Most commercial real estate developers and lenders are familiar with the steps of environmental due diligence. But what happens when a Phase II ESA identifies a problem that represents a financial burden and due care responsibility to the purchaser? Or needs ongoing mitigation – like vapor intrusion? A PM Environmental expert sheds light on the process and its challenges.
A brief refresher on Environmental Due Diligence
Due diligence is a process undertaken at the time the ownership of a parcel of property changes hands. It requires the purchaser to demonstrate that All Appropriate Inquiries (AAI) have been conducted to understand the environmental condition and any potential environmental risks. There are two phases of due diligence called Environmental Site Assessments (ESAs).
A Phase I ESA report that follows the established standard (ASTM 1527-13) protects a property owner from being held liable for the cost of cleaning up potential environmental problems (called Recognized Environmental Conditions or RECs). Included in the Phase I ESA are document reviews, interviews with the current site operator and adjoining property owners, and a historical survey of the property’s past commercial and industrial uses. A site visit also documents any obvious visual evidence of contamination.
When the Phase I identifies a REC, the next step is to gather data to quantify the potential impact on human health or the environment, and determine whether the risk exceeds the regulatory threshold that triggers a cleanup to protect the health of occupants, employees and customers at the site. That is the purpose of the Phase II ESA, which utilizes specialized sampling, analytical and monitoring techniques and equipment.
When the REC is Vapor Intrusion
Arguably the REC now gathering the most attention in the due diligence field is vapor intrusion, or VI, which refers to the release of a volatile organic compound (VOC) into soil or groundwater. VOCs can volatilize beneath a structure, collecting beneath the slab and presenting the potential for intrusion and impact to humans inside. Common VOCs include motor vehicle fuels and chlorinated solvents like those used in dry cleaning or parts washing.
In the last decade, regulations governing the release of VOC vapors have grown more stringent, lowering the concentrations determined to pose a health risk to vulnerable populations such as pregnant women, the elderly and the immunocompromised.
Exercising Due Care
When a Phase II ESA confirms a source of potential VI at a site, the focus shifts to doing something about it. Although properly conducted ESAs provide liability protection for the cost of cleaning up preexisting problems, the property owner is still required to meet a due care obligation to protect occupants/employees/customers going forward. Meeting that obligation into perpetuity commonly requires installing and operating a vapor intrusion mitigation system.
That’s a scary proposition for property owners and developers, promising to add time, cost and complexity to a project. Fortunately, PM Environmental has built a specialized team to help clients take on this “Post-Phase II” challenge. PM’s team, led by Lee Walter, PE, is skilled in the assessment, planning, design, development, installation and maintenance of customized, turnkey vapor mitigation systems. “Since every project is unique,” said Walter, “we must be just as adept at helping clients balance environmental compliance with their very specific business realities.”
The first step is to supplement the Phase II ESA by conducting a more specific vapor intrusion assessment. If potential for VI is confirmed, a follow-up constructability and pilot test assessment quantifies design parameters points to the best strategy to protect occupants by keeping vapors out of the building.
Based on the type of site development, there are two general approaches to mitigating vapor intrusion.
If the problem is identified prior to new construction, a physical barrier to block the VI can be installed before a foundation and floor is poured. The typical barrier consists of a high-tech composite sheet of engineered plastic bonded to the foundation. Under the barrier are venting mats. Accumulating vapor flows to these mats, which are connected to pipes that feed up to a rooftop exhaust system. “With the exception of some monitor points and rotary turbine vents which help promote flow, it’s a passive system,” Walter said, “operating essentially out-of-sight, out-of-mind.”
Retrofitting vapor mitigation systems in existing structures present far more challenges. Known as sub-slab depressurization (SSD) systems, they rely on a network of vacuum extraction points and fans to create a negative pressure barrier beneath the slab from various points drilled or tunneled into the foundation. These are connected to pipes which transport the vapors to the roof to be expelled.
“The SSD process requires far more investigation, planning and testing,” explained Walter. “To discover what lies beneath an existing floor slab, we conduct a factfinding step called a constructability assessment, which seeks to understand all underground infrastructure and impediments, current and archaic. We also consider how the building will be used, factoring in site-specific issues like whether water used in manufacturing or cleaning requires working around floor drains.”
Extensive pilot testing follows to determine the optimal number and placement of extraction points, target vacuum pressure and flow, and countless other details.
Armed with that knowledge, the team proceeds to design, install and test the system.
“It’s a solid engineering challenge to devise a solution that is customized to the user’s needs, will achieve regulatory compliance and protect occupants, is energy efficient, and can function 24/7 without interruption,” added Walter.
Surviving Vapor Intrusion Mitigation
Central to Walter’s role is helping clients prepare for mitigation. Here, he shares his top six tips:
Get your head right.
Even clients who have lived through multiple Phase I and II ESAs aren’t prepared for the longer timetables, potential increased costs, regulatory review needs, and evolving regulations.
“Prepare for the long game. From initial study through design, testing and installation can take a six months to a year, or even longer. Patience, persistence, flexibility and realistic expectations are the watchwords.”
Sweat the details.
“It’s important to take the time to understand the scope of work, the contractual obligations and the many variables in play. I encourage clients to stay engaged by reading reports, returning calls and asking questions.”
There is no such thing as one size fits all.
SSD systems are very site specific. Each project requires a different degree of effort (and associated time and cost) to understand what lies beneath the surface, and to devise the right system for the client. “Some of our competitors try to take shortcuts in the planning stage, figuring they’ll design around problems as they arise. This short term thinking inevitably results in long term pain for the customer.”
Communication is essential to implementing vapor mitigation remedies.
The rules for addressing vapor intrusion, and the mechanisms for meeting due care obligations, vary widely by state. Some rely on local districts, municipalities or health departments to regulate vapor intrusion; others have little or no clear regulatory framework. Further, feasible options can vary significantly based on the type of contamination present and other factors like utility layout and building design.
“Michigan’s vapor intrusion mitigation program, managed by the state’s Department of Environment, Great Lakes and Energy (EGLE), is arguably one of the most developed in the country. Even so, due to the site-specific nature of vapor intrusion remedies, it is important to communicate early and often with EGLE if regulatory approvals are sought.”
Know your financing and incentives program requirements.
While federal, state and local funds such as SBA loans and brownfield grants may be available to help offset cleanup costs, they often come with additional requirements that need to be identified up front and incorporated into the project schedule and budget. “Changing direction mid-stream or playing catch-up can significantly increase a project’s overall cost and timeline, so proper up-front planning is critical.”
Choose the right partner.
The right partner can help a property owner or developer work within the local regulatory system while minimizing the impact on regular business activities at the site. “We have an established portfolio of successful projects, we’re familiar with local regulatory rules, and we’re equally comfortable helping clients determine whether it makes sense to pursue subsidized funding for mitigation, such as SBA loans, brownfield grants or tax increment funding (TIF).”
“PM brings our clients the experience and sound engineering and fiscal judgement they need to strike the right balance, keeping their people safe while achieving their specific business goals.”