from an EPA June 2009 document (This summary is apparently a hot commodity. An EP who follows me on twitter said he spent a lot of time a few years ago researching LUST stats like this):

Corrective action at UST sites (as of March 2009)

• 482,166 releases have been confirmed

• 456,677 cleanups have been initiated

• 380,976 cleanups have been completed

• 101,190 cleanups have not yet been completed

So, we have 100,000+ sites to be cleaned up. And the $200M in ARRA funding will pay for 1,600 of these (assuming the funding really goes to site cleanup and not just to patch holes in state budgets).

Will there ever be a day when there are no LUSTs? Or are USTs leaking faster than we as a society can clean them up?

I just read a prescient article that Reuters picked up yesterday whose author believes that the cap-and-trade legislation approved by the House last month, if passed, would have a "profound" effect on the real estate sector. If you're among the consultants already tracking green building developments as a potential area of business opportunity, then the article's definitely worth a look. (And if you're more interested in arguing over whether climate change is real or a conspiracy, go to this discussion thread.)

The author highlights the following implications that the bill, if passed in its present form would have:

1. increased reliance on building codes to establish energy efficiency and green building practices;
2. energy efficiency requirements for new commercial and residential buildings;
3. increasing standardization in building energy performance metrics in the commercial and residential sectors;
4. more reliance on the public sector to finance building energy efficiency programs; and
5. more green collor jobs related to building energy efficiency.

Buildings are obviously huge consumers of energy and therefore a target of emission reduction programs so it's not exactly going out on a limb to predict that all types of commercial buildings, multifamily and low income housing, new and existing buildings, as well as developers and those in real estate finance will be impacted by a federal climate change law.

It's also not going out on a limb to say that we're headed straight for a world where environmental due diligence inquiries will expand to assess energy-related issues. And I'm not the only one. Credit is due to Larry Schnapf for sending an article my way this AM titled "It's Not Just About CERCLA Anymore." The author posits that, in a world so focused on climate change, the CERCLA liability concerns that first drove environmental due diligence likely will need to become much broader in scope. Under a cap-and-trade program, there would be a cost associated with emitting greenhouse gases. This would mean that energy-efficient buildings could be more attractive choices to a potential buyer than inefficient ones. So, environmental due diligence would need to identify any factors that would impact a property's energy consumption and emissions, both of which could impact a property's value.  The author makes this prediction "federal and state carbon emissions restrictions and renewable energy standards for buildings and operations could soon become threshold review items in a standard environmental due diligence inquiry."

And as noted by Mike Kulka in a recent blog, if a federal program passes, "climate change services will be in high demand." I couldn't agree more.

And, the standards and guidance documents and policies that will drive the opportunity for environmental professionas won't wait for legislators inside the Beltway to agree. They're being written now. This week I received an unbelievably high volume of emails in my Outlook in box from members of a green building due diligence group I belong to. It includes not just EPs, but lenders, appraisers and others with strong opinions about what kind of standard is needed to consider a building's energy efficiency as part of a transaction.

So are the authors of the articles I referenced wrong in predicting that the climate change, real estate and due diligence spheres will soon intersect? I don't think so. And if you want a piece of this pie, now is the time to jump in and shape the dialogue. The timeframes in the federal bill are short, so the future could be here before you know it.

Let me first say that I'm not British, and any news about the UK's adulation of the royal family strikes me as outdated and silly. While I was on vacation with my slightly dysfunctional family last week, a group of "emminent" economists in merry old England issued a formal apology to Queen Elizabeth II for failing to predict the financial crisis. It was their response to her "demand" nine months earlier at the London School of Economics to know why no one was able to predict the crash.

Call me childish, but reading this conjured up images of the old Monty Python movies my brother forced me to watch growing up...the bumbling men in fancy dress falling over each other and quaking in fear as they went before royalty.

According to the letter of apology, "In summary, your majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole." Don't we know this already? Is this really news in July 2009?

There are plenty of well-researched pieces on the risk management failures that led to the mess we're in. I caught up on old Vanity Fairs last week with meaty pieces on the likes of AIG, Goldman Sachs and other worthy scapegoats who threw risk management to the winds in their pursuit of profit. There's plenty of blame to go around that goes way beyond the best economic minds in the world. And, if the world's leading economics can't accurately forecast the market, then what hope do the rest of us have in doing our FY10 forecasts for Phase I ESA volume? 

[I mean no disrespect to any UK readers out there, and blame John Cleese. If I've offended anyone, let me know and I will promptly (i.e., within 9 months) issue a formal letter of apology and cc her majesty.]

Next up: my recap of 2Q09 Phase I ESA market results, and perhaps a word on my forecast with a long list of caveats!

Well, what the market's been waiting for finally happened on Wednesday. Four months after unveiling the Public-Private Investment Program, or PPIP, with much fanfare about how it would move distressed assets off banks' balance sheets, the feds finally announced the 9 key PPIP fund managers. (I happen to like even numbers, and it turns out it was supposed to be 10, but one early enthusiastic supporter just withdrew citing "uncertainty about the program's design.")

Who cares about PPIP? I do. Here's why:

It's the government's plan to use federal and privately raised money to inject some liquidity into the banking system. I should note that since its initial announcement in March, the feds have scaled back the scope of PPIP down to $30 billion, with a promise to expand it again as needed, but at least it's a start for this limbo market.

Here are the 9 players:

1. AllianceBernstein (and partners Greenfield Partners and Rialto Capital Management)
2. Angelo Gordon & Co. (and partner GE Capital Real Estate)
3. BlackRock Inc.
4. Invesco Ltd.
5. Marathon Asset Management
6. Oaktree Capital Management
7. RLJ Western Asset Management
8. TCW Group
9. Wellington Management Co.

Each of these funds now needs to raise at least $500 million in private capital in the next 12 weeks to secure their place in the program. In what I see as a positive early sign, they're already being inundated with calls from pension funds, municipalities, endowments and institutional investors interested in talking about the program. Whether this interest translates into a desire to invest is another question altogether.

Given all the notices I saw this week about new distressed assets coming online and efforts by the FDIC to beef up staffing in anticipation of more bank failures, we're starting to move into the significant transfer of real estate assets that I predicted at the start of 2009.

As for PPIP, and whether it will help the banking system and jumpstart lending, there are big questions that could limit the program's effectiveness. I reached out this morning to a colleague at our sister company, PPR in Boston, and his take was there are too many unknowns to get excited yet: "The next few weeks will be very telling because that's when the applications [from those willing to turn over investment dollars] start coming in." Other unknowns:

• Will banks be willing to sell? (an LA Times blogger has his doubts) Or will they opt to take a "wait and see" attitude, holding onto assets until the market improves?
• Will the investors care if the properties backing these assets are sitting on or near a former landfill, factory, dry cleaner or gas station? Are they aware of environmental risk? Do they care? If these 9 managing firms don't already have due diligence policies for how these assets will be researched prior to investment, I expect that they soon will.

These 9 fund managers are being directed by the fed to diversify their purchases--meaning they can't buy too many assets connected to a related group of sites or a particular underwriter--but beyond that, the government provided no sign that it would limit buyers' flexibility. How this plan takes shape, and what level of interest PPIP gets from investors willing to put their $$s down is an important thing to watch this summer.

We're all so happy in New England that the weeks of endless rains have subsided. I'm sifting through the market news I missed after not logging in once over the beautiful holiday weekend, and still in a great mood from celebrating Dad's 75th (yay, Dad) and passing a milestone in my running training. Two articles I came across that struck a positive vein both relate to small businesses. Seeing how the Phase I ESA industry is dominated by small businesses (66% of all Phase Is are conducted by small firms), I'm sharing them with you.

The first, titled Refinance Commercial Real Estate with 504, is one of several stories I've seen over the past few days about the June 24th move to extend the U.S. Small Business Administration's 504 program to refinance commercial real estate investments. At a time when the news is full of estimates of the billions and billions of dollars in property loans that need refinancing and will find the well is dry, this news could be "a ladder out of the hole dug by commercial real estate investors" and "a potential cure the troubled commercial real estate market has been searching for." The program's new features, as defined in the stimulus package, allow small businesses to borrow up to 90% for purchases of commercial real estate, and perhaps much more importantly, providing a way to refinance property loans. This is the government's attempt to give small businesses a leg up in the recovery by improving access to capital. Hopefully it also opens up opportunities for Phase I firms since SBA lending requires environmental due diligence as a prerequisite. The article cites on Dallas developer, Encor Enterprises, that has already used 504 lending to launch Encore Opportunity Fund II to acquire and develop real estate interests. The fund is now pursuing retail assets from distressed sellers...and unfortunately, there are plenty of those around in today's market! The new program's not perfect, according to one blogger, but it at least puts the 504 program on par with the 7(a) program. And the potential is there. SBA has only guaranteed less than $3 billion in 504 loans so far this year, less than half of its $7.5 billion authorization.

The second piece I came across that struck me as good, positive food for thought for small businesses was a blog entitled 3 Things to Watch For As '09 Plays Out. It's written for those of you who run small businesses, and the author give good solid insight on 3 things to focus on as you take some time this summer to "pause, reflect and take inventory:"

1. improving cash flow: he makes the point that cash flow has become more important than profits..."breaking even is the new profitable!"

2. staffing: most of us are working at firms that have taken the difficult step (or steps) to reduce staff who were either not performing or just deemed to be an unnecessary expense. The author takes solace in the fact that he's now surrounded by staff that have been there for 10 years or more who are "on the mission with him" and that he has "found, culled through, kept, nurtured and grown."

3. sales data: he's projecting somewhere between '08 and '09 levels

His words are comforting and inspiring...and worth a look. He ends on the inspiring note:

Now's the time to be a warrior, not a worrier. Good advice for all of us!

I remember back in January when all these predictions came out about the flood of dollars that would be moving into play by the second quarter as investors swooped in to take advantage of the commercial real estate deals. Well, the second quarter's almost over and very little has happened. Why? I think it's largely due to sources like PricewaterhouseCoopers' Korpacz that keep publishing forecasts about how much farther commercial real estate prices have to fall. In their latest Real Estate Investor Survey, which came out yesterday, "Real estate owners and investors are expecting further declines in commercial property values over the next 12 months...And some of these declines could be steep."

I cringe every time I see these. Here's why: If you're one of the lucky ones with gobs of capital to drop into commercial real estate, why would you buy a $5 million office park today if studies tell you it could be had for $4.5 or $4 million if you just wait a few more quarters? Studies like this just prolong the market agony.

Buyers and sellers are still locked in a stalemate. Sellers aren't feeling pressure to lower their prices to levels buyers will accept. In some cases, the difference between the bid and ask spread is as high as 20-40 percent. Plus, with so few transactions happening, buyers don't have anything in the way of recent sale prices on comparable real estate to rely on. If you're buying an office property in Chicago, you can't just look up what a similar property sold for last month like you could back in 2006. So buyers continue to sit and wait.

Anecdotally, I hear from Phase I environmental consultants that they're starting to see some relief in the form of more interest from buyers, but it's still far from getting too excited over (and I refuse to the use the media's over-used term: "green shoots"). A recent article in Retail Traffic magazine cited someone at Marcus & Millichap saying, "We're getting calls frequently from money managers and hedge funds suggesting they are sitting on hundreds of millions of dollars in capital, and there also is a wide range of investors in the $5 million to $75 million liquid market that allege to have capital. Those investors are all looking for the same thing – bargains, and those value-priced properties have been slow to emerge." That's why commercial real estate transactions are recording their lowest levels of sales activity since the early 1990s right now.

If you're wondering what this stalemate between buyers and sellers has been doing to Phase I ESA volume, see the graph I uploaded to this blog. It shows how the volume of Phase I environmental site assessments has changed since October. The funny thing (funny, as in ironic) is that October looks pretty good in the graph but at the time, it felt terrible. October was down 21% below September in the wake of the Wall Street shakeup. Then November was down another 22%, with volumes reaching a new low by January. The slight uptick in the first quarter was largely due to an increase in foreclosure work. Since then, the past two months have been relatively flat. As for what the summer holds, my hope is that the federal efforts finally gain some traction in luring investors back into the market.

On a lighter note, I have a question: If retail's struggling so badly, why was the mall so jam-packed when I went looking for last-minute Father's Day presents at lunch? Desperate shoppers looking for bargains? Or maybe everyone was doing the same thing I was.

Happy father's day to all you dads out there!