What To Do Before Buying a Property for your Business

When you first start out your business, there are a lot of things you need to worry about. Ownership liabilities, insurance and finances, staffing, and of course, running the business. Many new businesses that work in an industrial industry have to make a big decision of where to operate. That can be daunting, as few people can really know the true value or condition of a property without a little bit of guidance. Thanks to information from PM Environmental, Here are a few things that you may want to have conducted when searching for properties, or what will need to happen as required by a lending party.

Find the Right People

Leading up to knowing you want to purchase a new commercial real estate property, you’ll want to assemble a team of professionals to help you along the way. This will include an accountant to handle tax and budget questions, a lawyer to help negotiate with the seller and complete the purchase, a commercial broker to help you connect with sellers and lenders and help you find the right place, a mortgage broker will give you all your financing options, and an environmental analyst to help you evaluate the property and any issues that may be associated with it. We’ll focus on this later professional and explore those specific services that they may conduct for your prospective property.

Environmental Site Assessment

Phase I ESASpecifically known as a Phase I Environmental Site Assessment, these are conducted by trained professionals to identify any environmentally hazardous materials or violations that may be on the property. Most of the time these assessments don’t uncover anything in particular, but if the property was home to a large amount of industrial activities in the past, or if it stored environmentally dangerous materials, such as a gas station, then the risk is far greater. Professionals will evaluate the risk of contaminants present on the property, and will likely not do any testing at an early stage. They will evaluate risk of contaminants in the ground water, soil, around buildings, and on surrounding properties. They gather this information from evaluating the site, documents and reports of the site, and from interviewing owners and local governmental organizations who might be knowledgeable about the history of the property.

The details of what the professionals find is compiled into a report that outlines any findings, the risk of certain environmentally hazardous materials present, and the cost associated with remediation, or removal, of those materials. Based on these findings, additional site assessments may be conducted, known as Phase II and Phase III, where extensive testing and planning is conducted to take care of environmentally hazardous materials with the property.

A Phase I ESA is often necessary during any transaction of commercial real estate and required by a number of parties including the buyers, lenders, or a governmental agency. A Phase I ESA also follows the guidelines set by ASTM, however many service providers try to go above and beyond to address any additional concerns with the property in question.

Property Condition Assessment

PCAPCA’s often go in hand with a Phase I ESA, but instead of inspecting the overall property for environmentally hazardous materials, it’s more of an audit of buildings that are on the property. You can think of a PCA as a detailed home inspection, where many governmental regulations and constantly changing building codes have to be met. A trained professional can spot physical deficiencies or issues associated with a building and let all parties know the severity of the issue, and the financial liabilities they may pose. A building is typically the most valuable asset on a property, so it is important to know that you’re not buying into a building that will pose financial liabilities that you will be responsible for. If you took out a loan for buying the property, and had to default on your loan because of the financial liabilities associated with the property, then the lender would be responsible for the liabilities. That’s why PCA’s are required as a part of a loan of a commercial real estate property by many banks and lenders.

Like Phase I ESAs, Property Condition Assessments must follow the guidelines set by ASTM , but additional testing and due diligence may be requested by the lender or buyer of the property. That often comes in the form of hazardous material surveys.

Hazardous Material Surveys

A variety of surveys can be conducted to test for specific contaminants on the property or in the buildings on the property that would have a negative impact on the health of anyone on the property for a long period of time, and might drastically affect the real estate value of the property. Asbestos, lead, mold, PCBs, mercury, and radon are a number of materials that can be tested for. Typically it’s best to leave it up to your environmental consultant or mortgage broker to determine what specific services the property may need to be tested for.

In the end, these services are necessary to alleviate concern for the true value of a property. They let the buyer and seller know that they made a buy or sell at the right price with no strings attached, and help encourage economic growth through business expansion and real estate transactions.

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