EDR Insight Q&A: Why Asbestos Is Affecting More Deals Today

Across the United States, old buildings are getting new attention, particularly in downtown areas that are undergoing a resurgence. Along this trend comes heightened attention on asbestos-containing building materials, a non-scope issue under an ASTM E1527-13 compliant Phase I ESA. Yet there are a number of important reasons to include an assessment of asbestos risk in the scope of environmental due diligence. Asbestos was commonly used in building construction until the 1970s, when certain asbestos-containing building materials were banned by the U.S. EPA. An estimated 35 million homes, schools and businesses still contain asbestos-contaminated insulation. There is also naturally occurring asbestos in some areas of the country. How can asbestos risk be identified and mitigated? What rules apply? Is the presence of asbestos at a commercial property a deal killer?

asbestosTo shed light on this asbestos-related risk, a team of experts at Fulcrum Resources, Inc. graciously accepted our invitation to share their insights on the risks that asbestos presents to today’s property deals—and more importantly how it can be managed.

 

EDR Insight: What factors point to asbestos-contaminated soil as an emerging national issue on property transactions today?

Fulcrum: For one thing, the building stock in the United States is aging. Old buildings are being demolished to make way for new buildings. Renovation and demolition activities may cause asbestos to become friable, and the fibers can then be easily inhaled and cause serious risks to human health that need to be addressed. Today, there are also more heightened employee safety concerns, and more OSHA and state environmental regulations than ever before.  Worker protection rules require employers and building owners to notify those who might be exposed to asbestos of the risk. During site redevelopment on previously-built sites, specific rules may apply to the removal and disposal of asbestos containing material. Unexpected discoveries of asbestos and OSHA complaints are becoming more common due to heightened awareness and more education about asbestos risk.

EDR Insight: What types of building materials are typically associated with asbestos contamination?

Fulcrum: Asbestos-containing building materials can be found at both commercial and residential properties. Non-friable ACM is even permitted to be left in a building during demolition in some states. One problem we see today is that contractors are not following the regulations for proper demolition procedures to contain ACM. Asbestos can be found in materials like floor tile, mastic, window caulking, paint chips, and other materials that may remain in the building during full building demolition. This can then present a risk to the property’s subsurface, and is typically discovered during the redevelopment phase or during site cleanup.

EDR Insight: Are there certain states where asbestos is more heavily regulated and therefore be more likely to be an issue on redevelopment projects?

Fulcrum: Colorado and Massachusetts are two states that have particularly strict asbestos regulations. Asbestos is also emerging as more of an issue in California, Pennsylvania and Michigan. Keep in mind that federal OSHA regulations require employers to identify all site hazards. This means that on a construction loan project with active construction, workers are protected under OSHA. There is a hazard communication standard and awareness training that is required. There is also specific training required to mitigate the ACM. State regulations must be at least as strict as the Federal standards.

“We do not feel that asbestos risk is getting the attention it deserves during environmental due diligence, given that it is technically a “non-scope” issue under the E1527-13 Phase I ESA standard. Asbestos can cost more to remediate than the usual environmental suspects, such as a hydraulic hoist leak or a two-year retail gas station cleanup. The cost of asbestos in soil removal is approximately $1,500-2,000 per 15 cubic yards (less the backfill import).”

EDR Insight: For an investor or lender, what types of risks does asbestos present? 

Fulcrum: For a lender, the discovery of asbestos in the soil after origination means the likelihood of an expensive cleanup effort. Borrowers facing an asbestos cleanup fee of as much as $1 million prior to starting excavation may default on a loan. On construction projects, it can also mean a delay in the completion schedule or even the possibility of a construction company walking away from the project entirely. In addition, there is a liability associated with workers being exposed to asbestos, potentially leading to fines under OSHA and state regulations. There is also a public relations factor that comes into play. A cleanup effort that involves professionals wearing hazmat suits and respirators in a neighborhood or next to a park draws attention that could slow down the process and create a need to add staff to handle residents’ concerns.

EDR Insight: How can asbestos risk best be addressed during property due diligence? Is it a deal killer?

Fulcrum: During due diligence, proper training is required to identify the potential for asbestos early on. Whether or not asbestos kills a deal really depends on who is buying and who is selling. A crawl space remediation project that costs $50,000 may be a deal breaker. Other times proceeding to a $6,500 Phase II ESA can kill the deal. It really varies on a case-by-case basis.  Considerations may include:

  • Has a structure been or planned to be demolished at the property?
  • Is there any paper trail as to asbestos testing and abatement?
  • Is the site free of any debris?
  • Does State law allow for non-friable materials to remain in place during full building demolition?

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Attention on asbestos will only increase as more old buildings are torn down and rebuilt. Working with qualified asbestos experts, particularly on buildings constructed prior to 1970, is more important than ever.

NOTE TO READERS:

EDR Insight is grateful to Don Kellar, CEO and National Director, and Gabe Touma, CHMM, REP and Regional Client Manager at Fulcrum Resources for contributing to this brief.

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