Lesson Tag: OZ112IL-BR

As part of the pre-acquisition property due diligence process, many savvy investors required the “Big Four” tests:

1. a phase one ESA (Environmental Site Assessment),
2. a PCA (Property Condition Assessment),
3. An ALTA survey
4. Zoning Compliance Report.

Additionally, there are multiple complementary services that are available to help an investor, property owner and/or lender to assess potential risks. Depending on the unique features of the property, as well as the buyer’s anticipated use of the property, the Big Four core services may be supplemented with additional evaluations.

Some of these additional assessments will be driven by the location of the property, for example,

Seismic Risk Assessment – property is located in seismically active areas, such as those on the West Coast of the United States, may warrant a seismic risk assessment.

Radon Survey – For properties in an area of high potential radon concentration, a radon survey would be beneficial.

Septic Assessment – Properties that do not have a connection to public water and sewer services may require a drinking water evaluation to screen for lead and drinking water, as well as a septic assessment.

Hazardous Materials Building Survey – For properties where extensive renovations and/or demolition is planned, a hazardous materials to building survey can be applicable. This assessment evaluates the potential for asbestos containing materials, lead based paint, PCBs and caulk, mercury containing devices, and other materials that would require special handling and disposal.

Wetlands and Flood Plain Evaluation – For properties where development is intended, a wetlands and flood plain evaluation should be considered. An environmental lien search to identify Activity and Use Limitations (AUL) and land use restrictions can also yield valuable information pertaining to the property and potential development challenges.

Acquisitions during the coronavirus pandemic may warrant additional assessments as well. At the onset of the pandemic, many buildings were unexpectedly vacated for what was initially understood to be a short period of time but remained vacant for several months. If your target acquisition has been vacant for a prolonged period, consider an industrial hygiene evaluation to ensure that there are no leaking emergency generators or above ground storage tanks, mold growth due to an unbalanced HVAC and/or pipe leaks, or legionella blooms in water chillers. Solutions can be employed to swiftly and cost effectively address these conditions. As we proceed through the economic impacts of the global pandemic, there may be an increase in foreclosure activity. It may be prudent to conduct a regulatory compliance review pre-foreclosure. Should larger environmental issues be identified, a remedial cost estimate and remedial action plan will be developed.

For a potential property owner who wants to ensure appropriate conditions for future occupants and/or tenants, an Indoor Air Quality (IAQ) evaluation can be illustrative. Currently there is an increased focus on industrial hygiene in commercial properties, primarily driven in response to COVID-19. Many commercial spaces are undergoing deep cleaning. Property owners may want to perform an IH cleaning evaluation on a regular schedule to provide confidence to their occupants.

With so many factors involved, developing a due diligence strategy requires thorough understanding of what tools are available and when to deploy them. You may find it helpful to use a due diligence checklist. Work with your due diligence consultant to develop a risk mitigation protocol that incorporates your business objectives and your level of risk tolerance as well as the specific attributes of your target acquisition.

Video Time: 2 Minutes

• How to choose sites for optimal business objectives. 
• Once you have targeted some qualified Opportunity Zones for real estate development, your first objective is to evaluate how and if that parcel can accommodate your business objectives and potential building use. 
• How to manage environmental and physical building risk. 
• The U.S. Environmental Protection Agency recently targeted 149 communities to receive $64.6 million in funding for brownfield cleanup, almost three-fourths of which were Qualified Opportunity Zones. 
• How to manage project completion and budget. 
• The degree of success when investing in opportunity zones will depend on optimization of site selection for use and occupancy, understanding and pricing in all environmental and physical risks associated with the site, and ensuring timely construction progress and budget.