A Phase 1 Report, often a critical first step in environmental due diligence, is an assessment designed to identify potential or existing environmental contamination liabilities on a property. This essential document, which is integral in the commercial real estate transaction process, provides buyers, sellers, and financiers with a comprehensive view of a property's current environmental status. By evaluating the possibility of contamination from hazardous substances or petroleum products, it plays a pivotal role in the protection of public health, preservation of the environment, and in safeguarding the financial interests of stakeholders involved in the transaction. Understanding the importance and implications of a Phase 1 Report can significantly influence decision-making processes, making it an invaluable tool in the realm of real estate development and investment.
Check out LandApp to assess any property's potential contamination risk at a glance. Although LandApp does not replace a formal Phase 1 ESA report, it provides any U.S. property's proximity to nearby Superfund sites, contaminated sites, underground tanks, and abandoned wells. The tool also provides thorough data about any contaminated site's specific contaminant, remediation status, chemical properties, and more to provide you with information about a property's contamination risk with the click of a button.
What is a Phase 1 Report?
A Phase 1 report, also referred to as a Phase 1 Environmental Site Assessment (ESA), is a detailed assessment of potential environmental contamination on a property. This report is typically conducted during the due diligence stage of a real estate transaction, and its purpose is to identify any potential environmental risks associated with the property.
When is a Phase 1 Report Done?
Phase 1 ESA reports are critical for finding out if a property is contaminated. There are a few common reasons that Phase 1 ESA's are conducted:
If the property contains, or is suspected to contain, hazardous materials as a result of past or present activities, including those on adjacent properties
When prospective property owners want assurance about a property's condition and potential contamination risk
To satisfy the requirements for the innocent landowner defense
When financing properties where banks or lenders would require a Phase 1 site assessment to get an accurate property value
Why are Phase 1 Reports Important?
Phase 1 reports play a vital role in safeguarding the property owner's liability, particularly in the realm of commercial and industrial real estate transactions. A meticulously prepared Phase I Environmental Site Assessment (ESA) is central to the due diligence process when acquiring a property. Additionally, this report highlights any historical or current issues associated with the site.
There are various environmental risks in real estate. A Phase I ESA report also identifies a property's past uses that could make an impact on the site. For example, if the property was used for a gas station, dry cleaning business, or other industrial types, it significantly impacts the property’s environment. Some high-risk uses could affect the property for up to 40 years after the business vacated the property. In fact, some chemicals, such as PBT chemicals, may exist on a property permanently.
Phase 1 ESA's play a crucial role in preserving property value. By identifying Recognized Environmental Conditions (RECs) that could compromise a site's condition, these assessments ensure informed decisions are made about the property's value. Through investigating the property's historical uses, particularly those involving high-risk activities like gas stations and industrial operations, Phase 1 ESA's can reveal environmental impacts that may persist long after these businesses have ceased operations, safeguarding the property's worth.
How is a Phase 1 Report Conducted?
Creating a Phase 1 ESA report can take 2-4 weeks on average. It consists of four major steps:
1) Site Visit
The purpose of a site visit is so that the assessor can observe the current and past conditions of the property. This includes inspecting the interior and exterior of the property including nearby properties, identifying storage containers and tanks, examining drainage systems and other water resources (including lagoons and ponds), and evaluating the vegetation for possible signs of contamination.
2) Review of Historical Records & Databases
This process entails a thorough review of federal, state, tribal, and local databases to identify above-ground (ASTs) and underground storage tanks (USTs), as well as the storage and disposal practices for hazardous substances, such as petroleum products. It also involves scrutinizing state and local agency records, including environmental, health, fire, and building department reports.
Additionally, geological surveys and maps, including topographic, fire insurance, oil, and gas maps, are utilized to assess the site's characteristics. The research further extends to property tax files, building permits, and land titles to uncover historical business ownership. Aerial photographs, historical city directories, land use records, and other resources are employed to trace the site’s historical uses, ensuring a comprehensive understanding of its environmental background.
3) Interviews
During the creation of a Phase 1 ESA report, interviews with past and present building occupants and owners of neighboring properties are conducted to validate past uses. Other individuals who may be interviewed include health, fire, and water departments, property operators, and local government officials.
4) Report Creation
The last step of creating a Phase 1 ESA report is compiling the report documenting the findings with conclusions and recommendations for further investigations in case Recognized Environmental Conditions (RECs) have been identified. A REC is the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property. Some RECs include dry cleaners, auto repair facilities, underground storage tanks, or even a toxic radioactive dump site.
A common dealbreaker for any real estate transaction is the presence of a Recognized Environmental Condition. If anything comes up in the Phase 1 environmental report that indicates the presence of hazardous materials, a Phase 2 is usually needed. A Phase I environmental site assessment serves to verify any suspicions regarding potential risks associated with a property. However, it represents merely one component of an exhaustive assessment process.
How to Get a Phase 1 Report
A Phase 1 report is typically conducted by an environmental professional who will conduct a thorough investigation of the property and surrounding area. It must be performed by an “Environmental Professional” trained under ASTM standards and experienced with CERCLA requirements, with additional local requirements. Inspectors must be cognizant of state or local site assessment mandates, which frequently diverge from federal ASTM standards.
Utilizing LandApp to assess a site's potential contamination risk is a great precursor to a formal Phase 1 ESA report. Although it does not replace a formal Phase 1 ESA report, it provides any U.S. property's proximity to nearby Superfund sites, contaminated sites, underground tanks, and abandoned wells. LandApp also provides thorough data about a contaminated site's remediation status, chemical properties, and more to provide you with information about a property's contamination risk at a glance.
Access nationwide contamination data for just $10 per month when billed annually or $16 per month when billed monthly:
