Where the Market Recovery, Environmental Risks and Insurance Overlap

“Loan officers need to realize environmental risks are real and need to be assessed upfront.”

I was invited by Ed Morales, senior vice present at Marsh global environmental practice, to speak with two engaging experts on a webcast this week, titled Real Estate Financing and Refinancing: Environmental Risks for Borrowers and Lenders. The purpose of the event was to address insurance and other solutions for managing the environmental risks associated with commercial properties in the context of the recent ramp-up in commercial real estate loans. After the webcast, a lender I know who tuned in later told me:

“This will really help educate our loan officers who are always fighting us on requests for Phase II ESAs. They need to realize these risks are real and need to be assessed upfront.”

We broke the content into three parts, and I was joined by co-panelists, Jared Dubrowsky, vice president in Marsh’s global environmental practice and Samantha Runyon, senior vice president in Marsh’s global environmental practice. Ed asked me to give attendees an overview of the commercial real estate and lending environment, highlighting what the market recovery means for environmental risk management. My key points included:

  • The forecast is for moderate growth over the near-term, with a a lot of road left to run in this recovery.
  • Many of the vital stats in commercial real estate are back to healthy 2005/2006 levels.
  • Environmental due diligence activity is strengthening in secondary/tertiarty metros based on the latest results from EDR’s ScoreKeeper model, the industry barometer for Phase I ESA activity.
  • Expect to see moderate growth in new originations with intense competition among lenders.
  • The 2015-2017 wave of maturities is already driving an increase in due diligence activity.
  • Environmental risks that would have been “deal killers” ten years ago are now being mitigated or risked away as banks balance the need to be risk-averse and grow originations.
  • The recovery means that failed properties/projects are coming back into play, many of which were neglected during the downturn and may have myriad environmental or deferred maintenance issues.

Dubrowsky followed to take attendees through the full gamut of pollution conditions tied to specific types of past and present property uses (e.g., above- and underground storage tanks, asbestos, lead-based paint, mold, etc.). He also did an expert job of laying out the objectives borrowers face in having environmental due diligence conducted and how those differ from a lender’s:


  • Address environmental obstacles to enable successful acquisitions/divestitures
  • Minimize due diligence, particularly Phase II investigations
  • Minimize operating portfolio risks
  • Secure favorable financing


  • Minimize loan credit risk (including environmental costs to borrower that could result in default)
  • Deal with outstanding bad loans, including controlling environmental risks (unknown pre-existing and known cleanups)

Runyon closed by giving a thorough run-down of the latest environmental insurance tools that financial institutions are getting more comfortable using to manage risks, noting:

“The Phase I ESA is our starting point. It’s what gives a sense of the history with the site.”


For More Information

If you are new to the risk management field or a veteran in need of a refresher on environmental risks or insurance as a strategic risk management tool, take 40 minutes and listen to the replay. If you, like my lender contact, deal every day with internal push-back on requests for Phase II ESAs, you will hear some quality content to help you make an argument for when further investigation is warranted.

marsh_title The pdf of slides is available here.



Thanks to Ed Morales, Marsh for inviting me to be on this panel of speakers and to my co-presenters, Jared and Samantha. If you have any questions after listening to the replays, my co-panelists are happy to answer them: