SBA Environmental Requirements

At the January 2009 Environmental Bankers Association convention in Charlotte, I was one of the panelists on the new SBA Standard for Phase I Environmental Site Assessments.   During the presentation I stated that I interviewed many members of the SBAs environmental staff and that they were committed to helping bankers with questions.  I pledged to publish the contact information of the SBA Staffers and I suppose this blog is as good as place as any.  

 

For appeals, the SBA encourages lenders to email their standard email:  environmentalappeals@sba.gov

 

Here is the contact for the top environmental legal person and the top environmental technical person at the SBA:

 

Eric Adam

SBA District Council

Mr. Adams Chairs the Environmental Committee

415-744-8440

Eric.adams@sba.gov

 

Steve Reynolds

SBAs Staff Environmental Professional

916-735-1214

stephen.reynolds@sba.gov

 

I understand that the new version of SBA SOP 50-10 will be published within the next month.  More changes to Phase I ESA are always fun.

 

With respect to issues with the environmental requirements for SBA Foreclosures, refer to the SBA Standard 50-51.  Note that the standard will be changing to something closer to SOP 50-10 in 2009.  Feel free to contact me at 310-615-4500.

Commercial Building Inspection

When buying a commercial building, real estate investors are well served to engage a high quality building engineering due diligence firm to conduct a Commercial Building Inspection.   Commercial Building Inspections are also referred to as Property Condition Assessments.  

When clients call me for a Commercial Building Inspection, I make every effort to understand their needs.  Often I propose a walk through inspection, were an experience building inspector walks through the asset and inspects all building systems.  The inspector prepares a comprehensive Property Condition Assessment Report which includes a discussion of the following building systems:

–          Structure;

–          Roof;

–          Building Envelope;

–          Mechanical, Electrical, and Plumbing;

–          HVAC Equipment

–          Paving;

–          Landscaping;

–          Fire Suppression and Security Systems;

–          Elevators;

–          ADA Compliance.

My inspector will include in the report an Immediate Repairs Table and a Replacement Reserves Table.   The second table will typically estimate the building’s capital replacement schedule for the next twelve years.  

When clients are looking for a more detailed report I offer a Property Condition Evaluation report which includes specialist inspections.  The most common specialist to add is that of a structural engineer.  The structural engineer will produce a structural report or a Probable Maximum Loss Report, when in seismic zone 3 or 4.  

Other specialists that add great value are mechanical specialist, roof specialists, and elevator specialist.  The specialist invests 4 to 8 hours inspecting only the one system.  For example, the HVAC specialist will turn on the air conditioning system in the dead of winter.  The specialist opens up the systems being inspected and collects parametric data.  The result of the more detailed inspection is a very detailed report with specialty reports in the appendices.  Partner Engineering’s project manager and field inspector is almost always a registered engineer or very senior building inspector. 

In two out of three engagements, we help our client get a significant adjustment from the seller.   In one out of three engagements, we help our clients get a adjustment of 5 times our fee or more from the seller.   This service really pays for itself!

Carbon Footprint for Businesses

Carbon footprinting can be done for a business, a project, an event, or a household.   At Carbon Partner we focus on business, project, and event carbon footprints.  The first thing that our engineers seek to determine is the boundary that will define the carbon footprint.  

When doing a business carbon footprint, Carbon Partner (a sister company of Partner Engineering and Science) will first seek to define the boundaries of the business.  For example, will the footprint include employee commutes or just activities that happen within the business?   The next scoping issue is how to handle direct and indirect greenhouse gas emissions.   All carbon footprints should cover direct emission and most cover energy based indirect emissions.   However, some drive upstream into the carbon footprints of suppliers and raw materials. 

Most of our clients are interested in doing what is best for the planet; however, there are many direct benefits to your business from conducting a carbon footprint.  First, understanding your carbon footprint is important in building a sustainable business.  Secondly, a carbon footprint report helps a client understand how they use energy and often produces surprising results and energy saving opportunities.   Finally, many clients are interested in branding green internally and externally.  

Regardless of the motives, doing a carbon footprint for your business is good for your business.  Go to www.carbon-partner.com to learn more.

Mold Testing

Mold is everywhere in indoor and outdoor air, and there are countless species and genus (sub-species) inhabiting every continent on the planet.  Mold reproduces using spores which are microscopic and can be carried by the air very far from their original source.  Live mold spores or dead spores can inflict the same health concerns to humans and animals.  Mold spores produce mycotoxins (allergenic or toxigenic, depending on species) which enter the blood via respiration and cause several well documented health related symptoms.  Toxigenic species cause more severe health risks than allergenic types.

Mold can form within 48 hours after water contacts organic material (substrate), such as: concrete, brick, mortar, wood, plaster, gypsum, carpet, glue, and insulation, etc.  Mold cannot form without water present in a substrate, therefore moisture concentration knowledge within the air or within substrates is critical in evaluating the causes of mold contamination in occupied indoor spaces. 

 

Usual causes of mold contamination in indoor spaces are: leaking or broken water pipes; rain or groundwater entering from the roof, windows or basement; inadequate ventilation in bathrooms or kitchens; or moist building materials installed.  Mold forms more commonly when a substrate is subjected to water and the moisture concentration is above approximately 15-20% depending on the substrate.  Mold also can form “out of thin air” and onto substrates if the relative humidity in the air is over 60%. 

 

The four stages of a typical mold testing and remediation project are as follows:

1-      Interview the client and or tenants to visually observe the mold contamination.  Determine the source of water infiltration using a moisture meter, visual observations and common sense.

2-      Depending on the source of water infiltration discovered in step 1.  Take engineering, construction, plumbing, landscaping, HVAC modifications, waterproofing and general repair measures to stop the water/moisture from entering the indoor space.

3-      Retain the services of a professional mold remediation contractor to remove all mold contaminated substrates under properly vented negative air pressure.  It is also critical to remove mold contaminated substrates two feet past the visual mold contamination line to ensure the only non-mold contaminated substrates are left in the occupied space.  If removal is not an option on some substrates then a one part bleach to ten parts water solution should be scrubbed onto affected areas.  An antimicrobial protectant can be applied also if needed.

4-      Test the air within the mold contaminated occupied space for mold species and genus types and concentrations prior to and after the mold removal project.  Then compare both sets of results to at least one outdoor background sample.  Having indoor air samples comparable to the outdoor air sample ensures the investigation and remediation have been completed to the best extent possible in the given area.  Confirmation sampling also provides a clean bill of health for the client that the investigation and remediation were performed properly.

If mold remediation is required and building is built prior to 1982, then the client will likely need to have an asbestos survey prior to beginning the remediation phase.

It is in the client’s best interest to have a separate company perform the mold investigation and remediation activities.  This ensures checks and balances amongst consultant and remediation contractor and adherence to the scope of work and industry standards, thereby the client gets non-biased information from more than one source and real workable remedies that lead to permanent solutions. 

 

 

Methane Testing

Soil has approximately 30 percent to 40 percent void space.  The void space between soil grains is occupied by water and vapor above the groundwater table.  In some areas of the country these void spaces are teaming with methane.   In the City of Los Angeles there are “Methane Zones”.  These zones are typically in the area of old oil fields.  The methane is constantly being burped up from deeper oil bearing zones through incompletely closed old oil wells.   Other causes of high methane are nearby landfills and natural tar seeps. 

The methane fills the void space of the soil in the area and has the potential to migrate up through utility lines and through foundations into buildings.   High levels of methane in buildings are a fire hazard and can even cause explosions.   Methane can also act as a carrier gas for other toxic chemicals.

Prior to building in a methane zone it is wise (and in some cities required) to do methane testing.   The methane testing assures the future building owner that there is not methane intrusion risk or the methane testing will find high methane prior to building the foundation.   High methane in soil can be safely mitigated with a soil vapor barrier and/or a passive venting system.  In the City of Los Angeles, there are five different levels of methane mitigation required depending on the levels of methane measured in the soil.  

Methane surveys should be conducted under the supervision of a registered civil engineer with experience in testing methane and the design of mitigation systems.   Partner Engineering and Science has preformed scores of Methane Surveys across Southern California.

Records Search and Risk Assessment

Records Search and Risk Assessment is a limited environmental due diligence product that was created by the Federal Small Business Administration as a tool to inexpensively evaluate real estate as potential collateral for an SBA Loan.  The SBA published SOP 50-10 and specified a phased base approach to environmental due diligence.  The Records Review and Risk Assessment (RSRA) figures prominently in the SBA prescribed due diligences requirements.  The RSRA is less expensive than a Phase I Environmental Site Assessment and intended for low risk properties. 

The RSRA requires an environmental database and a few historical sources.  This product does not require a site visit by an environmental professional.  

A detailed description of the new (2007) SOP 50-10 Standards and how the Records Search and Risk Assessment fits into the new standard is provided in an Article by Joe Derhake with Partner Engineering and Science published in the Scotsmen Guide titled, “New Due Diligence Needed for SBA Loans”.

ALTA Survey

ALTA Surveys define the physical location of the property boundary, the building footprint and all other significant features on a given property.   ALTA surveys are typically done in support of property transactions and prior to development.   ALTA Surveys are defined by the American Land Title Association. Alternatively, surveys can be complete within the standards of American Congress of Surveying and Mapping. 

The surveyor should be a registered civil engineer or a licensed surveyor.  Prior to ordering a report a preliminary title report should be provided to the surveyor. 

Property Condition Assessment

Property Condition Assessments are commercial building inspections focused on identifying all immediate repairs and deferred maintenance conditions for a given building.   Property Condition Assessments should include a discussion of all site improvements and building systems, including:

·         Site Pavement Systems

·         Site Landscaping

·         Building Foundation

·         Building Structure

·         Roofing Systems

·         HVAC Systems and Equipment

·         Mechanical, Electrical, and Plumbing Systems

·         ADA Compliance

·         Fire Suppression Systems

·         Conveyance Systems (Elevators and Escalators)

Property Condition Assessments should be conducted by experienced building inspectors, building engineers, civil engineers, or structural engineers.  Most reputable engineering firms will prepare PCAs to meet the standards of ASTM E 2018 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process.

Property Condition Assessments typically include a table describing all immediate repairs and a table describing replacement reserves that will be required over a reserve period (most commonly 12 years). 

Some Property Condition Assessments include specialist inspections.  While the commercial building inspector should be knowledgeable about all building systems, specialists can bring valuable expertise.  For example, a license elevator inspector carries a key to the elevator shaft, while a building inspector by law cannot open an elevator shaft. 

Some common add-ons to Property Condition Assessments are the following:

o   Probable Maximum Loss Assessments

o   Slope Stability Assessments

o   Indoor Air Quality Assessments

o   LEED Conversion Assessments

o   Building Energy Audits

My firm Partner Engineering and Science provides high quality Property Condition Assessments nationwide. 

Probable Maximum Loss

Probable Maximum Loss (PML) Assessments are a tool used to understand the seismic damageability of buildings.   A PML report predicts the amount of damage a building will receive as a percentage of the building’s replacement cost during the design seismic event, typically the 475 year earthquake (the largest earthquake in the next 475 years).  A PML is expressed as a percentage.  Most lenders treat PMLs under 20% as passing and they require retrofit or earthquake insurance for buildings with PMLs over 20%.

CMBS and Fannie Mae Lenders generally require a PML in seismic zones 3 and 4 (see zone map).

PMLs are used by the commercial real estate industry to understand the seismic risk associated with buildings and by the insurance industry.  The world where I work is the commercial real estate due diligence industry.  In my engineering practice I perform my PML reports to meet ASTM Standards: 

• ASTM E2026 – 07 Standard Guide for Seismic Risk Assessment of Buildings
• ASTM E2557 – 07 Standard Practice for Probable Maximum Loss (PML) Evaluations for Earthquake Due-Diligence Assessments

I explained the importance of these ASTM Standards in 2008 article in the Scottsmen Guide:  All About Probable Maximum Loss Reports.

The ASTM Standards allow for multiple mathematical methods for calculation the PML.  I advocate for the Thiel Zsutty methodology, the most widely use method for calculating Probable Maximum Loss within the commercial real estate industry.  Advantages of the Thiel Zsutty methodology are transparency and consistency.   A PML by this methodology is more peer reviewable.

In choosing an engineer for to perform a PML I advise my clients to look for the following qualifications:  registered engineer, 10 years experience with PMLs, and a clear understanding of the ASTM Standards.