EDR Insight hosted a webinar this week titled Seven Things Informed Lenders Should Know About Environmental Due Diligence. Grady Shields, an attorney with Wyrick Robbins Yates and Ponton delivered a comprehensive look at lender liability and how it can be managed on today’s commercial real estate loans.
In the context of loan originations ramping up, especially from regional and community banks that are back in business after clearing their balance sheets of bad loans, as well as a wave of refinancings this year and next, it is important for lenders to ensure that they are doing everything they can to protect their institutions from risk exposure.
One of the timeliest elements of Shields’ presentation was his section on vapor intrusion (VI) risk and why it is rearing its head on more and more deals today.
Shields identified the following drivers for today’s focus on vapor migration/intrusion in the commercial real estate market:
- Vapor migration is included in CERCLA’s definition of “release.”
- Surprising results of studies in the Northeast show that contamination can move horizontally further than previously thought, meaning that a site can be impacted even if it is not sitting directly over the contamination.
- VI results can vary greatly season by season, or even time of day, making it difficult to determine if the results are representative.
- Rapid changes to VI statutes and regulations, and a lack of clear VI guidance.
- State agencies are using VI to re-open old sites, even with NFA letters.
- VI issues are being found as Phase I ESAs are updated/redone, especially during refinancings.
- The increased use of risk-based cleanups makes VI issues more likely to surface and complicate a deal.
- Now that VI is commonly looked at in property transactions, it poses resale issues, especially in today’s market of plateauing property prices.
- Increases in the number of VI-related lawsuits.
- VI can result in liability for the borrower or lender even if they were not responsible for the contamination.
When discussing the recent focus on vapor by regulatory agencies Shields commented ,
“Vapor intrusion is getting more and more attention from regulators–and more attention in today’s deals. I think it’s a little unfair for EPA and others to try to take the position that environmental professionals should have been paying this much attention to vapor migration risk in their Phase Is all along.”
Over the recent years, vapor has become a hot topic for environmental professionals and lenders and with the current drivers in place, it is only expected that vapor migration/intrusion risk will be considered more frequently.
“I found the webinar’s focus on vapor encroachment very useful. While the issue has not hit the mid-South region like it has larger urban areas, it is coming and major banks in the area are asking many more questions relative to vapor encroachment than ever before. Thanks for a good seminar.”
~Risk manager from a mid-sized bank
For More Information
To hear Grady Shields’ entire presentation, including his narrative for the reasons why vapor is becoming more of an issue, you can access a replay to the webinar or view his slides.
About the Speaker
Grady Shields is an attorney with Wyrick Robbins Yates and Ponton in Raleigh, North Carolina. Shields brings over 30 years of experience counseling lenders on environmental issues, practicing environmental law and assisting clients with environmental due diligence and transactions. Shields also routinely represents clients on environmental and administrative litigation, transaction and regulatory matters.