Referral Business Building

The other day Ryan and I gave a short presentation to a group of commercial real estate brokers at TRI Commercial in Sacramento. There were 20 commercial real estate brokers in the room. If you are in the Central Valley of California and need a real estate broker, I would highly recommend this group. They work together as a team, they ask the right questions and they are motivated to meet their client expectations. The presentation went well, and I think that both they and us learned quite a bit about each others’ businesses. I thought it was an interesting presentation because it help me reinforce a recent assessment about how business grow.

No longer can you make a few cold calls and get a contract for a new project. The information age has changed all that. Clients are now well-armed with enough information to make a decision as to if you have the knowledge and capabilities to inform them and help them achieve their goals. In addition to that, clients want their vendors to be a part of the project. Clients want their vendors to be a part of a team that has the common goal of accomplishing the project. I had heard about these concepts in a set of tapes on “Word of Mouth” marketing. My company is just starting to understand these ideas, and trying to break out of that mold of being a stolid engineering consulting firm. If you want to learn more you can go to the word of mouth marketing association website, or go to the guy whose cd’s I found to be fascinating – George Silverman. If you are not familiar, and you have been stuck in the old model of marketing and business development, you will find there is a new way to better serve your clients, and George can point you there. At my company we prefer to use the terminology Referral Business Building, but that is just us.

The CERCLA Loop: Who should be liable?

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) has a very strict approach to assigning liability: “the liability of an owner or operator or other responsible person under this section shall be the full and total costs of response and damages” 42 USC §9607(c)(2).

An important policy is forwarded by this Congressional action, namely that environmental contamination is a national problem. In so recognizing the enormity of the problem, Congress apparently sought to clean up sites and preserve the environmental quality of this Nation for future generations. Whether for better or worse, that clean up comes at the expense of “owners or operators” whether or not their direct actions contributed to the contamination.

I can appreciate that Congress sought out the polluters who were causing the degradation of the environment, but I wonder if their vague language was intended. Clearly the courts have read “owner or operator” broad, at times including banks, brokers, and other title holders. We must presume that Congress is “ok” with this approach, since they could easily over rule the courts by changing the statute to reflect their true intent.

What should be the respective liability of parties to a contamination plume? What if someone only “owned” the site, but didn’t contribute directly to contamination? CERCLA does have some built in defenses. Does the strict liability actual change practices? How many people actually know that there is a CERCLA defense? These questions are all necessary parts of shaping our national environmental policy toward more responsible business practices and reasonable liability attachments.

A Better Tomorrow

Whether you believe that the actions of humans on this planet are causing the ice to melt and the seas to rise or not, we probably mostly agree that it would be nice to treat the space in which we live with some respect. It is likely that we all agree that it would be better to use fuels that are renewable to provide us electricity. It would be better to capture chemicals before they contaminate our air and groundwater supplies. It would be better to reduce air pollution so that our citizenry can live longer, more productive lives.
Do not think that you are powerless to do something about creating a better environment in which to live. Every gallon of fuel that you do not use is a step toward a cleaner environment. Every time you reuse a plastic bag or toss a plastic bottle into the recycling bin instead of the garbage is a step toward a cleaner environment. When you use rechargeable batteries instead of disposable batteries, you are headed to a cleaner tomorrow. If you are building a house and install photovoltaic cells to help provide your electricity you are helping to extend the lives of your grandchildren. One small step at a time taken by hundreds of thousands of individuals has a huge impact. So let’s all take one step today, and encourage others to do so. It will make us all a little happier.

Why Banks require a Phase I

Why do banks force borrowers to get a Phase I ESA? Although the bank may be thinking about the borrower’s potential liability under CERLCA, it’s really all about risk to the lender.

Although banks have been given a way out of CERCLA liability, they are not immune to the potential downfalls of an environmentally impaired site. True, if they follow through with the CERCLA requirements, the lender won’t be held liable for the actual clean up of the site, but once the site has entered the realm of regulatory oversight, there is little that can be done with the site until clean up has met human and ecological health risk criteria.

A lender is concerned about the very real potential that a defaulting borrower may skip town, leaving a contaminated site behind. These sites are financial drains. Though there are ways to dealing with this issue, many lenders want to avoid the possibility. One way to potentially avoid this – a Phase I ESA.

The Phase I will give the lender a historical view of the Property, and if done correctly will provide an analysis of the potential for historical and current uses of the Property (with a special focus on hazardous materials and wastes) to adversely impact the environmental quality of the Property. The lender can use such a report to determine their potential risk of taking the site back (i.e. just how likely is it that Company X is going to skip town leaving me with their site?) and combine that information with the potential that the use of the site may impact the environment (i.e. just how likely is it that Company X and the three prior occupants used hazardous materials?).

A real situation occurred recently where a lender was loaning on an office building. Without more the lender would have thought all was good to go (thinking that office meant “clean”). However, the Phase I revealed that historically the site was used to operate a dry cleaning facility. The lender chose to further investigate by having Ceres Associates collect soil and groundwater samples. In the end the loan was refused because the site was already contaminated. But for the Phase I, the lender would never have known the potential risk of loaning on the site.

The Phase I provides a critical piece of the lending puzzle, especially when it comes to risk potential associated with individual loans.

The New Environmental Due Diligence

The world of environmental due diligence has been put in a tizzy by the US EPA. At the end of 2005 the EPA finally put together their guidelines for what constitutes All Appropriate Inquiry (AAI, a term first coined in 1984 in the Superfund Amendment Reauthorization Act, SARA). So this is now the only guideline to use while conducting a Phase I that will allow the new owner of a property to avoid federal liability under CERCLA (Comprehensive Environmental Response Compensation and Liability Act, 1980). So as a potential property owner this will affect you, and you should be aware of the AAI regulations, because it is unlikely that your bank will let you know. You see banks do not have much liability under CERCLA, so they are not really interested in the new regulations. What they are interested in is whether or not the property has environmental contamination that would lessen the real property value. These are separate issues entirely. Of course, AAI is a little more involved that other levels of environmental due diligence and will cost more. Talk to your local environmental consultant about what is right for you or you can email me at nickpatz@ceresassociates.com or phone me at 707 748-3170.

Composting in Napa

Recently our company has been introduced to composting and waste water odor problems in the Napa Valley. Grape growing necessitates waste organic material. How you get rid of that material can sometimes be a large concern to your winery neighbors. If you are outside on a nice sunny day overlooking the vineyards of the valley it should be a memorable experience. But if you are in that same situation and the prevalent odor in the air is of sewage then there are some concerns. Composting is a simple practice, and excessive odors have simple solutions. Wastewater issues are sometimes a bit more complex, but once the specific problem is found, the solutions are normally fairly simple to implement also. We have a client which is a very high end winery, and they have a neighbor who composts and has a waste water pond. The neighbor is not well versed in how they take care of their wastes, and the odors flowing into the tasting room and veranda of our client are significant, and so the issue also becomes economic because tastings and onsite sales decrease. So the problem then is not only solving the odor issue, but how to get a neighbor to implement odor control that does not effect his tasting room, because the prevailing wind is in the opposite direction. We are considering how to solve this problem now.