While it seems as though the scope of reporting for a Property Condition Assessment or Phase I ESA is always the same, transaction requirements can vary and cause major delays in the reporting process if not properly requested.
Environmental and Assessment Reporting Best Practices
While securing a commercial real estate loan can be complicated, there are often simple issues that cause delays. These issues can be prevented if the proper scope of work is followed when preparing due diligence reports.
A mistake that is often made during the reporting process is thinking that the components of a Property Condition Assessment or a Phase I Environmental Site Assessment are the same for every transaction, no matter the lender, and can be pre-ordered before the financing is secured. This misunderstanding means that the lender receives the report with required items missing, which holds up the deal.
Fannie Mae and Freddie Mac – What Do I Need To Know?
Fannie Mae and Freddie Mac deals are perfect examples of deals requiring an altered scope of work. While most of the information presented in these reports is the same regardless of the lender, Fannie and Freddie have some very specific requirements that can vary between the two entities. If these items are not properly addressed, the reports will not be accepted, causing a delay. Both Fannie Mae and Freddie Mac tend to be stricter in their analysis and review of the reports and are generally more averse to risk, which results in additional inspection if the reports aren’t thorough enough.
A few key items that must comply with the lender-specific scope include:
- How many units (or types of units) must be inspected
- Where the units are located within the building(s)
- Sampling and documentation requirements regarding asbestos
- Lead-based paint
- PCBs (transformers)
- Mold and radon
- Who is interviewed and what information must be obtained
- Past capital expenditure information
- Maintenance practices
- Earthquake risk assessment
Each lender has their own key issues that will cause last minute problems if not properly addressed. There are specific required report formats and forms that are not easily converted from one lender’s format to the other, that may require the field inspector to obtain the information while on site. If you’re looking to avoid transaction delays, it’s wise to start discussing the report requirements early in the reporting process. It’s also important to involve the right people and determine the scope of work that best fits the predicted needs of all involved parties.
At Bock & Clark, we provide environmental and assessment services that adhere to ASTM standards at competitive pricing. The knowledge and expertise of our staff make us a company that you can trust. For more information about our services, request a quote or contact us.