If you’re looking to buy a building or property to open a new facility or expand your existing operations, you have to keep in mind more than just the price. And that’s especially true if you’re looking at former or current manufacturing sites, warehouses, or other commercial/industrial properties.
Otherwise, you could be in for a lot of expensive issues, as we’ve seen countless times in our work as environmental consultants.
We’ve all heard the horror stories that could happen, such as the New Jersey daycare center where many of the children had abnormally high levels of mercury in their systems. It turns out the daycare center was housed in a building on a property that was a former mercury thermometer factory. Even though the former use of the property was known, regulators issued permits and allowed the property to be utilized as a daycare center.
Many people believe that issues like this do not happen anymore because of all the environmental, health and safety regulations in place. Well, this daycare center issue occurred in the mid-2000s – not that long ago! The property operated as a thermometer plant until 1994, and the daycare center opened in 2004 and was shut down in 2006.
This issue led to environmental regulations in New Jersey that require all childcare centers to conduct an environmental assessment of the property before an application to operate a childcare center can be approved.
And how about the site we worked on that had been a lighting manufacturer for decades? The company eventually closed the entire facility down, all 1 million square feet of it. They had worked out a deal to sell it to the local community, which would then convert the building to apartments.
When we arrived at the site to do an environmental assessment, all the equipment had been removed and the place was in good shape. There were even really nice wooden floors, which would look great in the new apartments.
However, a closer look found that the floors were anchored in place with asbestos-containing material called Nailcrete, which was contaminated with mercury. It turns out that there was a storage and handling area in the former manufacturing facility for mercury and when some of the mercury fell on the floor while it was being dispensed to the factory workers, it would penetrate between the wooden floor planks and settle into the Nailcrete. Decades of this occurring resulted in a significant cleanup of asbestos-/mercury-contaminated building materials.
Make sure you do not star in your own horror story! Based on our experience, we always recommend that you develop a thorough understanding of property history and what used to be in the buildings on a property prior to you signing the deal and taking possession. Once you have the keys, so to speak, any contamination or environmental impacts that pop up are your responsibility, even if it’s no fault of your own, unless you establish environmental liability conditions in the Purchase & Sale Agreement or pursue a no doubt expensive and lengthy legal fight against the previous owner.
As the saying goes: Caveat emptor – buyer beware.
This isn’t a simple matter of asking the seller of the property to simply give you the rundown. Memories are short. Perhaps they’ve only owned the property a short time and don’t know what happened on site before they got there. And, of course, there could always be things they know that could spoil the deal, so they don’t disclose them.
That’s why we tell companies considering real estate purchases to fully understand property history and to conduct thorough environmental due diligence on a property of interest. For further information, please read our previous articles on due diligence and property history, including: Why Due Diligence Is So Important and How to Do It the Right Way and What You Must Know About Property History.
As part of due diligence, it is a critical starting point to have an environmental consultant conduct an ASTM-compliant Phase I Environmental Site Assessment (ESA) of the property at a minimum. It’s a standard, cost-effective way to identify existing or potential environmental concerns and associated liabilities based on current and past activities at the property. Results from a Phase I ESA could trigger the need for additional investigations. For further information on Phase I ESAs, please read our previous article Getting Your Money’s Worth With Phase I Environmental Site Assessments.
This article is meant to delve a little bit deeper into some of the issues we often come across when clients purchase older properties.
It’s very important to know what you’re dealing with, especially if you plan to redevelop a site, tear it down, or change how it will be used (such as the daycare center discussed earlier). There could be all sorts of hidden surprises that could halt your plans, put you in the crosshairs of regulators, or compel an expensive cleanup.
With older buildings especially, there are some key things to look out for when these past commercial and industrial sites are being repurposed. Say a warehouse or old factory is being turned into residential housing or, as we’ve seen a lot recently, into storage unit facilities. Even if you are going to continue to use a former commercial/industrial property as a commercial/industrial property, there are some common issues you need to look into during your due diligence activities. Many of these issues are typically not considered as part of a standard ASTM Phase I ESA yet can result in significant and costly liabilities for you in the future if they are not identified and accounted for prior to purchasing the property.
Here are some of the more significant issues to look out for in older commercial/industrial properties:
For decades before its toxic effects were known, asbestos was everybody’s favorite insulation because of its fire-retardant properties. If you see insulation in an old building, you have to assume it’s asbestos and have a properly licensed firm check it out.
Other places asbestos was commonly used were floor tiles and mastic, caulking (for “window putty” and drywall), siding, textured paint, roofing materials, gaskets, fire-proofing materials and friction products. Check those areas as well.
There is another potential asbestos hiding place we discovered on a project a couple of months ago. Take a closer look at stainless steel tubs or sinks that handle liquids, including water. If you run liquids into one of these, it will make a loud sound if there is no insulating material underneath it to deaden the noise. Often, the material used to control the sound contains asbestos.
The height of asbestos use in the US was in the 1970s, but even though we know about the health effects from asbestos exposure, the US continues to import and use asbestos. According to the US Geological Survey, 750 metric tons of asbestos were imported to the US in 2018. In 1989, the USEPA banned the manufacture, import, processing and distribution of some asbestos-containing products. Recently in 2019, the USEPA introduced additional regulation (including a risk evaluation of asbestos) that ensures that discontinued asbestos products cannot be reintroduced into commerce without further evaluation by the USEPA.
When it comes to asbestos, the best approach is to consider suspect asbestos-containing material as containing asbestos and get it tested properly. The USEPA has a wealth of information on asbestos on its website, including responsibilities for building owners and managers: www.epa.gov/asbestos.
2. Lead-Based Paint
Lead-based paint in the US has a long history of use dating back to colonial times due to its durability. While the use of lead-based paint was banned from residential use in 1978, lead-based paint is still sometimes used in industrial applications. However, due to the costs associated with the eventual need to address the lead-based painted structures, many in the US have elected to require lead-free paint and coatings in project and product specifications for such applications.
Exposures to lead-based paint at industrial properties usually occur in the course of applying, disturbing and removing the lead-based paint, which includes when you are removing painted or coated steel equipment or structures, for example, by torching or cutting the materials. Lead-based paint can also contribute to soil and water contamination at the property.
A lead-based paint survey of the suspect lead-based paint on walls, as well as metal items at the property, is cheap and easy… and essential when buying an older building. Make sure the lead-based paint survey is conducted by a properly licensed/certified firm. Visit the USEPA’s website www.epa.gov/lead for further information.
Polychlorinated biphenyls (PCBs) are man-made organic chemicals that were domestically manufactured from 1929 until 1979, when their manufacture was banned in the US. Because PCBs are non-flammable, chemically stable, and have high boiling points and excellent electrical insulating properties, they were used in hundreds of industrial/commercial applications, such as in electrical, heat transfer and hydraulic equipment, among other uses.
According to the USEPA, “Although no longer commercially produced in the United States, PCBs may be present in products and materials produced before the 1979 PCB ban. Products that may contain PCBs include:
* Transformers and capacitors
* Electrical equipment including voltage regulators, switches, re-closers, bushings, and electromagnets
* Oil used in motors and hydraulic systems
* Old electrical devices or appliances containing PCB capacitors
* Fluorescent light ballasts
* Cable insulation
* Thermal insulation material including fiberglass, felt, foam and cork
* Adhesives and tapes
* Oil-based paint
* Carbonless copy paper
* Floor finish
Due to their stability, PCBs do not readily break down in the environment. As a result, releases of PCBs can be carried long distances, and can be taken up into bodies of organisms, including plants and fish.
A site-wide PCB survey by an experienced firm should be conducted at older properties to confirm the presence/absence of this material in the potential sources noted above. Should PCBs be present, potential releases to the environment should be assessed through sampling. In addition, any PCB sources remaining at the property should be properly managed, following the appropriate local, state and federal regulations. Visit the USEPA’s website www.epa.gov/pcbs for further information.
4. Property History
A critical part of any due diligence assessment is understanding the history of the property you are looking to buy. Most Phase I ESAs only provide you with a general understanding of the past uses of a property. For example, typical property history descriptions that we encounter in Phase I ESAs conducted by others are similar to the following: the property was farmland prior to it being developed as a printing facility in 1954. The property has remained vacant since it ceased printing operations in 1989. What does this tell you about the history of the property, potential environmental liabilities associated with historical use, potential contaminants of concern, and your potential liabilities and exposures as an owner of that property?
When it comes to property history, you need to know the details. Too much information is much better than too little. The following outlines some of the more important information needed to understand property history:
* Details on the various manufacturing processes conducted at the facility, down to the types and amounts of raw materials used, products produced, and types and amounts of wastes generated. This helps you determine potential contaminants of concern relative to releases to the environment.
* Details on the locations of historical processes, including receiving/shipping, storage and manufacturing areas.
* Presence and locations of storage tanks (aboveground and underground), and whether the tanks were properly closed (abandoned in-place or removed).
* Locations of former utility lines, including fuel lines and sewer lines.
* Historical property figures including building layout and process details. These figures are like snapshots in time, they tell you how things were done and where things were done.
* Conducting interviews with long-service employees and maintenance personnel regarding what they did and how they did things is so valuable. These are the folks that know how the facility ticks and what lurks in those dark corners.
* If the property was redeveloped, information relative to the redevelopment of the property (i.e. building decommissioning/decontamination, material disposition/disposal prior to and post-building demolition, reports of any environmental issues, and regulatory inspections that occurred during such activities, etc.) should be obtained and reviewed.
* Information on any spills, releases, etc. that occurred at the property and all associated remedial actions should be obtained and reviewed. Obtain complete copies of all relative documentation on such activities, not just summaries, so that you fully understand what was done, how it was done, and when it was done.
* Review local, state and federal regulatory records to obtain a complete picture of the history of the property, including its compliance history, permits maintained, and any recorded violations. This is all public information and it is typically easily found.
5. Neighboring Properties
It is possible for environmental issues at a property to originate from another property entirely. In historically urban or industrialized areas, numerous properties may have had spills or releases. Depending on the contaminant, distance, and direction, these may impact nearby properties as well. Again, these impacts can require actions to be taken to eliminate possible exposure of future occupants. For example, vapor intrusion, where volatile organic compounds in the subsurface enter a building through cracks in a floor slab or basement, underground utility conduits, or other underground pathways, is a significant potential issue. If impacts from offsite aren’t discovered before the transaction, they can be a major liability for the new owner (possibly including an expensive and lengthy legal fight against a neighboring property owner, or building modifications to mitigate the problem).
These are just a few examples of the very important information that you need to obtain in order to understand property history.
If you’re looking at purchasing an older building, you need to conduct a thorough environmental due diligence assessment, no question. But you need to go beyond the scope of a typical ASTM Phase I ESA in order to understand all of the potential liabilities that could exist at the property. The risk is too great. And you can’t rely on the goodwill of the property seller. They could purposely withhold information or simply be ignorant of potential environmental liabilities.
If you want someone to take a look at a property you’re thinking about buying, please contact me, Mark Roman, at 609-208-1885 or via email at firstname.lastname@example.org.