Transcript: The Hidden Threats in Real Estate Transactions
CLARICE: Welcome, everybody, to this week’s episode of Environmentally Speaking.
MARISA: Hi, everyone. I’m Marisa Desautel an environmental attorney in Rhode Island.
CLARICE: And I’m Clarice who has taken a week off and barely remembers how to start this podcast.
MARISA: Well, you did a good job.
CLARICE: Thank you. Welcome, everybody. This week we are excited to welcome a special guest. We have Mark Garren who is joining us today. He is a senior director of collateral risk services at a top 15 financial institution with a national commercial lending footprint. He’s going to explain what all of that is in a couple of minutes. In this position he’s responsible for the oversight of real estate appraisal, environmental risk assessment, flood insurance, and construction management function. He is — Mark, would you say led (sic) accredited, or do you say L-E-E-D?
MARK: LEED accredited.
CLARICE: LEED. All right. Wrong on both. This is why we have Mark.
MARK: LEED was the third choice, though.
CLARICE: That’s right. He is LEED accredited professional, certified regulatory compliance manager. He’s a member of the — oh, the Royal Institute of Chartered Surveyors in a commercial property practice and a state-designated real estate appraisal trainee. High, Mark. Thanks for joining us.
MARK: Hi. No problem. Thank you, Clarice, and thank you, Marisa, for the invitation. Happy to talk with you today. You know, as Clarice said a minute ago I’m responsible for the collateral risk function at a national — or I should say a regional lender, but we do have a national commercial lending footprint. I’m generally responsible for the — as Clarice just said, some of the real estate appraisal function, environmental risk assessment function, construction risk management if we’re doing some construction lending, flood insurance function and a couple other things you don’t care about for the purposes of today’s discussion.
I thought it might be sort of — might get something out of — maybe valuable to sort of discuss at a very, very high level. You know, if you’re coming to a commercial lender with a real estate secured deal or you’re representing, you know, a client that’s coming to the bank they need to get financing. You know, whether or not that’s acquisition financing or maybe refinancing another bank’s debt, financing somebody else out, we’re going to be the takeout lender, sort of the things in general that you would be dealing with or the questions that a bank should be asking in that context. Now, again, we’re not talking about consumer lending, retail lending. We’re not talking about single-family, you know, primary residence here.
[0:02:48] MARISA: Yeah.
MARK: We’re talking about industrial property, warehouses, retail, office, gas stations, senior living facilities, you know, five-plus multifamily, things like that and, you know, properties like the one behind me in my background. I think it’s important to acknowledge and recognize, you know, when you’re coming to a bank when we’re talking about these types of due diligence practices it’s quite consistent across banks. And the question, well, why is that. Well, it’s consistent across banks because a lot of the stuff is driven by federal regulations regardless of whether the bank’s regulator is, you know, the FDIC, the OCC, the fed. Who is your prudential regulator. Well, they’re all sort of singing from the same hymnal, so they’re basically doing the same thing.
You know, things may be a little bit more or less prescriptive depending on what aspect of due diligence that you’re talking about. Just, for example, you know, appraisal and flood insurance specifically very, very prescriptive regulatory requirements, so I don’t care what bank you’re going to. You’re pretty much doing the same exact thing or should be doing the exact same thing. When you’re talking about environmental, though, or maybe you’re talking about construction, you know, there’s regulatory guidance out there that banks are supposed to follow, but the guidance is certainly not as prescriptive as appraisal and flood insurance, so it does afford banks a little bit more flexibility to do different things on a transactional basis. So [inaudible].
MARISA: Mark, you mentioned — no. That’s an excellent lead in. Thank you for that. For the audience’s sake, Mark and I have been working together for, geez, at least 15 years at this point and the reason that Mark is such a relevant guest on the show is in terms of environmental issues they customarily come up in the context of a commercial real estate transaction. So that’s when folks like me and my office would get a call from a client or a lending institution with a question about some environmental risk that’s inherent in the transaction.
And Mark’s perspective on this issue I think is so important because whether or not you’re a practicing attorney — you could also be someone that’s trying to get financing, someone that’s trying to sell a property. It matters what the lending institution asks you to do. You have to — you have to comply with what the lending institution is telling you that you have to undertake. And I think a lot of people don’t necessarily understand that, what you just said about how there is a federal regime in place, essentially, that dictates what the bank has to require. So it’s not like you can shop around and get a better environmental deal with a different bank. You all are subject to the same type of regulation. Did I add anything helpful to what you already said by that?
CLARICE: For me, yeah.
MARK: No. No. That’s a very good perspective.
[0:06:03] MARISA: Yeah.
MARK: Again, maybe to use more a concrete example, you know, you have a $3 million loan. It’s acquisition perspective loan. It’s acquisition financing and you’re going to be [inaudible] let just say the building behind me. You know, most banks are going to require, based on that property type, like a Phase 1.
MARISA: What’s Phase 1?
MARK: So, basically, the ASTM Phase 1 standard so the environmental due diligence standard that’s pretty much commonplace across the industry and has been. I think I’m dating myself a little bit. I apologize. But I think the first Phase 1 standard probably promulgated in, I’ll say, ’92-ish. And then there’s also a counterpart to that. It’s called the ASTM Transaction Screen standard and I think the way you can really sort of think of the two of them in comparison, the TSA is more of like a Phase 1 light, okay.
MARISA: Okay.
MARK: They do a lot of things and, again, there’s flexibility. Same thing, you know, with how banks — you know, there’s the ASTM standard, but I know a lot of my counterparts at other financial institutions, they might call their internal standard, you know, like a Phase 1 plus because they may do other things as sort of standard practice. Just for example, you know, the Phase 1 standard as additional like optional things that you could do like asbestos, lead paint, lead in drinking water. You know, there’s a host of them. There’s like seven or eight of them. That’s pretty much standard, you know, in the ASTM practice that says, you know, here’s the normal things that you can do.
Well, here’s the, you know, additional items of concern. You know, we, generally speaking, would incorporate asbestos into all of our Phase 1s or the requests that we make to our vendors. But lead paint, let’s say, well, you may only — you’re not going to be asking about lead paint for your typical like retail or office building, but if you’re doing multifamily lending, well, yeah, you are going to be asking your vendor to incorporate lead paint, you know, into that Phase 1 standard, into that particular scope of work for that particular job.
That doesn’t mean that they’re necessarily actually doing sampling, you know, doing the lead paint swabs or anything like that, but they may be asking the property owner or the borrower, well, you know, what do you have for certificates of compliance What do you have for the result of any prior lead surveys. What do you have for results of any prior abatement actions, you know, those types of things.
But, again, so it’s really sort of case by case. It’s sort of like a menu to say, okay, well, here’s the type of property I’m dealing with. Here’s the age of the property. Generally speaking, if you’re post-1980 you’re really not as worried about asbestos and lead paint because those things were, you know, phased out in the mid to late ‘70s, but still it’s sort of a menu you’re looking at. Okay, what’s my loan amount. What’s my property type. What are the issues that are going to be identified with this scenario. And you’re trying to match or craft your due diligence that you’re requesting your vendor to do to address the concerns at issue.
[0:09:14] MARISA: When you say vendor what do you mean by that?
MARK: So in the environmental context, you know, we’re talking about your environmental consultant —
MARISA: Okay.
MARK: — something which is defined as a, quote, unquote, environmental professional under the ASTM standard. So technically, you know, an environmental — 99 times out of 100, you know, an environmental professional is going to be doing the Phase 1.
MARISA: Okay.
MARK: There’s some whole sort of, you know, statutory regime on a federal level. If you do a Phase 1 there’s liability exemptions and whatnot. I can let Marisa speak to that if she wants to. That’s probably more detail than people want.
MARISA: And we can put the audience to sleep immediately —
MARK: Exactly.
MARISA: — with that conversation.
MARK: You know, where the rubber hits the road from a practical real-life perspective an environmental professional is going to be doing a Phase 1. Now, if we’re talking about the transaction screen — again, I also refer to that as the Phase 1 light — that does not need to be done by an environmental professional. You know, that is a defined term on the Phase 1 standard. And, you know, then it comes down to, you know, education or number of years’ experience.
There’s several different criteria, but reality is from a bank’s perspective, you know, you’re not — I don’t want to say you’re necessarily using mom and pop shops because some of those people do the best work. So, you know, I know for us, you know, we probably have a good 40, 45 preapproved vendors on our, quote, unquote, list. They do run — you know, and, again, it’s a geography issue, you know. And if you have a regional or national lending footprint you need to have enough vendors to cover your various markets.
MARISA: Yeah.
MARK: But by the same token, do I have anybody that could — you know, that’s in Butte, Montana? No. So, again, you know, you try to have that mix. I think we have a good mix of national vendors, regional vendors and, again, you know, some guys that, you know, work out of their house, the mom and pop shops because, again, some of those people, they know — you know, they may only work in a certain limited geography, but you know what, they know that geography.
MARISA: And they might have looked at the site previously as part of their professional career.
MARK: Yeah. But that’s a double-edged sword. You know, it’s — we’re given — and that’s something I actually probably should have mentioned also. You know, compared to, say, the appraisal field, okay, a bank cannot accept a borrower-supplied appraisal. That’s strictly prohibited by the [inaudible].
MARISA: Yeah. Right. Because it could be biased.
MARK: Exactly. But in the environmental realm where, again, things are not as prescriptive as they are with appraisal we get borrower-supplied reports constantly, all the time.
[0:11:59] MARISA: Yeah.
MARK: And like anything else in life, you have good lawyers, bad lawyers, good doctors, bad doctors, good architects, bad architects. Well, it’s the same thing in the environmental industry. It’s the same thing in the appraisal industry. So, you know, those borrower-supplied reports, some of them are fantastic. They answer all your questions. You don’t have to order anything new, good to go. Other instances they raise more questions than answers. You know, I always take the mindset that we should be more willing to accept an existing report that a borrower had commissioned prior to their acquisition of the property versus a report that was done on behalf of a seller who is trying to get rid of their property —
MARISA: Uh-huh. That’s right.
MARK: — because in that context, you know, the bank and the borrower at the time should have been on the same side of the fence because you want to identify issues and you don’t want, you know, somebody else’s problem to become your problem.
MARISA: Yeah. And for those listeners that still aren’t quite sure how this Phase 1 review fits in, I think the easiest way to explain it is the lending institution is, by virtue of lending money, taking on a risk and a liability that this Phase 1 review and report provides the lender with an understanding of what those risks and liabilities are, number one. Number two, if they want to lend on the particular property, if the risks are too great then the bank can say, geez, forget it, we’re out. And number three, if there’s a way to remediate or cover the risk associated with the particular environmental issue associated with the property.
MARK: Yeah. And identify issues that may be able to flush out a little better by taking like a next step. You know, you may be walking across a property and you actually see old monitoring wells. Oh, where did these come from. You know, no idea who put them in. You don’t know how old they are. You assume they’re still viable, but there may be issues on the property, so, you know, that next scope, you know, that the end of the Phase 1 may recommend, hey, we should sample these existing groundwater wells.
Say there aren’t any wells on the property, but you have a property like the one behind me. You know, that’s sort of automatic Phase 2. You know, if you’re going to be lending on a property like the one behind me, you know, you’re going to want some subsurface data. Now, we’re in 2023, you know, so you would assume that this property behind me has been investigated quite comprehensively. You’d be surprised. Sometimes, you know, it amazes me that, you know, properties, like I said, like the one behind me —
MARISA: Yeah. What is the property behind you?
MARK: Huh?
[0:15:00] MARISA: What is the property behind you for those that aren’t watching us on YouTube?
MARK: That is the former Draper loom works. I’m not going to say where it is.
MARISA: Okay.
MARK: It actually doesn’t exist anymore. It was actually demolished in the Summer of 2022, but at one point in time back in the day it was the largest manufacturer of cotton and woolen looms in the world.
MARISA: Oh.
CLARICE: So for listeners, it just looks like a very large mill. It looks like there’s a lake or water body on one side, a field on the other side and a farm — or not farm — a forest wooded area in the back. It is a big mill. It’s kind of in an L shape. So from what I’m hearing, Phase 1 is examine the property, figure out what’s going on.
MARK: Surficially examine the property.
CLARICE: Okay. So it’s kind of, get eyes on it. Is it worth putting money in. Is there an issue. Is there something that can be done to fix the issue.
MARK: Or better flush out the issue.
CLARICE: Okay. What happens next?
MARK: Well, then you got to determine how big the issue is and that I think is another misconception. Maybe I should take a little bit of a step back. Oh, the bank will never lend on a dirty property. That’s not true. You know, I’ve been doing this for a while. If we were talking, you know, 1992, 1993, yeah, banks were a lot — well, much more leery of potentially contaminated property than they are in 2023. You know, we lend on, quote, unquote, dirty property all the time just like I know a lot of my, you know, brethren across the industry do. The question becomes, well, what’s the problem. How extensive is it. Have you actually defined the scope and extent. What’s it going to cost. Is that cost viable or not and who’s paying for it.
MARISA: Yeah.
CLARICE: And when you say dirty property, are we talking like Superfund site, or? Marisa, would you want to hop in on dirty property, that definition?
MARISA: Sure. I mean Mark knows the answer to this, as well, but, yes, it could be a Superfund property. It could also be a property that’s not as contaminated as something that’s listed on Superfund. And I don’t know — the question that I have in my mind is is there a threshold or written criteria that the industry uses to determine whether they’re going to lend on a particular property, or is it a narrative internal discussion and figuring it out based on experience and site-specific criteria.
MARK: It’s the latter.
[0:18:01] MARISA: Okay.
MARK: Everything is case by case. You know, every property is different.
MARISA: Yeah.
MARK: Now, again, getting back to the Superfund comment. You know, I’ve been doing this for 25 years. I think I’ve dealt with an actual federal Superfund site twice out of —
MARISA: Oh.
MARK: — you know, 20,000 properties that [inaudible].
MARISA: Wow.
MARK: So, you know, that’s not really the stuff that you’re dealing with.
CLARICE: Okay.
MARK: On a day-to-day basis, you’re dealing with not USEPA, you’re dealing with Mass DEP, Illinois EPA. And, actually, EPA in the Illinois is actually the state Environmental [inaudible], not the fed. You know, Florida DEP. You’re dealing with the state environmental agencies 99.5 percent of the time.
MARISA: I didn’t know that. That’s really interesting to me. I had assumed that there’s so many contaminated properties nowadays that dealing with a Superfund property would just be run of the mill. No pun intended.
MARK: I’ve dealt with a few of them over the years. Actually, it’s funny. It comes up — I don’t want to say frequently, but when you are dealing with a Superfund site it’s usually an old DOD site.
MARISA: Okay. Department of Defense. Yeah.
MARK: Yeah. It’s an old Army base or something like that where, you know, the property is conveyed with statutory liability exceptions and statutory indemnities —
MARISA: Yeah.
MARK: — for the property owner. So you’re usually — unless, you know, that — you know old Army bases. They’re hundreds and thousands of acres. [inaudible] Superfund site, you know, due to some dumping or something that was going on which was two miles away. It’s still part of the former Army base, but it’s, you know, nothing to do with the property that you’re lending on. So, yeah, we’ve had a handful of those over the years, but those are actually pretty simple, like I said, because of the statutory liability exemptions and indemnifications that you get from the federal government that run with the land.
MARISA: Yeah. Must be nice.
MARK: It’s easy.
MARISA: No. I mean, it must be nice to be the federal government just exempting yourself.
MARK: Oh, yeah. Oh, yeah.
MARISA: Don’t even get me started.
MARK: Well, yeah. We all know having an indemnification whether it’s from the government, whether it’s from a counterparty, a private — you know, it’s all fine and dandy until you go to actually try to execute on it.
MARISA: That’s right. And then all of a sudden there’s not enough money in escrow to deal with the remediation that’s covered.
MARK: Yeah. Or it takes you two years to get back with to your, you know [inaudible].
MARISA: Right.
MARK: That’s why I like to have — again, when you’re dealing with sort of — I’ll just call it more manageable, more sort of run-of-the-mill type issues, oh, you know, there’s an area here of, you know, contaminated soil. There’s [inaudible] storage tank that we found. You know, it’s active, but it leaked. We got to take it out. Oh, we found, you know, a couple of abandoned underground storage tanks. You know, you try to find the extent of contamination as best you can, so you know it’s going to cost 200,000. We think it’s going to cost 400,000.
And you set aside — as part of the deal that money is set aside and you provide — you know, give the borrower — and sometimes it’s the seller. But you give that third party, you know, six months, a year, two years, whatever it is, again, case by case depending on what the extent of the problem is, but you give them some time to take care of the issue and they, you know, submit their invoices and they get paid out of the escrow that’s been set up. Now, again, it’s fine because a lot of people — oh, I got a Phase 1 and it identified an issue. Well, when can we close. Well, you need to take that sort of next step and say you have a problem. And Marisa’s laughing because I’m sure she —
[0:21:43] MARISA: Yeah.
MARK: — you know, she’s run into this all the time.
MARISA: Yeah.
MARK: The Phase 1 is not going to tell you like how bad it is. The Phase 1 is going to tell you you may have an issue here. You have something that you need to look into a little bit more and whether that — again, my example before, you know, let’s sample some existing groundwater wells that we found while we were walking across the property whether that’s, you know, hiring a dripping company, get a drill rig out there, poke a bunch of holes, take a bunch of soil and groundwater samples. You know, that stuff takes time, but that’s what you need to do in order to identify how much is this going to cost.
And sometimes you might do that initial, quote, unquote, Phase 2. You know, you put in — we’ll just say, you know, you advance a half dozen borings. You put in a half dozen groundwater monitoring wells. You sample them. Oh, now we actually found something. Now there might be a reporting obligation to a state governmental agency. You know, that may just now have identified the problem. You still don’t know what the extent is, so you still — now you may need to do yet another Phase 2 to define the extent so you can now put a dollar amount on it.
CLARICE: Well, hold on a second. When you say another Phase 2, does that mean the — are you formally closing the first Phase 2 and then starting it over again, or are you just —
MARK: It’s supplementing.
CLARICE: Oh.
MARK: So like my example a second ago —
CLARICE: Yeah.
MARK: — you put in six borings. You put in six wells, okay?
CLARICE: Uh-huh.
MARK: And one well comes back, quote, unquote, hot. Whatever the contaminate was that you were worried about and were measuring for you identified it at concentrations that exceeded a reportable quantity for that particular state environmental agency. Okay. Well, now I got a problem. I don’t — is this the only spot on the whole property that is an issue. How far is this contamination migrated. Well, now you have to put in another six wells, let’s say, to try to define what the extent is. Now, you hope the initial Phase 2 comes back clean, but that doesn’t happen all the time.
MARISA: Mark, what’s the percentage — just a guesstimate here. What’s the percentage of Phase 1s that come back clean?
MARK: That’s actually a good question. I would say — well, you got to remember and, again, this is not a knock against environmental consultants whatsoever, but, you know, they obviously have an incentive to be somewhat conservative —
MARISA: Yeah.
MARK: — because, you know, they’re already familiar with the property. The idea being, well, if I recommend something, well, I’ll be first in line to get that next phase of work.
[0:24:37] MARISA: Yes.
MARK: The bank, you know, we ask our consultants to provide a risk rating that we defined in our contract and to provide recommendations, but maybe the better answer to your question is we don’t necessarily agree with those recommendations all the time.
MARISA: Yeah.
MARK: So the consultant may come back and say, you know, we recommend Phase 2 and that’s going to cost, you know, 12,000, 15,000, let’s just say. We may look at it — our internal reviewers, all of whom were environmental consultants at one time, all of whom did Phase 1s earlier in their career, they may say, yeah, this is too conservative. We’re not going to tell our lending team, our sales folks that they have to do this. We’re basically changing the recommendation. From a lending perspective we’re not going to require this.
MARISA: Okay.
MARK: You know, that happens, also. So I might say, you know, to throw out numbers, maybe a third of Phase 1s come back with some sort of recommendation and I would say probably half of those we may not pass through to the business line. We’ll tell the business line they don’t have to do it.
MARISA: That’s a lot lower of a percentage than what I thought you were going to say. I thought it was going to be flipped with two-thirds being you’ve got a problem. You got to proceed with sampling.
MARK: Well, but, again, it gets back to sort of what is the scope of work. And, again, I don’t care if you’re talking about transaction screen or you’re talking about the Phase 1. You know, again, before I mentioned, you know, the asbestos, the lead paint, the lead in drinking water. You know, do you have an onsite drinking water well —
MARISA: Yeah.
MARK: — you know, versus municipal sewer, septic. You know, some states have sort of independent, you know, septic inspection requirements if it’s a, you know, acquisition financing. You know, so it sort of depends on are you doing sort of the basic due diligence, or are you doing more of an enhanced due diligence to address sort of these other added issues, again, that are implicated sort of on a case by case basis. I’ll use asbestos as an example because this was actually — actually, asbestos and lead paint because really within the last two weeks I became familiar with a couple of properties where there were issues. So we do a lot of construction lending.
Sometimes we’re not just doing ground up. You know, we’re financing the gut rehab of a 40, 50, 80-year-old building. You know, it might be an old office building. You’re converting it to residential, whatever it is. But you’re gutting it down to the studs and you’re rebuilding. Okay. Fine. So what we see quite a bit is that the asbestos and lead paint sampling that goes into the construction budget, those inspections generally are usually quite cursory in nature and really not adequate, so commonly we’ll say — you know, as part of our Phase 1 that’s some of the questions that we would be asking for this particular project. Okay, well, you’re doing this gut rehab. Where’s your asbestos survey. Where’s your lead paint survey.
You know, and then our Phase 1 vendor would tell the bank, hey, you have these issues. You know, make sure these things have been factored in as a separate line item into your construction budget. You know, you have the funds to do it. You just got to make sure the line and the dollar amounts are adequate. So became aware of a — fortunately, neither of these transactions were mine, but talking to other people in the industry I became aware of them. One particular transaction was like a 30-story office building that they had to do a gut rehab on. The asbestos sampling survey prior to construction was very, very cursory in nature. They started opening up the walls and with whatnot and ended up at the end of the day having like a $4 million asbestos abatement cost that they —
[0:28:47] MARISA: Oh, my God.
MARK: — did not anticipate.
CLARICE: Oh.
MARK: Again, it’s one of those things where you open up the, you know [inaudible] abandoned property, again, like the one behind me and you see — you know, everybody knows the asbestos where it’s all hanging or falling off the pipes that are along the ceiling. Nobody thinks about the stuff that’s like inside the walls.
MARISA: Yeah.
MARK: Again, if you’re gut rehabbing right down to the studs some building, well, you’re opening up the walls. So that deal ended up just completely going sideways because they didn’t account for that issue adequately up front.
MARISA: Yeah. Yep.
MARK: Another project where lead paint — sort of the same thing where it was a gut rehab on an old mill into affordable housing which, you know, we see all the time. And, you know, the work was all done, certificate of occupancy was issued by the local municipality. People moved in and, you know, end up on the front page — you know, the top fold of the local newspaper that four kids have lead paint poisoning —
MARISA: Oh, my God.
MARK: — because they didn’t abate what they should have abated, or they [inaudible] really messy job. So this — again, people think —
MARISA: It’s terrible.
MARK: — oh, asbestos, they haven’t used asbestos or lead paint in 40 years, 45 years. It’s not an issue. It’s still an issue today. It’s surprising, but it’s still an issue today. It’s the old, oh, when are we going to run out of underground storage tanks. Your know, we still see underground storage tanks constantly. You know, at some point you think you’re not going to see them anymore, but you still get them.
MARISA: Yeah.
MARK: And a lot of times they’re abandoned and nobody knew about them because somebody’s walking around the property and saying, well, wait a minute, what’s that vent pipe over there. And you start poking around and you start poking into sort of the back or the basement and moving around bunch of boxes and whatnot and boom, oh, here’s an old oil-fired furnace that hasn’t been used in 30 years.
MARISA: Yeah.
MARK: [inaudible] still outside.
MARISA: You know, I’m making faces and noises over here when you’re talking about lead paint and issues associated with asbestos abatement, but thank God these issues are being discovered, number one, for public health and safety and, number two, for the buyer. You want out of that deal unless there’s available $40 million to somehow deal with, in your example, the asbestos issue. But for the Phase 1 —
CLARICE: That’s a good point.
MARISA: — you’re not finding these environmental health and safety issues, so they’re actually — they’re fantastic.
[0:31:27] MARK: Yeah. Like this asbestos [inaudible]. It was, you know, like we’ll just add a $20 million construction budget. And they had a line item in that construction budget for, we’ll say, $250,000 for asbestos abatement. And guess what, it wasn’t $250,000. It ended up being $4 million, so that blows your budget [inaudible].
MARISA: It really does.
CLARICE: I can’t. Just the idea that you — oh, my God. A nightmare.
MARK: And I guess the takeaway is these issues take time, you know, it’s not something where you can come to the bank, you know, three weeks before your P&S says that you’re supposed to close and, oh, can you give me financing. You know, that’s not the reality. You know, there’s a lot — when you’re talking about commercial property, you’re talking about a longer lead time than I think the vast majority of people —
MARISA: Yeah.
MARK: Because, again, the vast majority of people, what is their involvement with a bank when you’re trying to get financing for real estate.
MARISA: Residential.
MARK: It’s your home.
MARISA: Yeah.
CLARICE: Yeah.
MARK: It’s your home. It’s a single family. That’s most people’s experience. Oh, you know, I give them some of my — you know, my last three paychecks and I get an appraisal done and that takes a cup of weeks and boom, boom, boom and it’s relatively easy and simple. It’s not like that with commercial property and certainly not industrial property.
MARISA: Agree.
MARK: There’s a much longer lead time and there’s a lot of boxes that need to be checked when you’re going through your due diligence practices. Now, you would think a lot of these things are — again, if it’s acquisition financing and the borrower doesn’t own the risk yet, doesn’t own the liability yet, you would think that you should be on sort of the same team, on the same side. It’s in his or her best interest to flush out these issues, also, but sometimes you get the, yeah, but I’m getting a great deal. Well, yeah, why do you think you’re getting a great deal.
MARISA: Yeah. Yeah.
MARK: So, I mean, people get emotional about real estate. They’ve also gotten emotional about real estate and they always will get emotional about real estate, so, you know, sometimes you’re having to convey a message that the borrower doesn’t want to hear. They really don’t want to hear the message when they’re providing you with a report that maybe they had engaged or a report that the seller had handed them that says, oh, everything’s fine, there’s no problem. And then you come back and say, well, yeah, it used to be a gas station.
MARISA: Yeah.
MARK: And that issue is not reflected anywhere in the report that the borrower handed to you. Again, I’m not saying that’s their fault. I’m certainly not saying that they’re trying to put something over, you know, on the bank, but the vast majority of borrowers, you know, when they say, oh, it’s a Phase 1, those are the words on the title of this fat document that they have. You know, it doesn’t really mean anything. They don’t understand the process. They don’t understand what’s sort of — and they shouldn’t, what goes into it. They just know that they need this because the bank asked me for it.
[0:34:31] MARISA: Right.
MARK: Well, again, if it’s [inaudible] financing, you know, we’re trying to protect you, too.
MARISA: Yeah. Well, this ended up being a tutorial in ASTM and Phase 1, Phase 2 land.
CLARICE: [inaudible].
MARISA: I mean, I could talk about this for a long time, but I think 30 minutes is probably enough.
CLARICE: Well, thank you again, Mark. This was a whole introduction to things I did not know existed, frankly, this morning. And hopefully our listeners who may have dealt with this or heard of this or —
MARISA: Or want to get into the industry.
CLARICE: I was going to say, yeah, who are going to be dealing with this in the future this might be a good introduction to them. If you have any questions or comments about this or if this is something that you’ve experienced or, as we do in Rhode Island, if you know somebody who’s dealt with this —
MARISA: Yeah.
CLARICE: — reach out to us.
MARK: And that’s a huge — just one final thought on that, Clarice.
CLARICE: Yeah.
MARK: And maybe I’m giving a shameless plug to my friend for the last 15 years, but when you are — you know, if you’re contemplating the acquisition of a property such as the one — having good counsel that knows what the hell they’re doing is so crucially important. You know, an attorney may, you know, hold themselves out as a real estate attorney. That doesn’t necessarily mean that they’re an environmental attorney. It’s a whole different world than sort of your standard real estate stuff.
MARISA: Yeah.
MARK: You know, it is such a specialty. You really need people that know what they’re doing when it comes to environmental.
MARISA: Mark, I will take that shameless plug. Thank you.
MARK: No problem.
CLARICE: And follow up the shameless plug with the e-mail. It is Marisa@DesautelBrowning.
MARISA: Dot com.
CLARICE: Dot com.
MARISA: Yes.
CLARICE: Yes. Marisa tell —
MARISA: Mark, I don’t know if you’ve listened —
CLARICE: I can’t.
MARISA: — to the podcast before, but —
CLARICE: Don’t.
MARISA: — this is every episode. Clarice, I love you. She cannot get the e-mail correct.
CLARICE: I get it wrong every time.
MARISA: It’s a thing. Let me just do it. It’s Marisa@DesautelBrowning.com. Let us know if you have questions. I know, Mark, you’re not providing your detailed employment information, but if anyone has any follow-up questions or has a deal that they need some help with or are looking for financing please get in touch with me, again, info@DesautelBrowning.com and I’m happy to share your questions or other information directly with Mark.
MARK: Sounds good. Thank you very much.
CLARICE: Thanks, everybody.
MARISA: Thanks, Mark.
MARK: Bye.
