Somewhere along the path to satisfying the environmental due diligence requirements on your property, it’s likely that you’ve come across the term Phase II Environmental Site Assessment, or Phase II ESA. Like the name suggests, a Phase II ESA is the second step in the environmental due diligence process, and usually follows a Phase I ESA.

A Phase I ESA includes a review of current and historical uses, regulatory records, and property conditions, as well as an onsite inspection and interviews with knowledgeable property contacts. If the review identifies the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property, those conditions will be identified as Recognized Environmental Conditions, or RECs, which are then assessed during a Phase II ESA.

We are frequently asked by clients why a Phase II ESA should be conducted, what happens if contamination is identified, etc. So, we’ve put together a summary of responses to those common questions to help you better understand why completing a Phase II ESA within the due diligence process is so important.

What Does a Phase II ESA Entail?

While a Phase I ESA is a qualitative assessment that identifies previously documented contamination or the potential presence of hazardous substances as a result of current/historical uses, a Phase II ESA documents whether soil, groundwater, and/or soil gas contamination is present, quantifies concentrations in the samples collected, and compares them to regulatory standards. If contamination is present, the information generated via the Phase II ESA relates directly to regulatory risk (i.e. cleanup requirements), considerations for property use and continuing obligations needed to facilitate that use, and the overall valuation/collateral valuation of the property, all of which are critical to purchase and lending decisions.

In short, a Phase II ESA assesses the Phase I ESA RECs via soil, groundwater, and/or soil gas sampling, and sometimes geophysical surveys using ground-penetrating radar or metal detection equipment. Most often, sampling is conducted using a Geoprobe drill rig, which collects “core samples” from the ground and operates like a large hammer drill. These drill rigs are capable of drilling through pavement or building slabs, and can generally reach any depth needed to collect the required samples. Once collected, the samples are submitted to a certified laboratory for testing.

Once the laboratory results have been reported, they are tabulated and compared to regulatory standards to determine if the concentrations identified represent contamination and if cleanup or other action may be needed. If that is the case, recommendations for regulatory or other compliance actions are outlined and included in a Phase II ESA report.

If the laboratory results indicate that no contamination is present, then no further assessment is needed.

What Type of Testing is Commonly Performed During a Phase II ESA?

The testing completed during a Phase II ESA varies from property to property because the assessment activities are directly related to the property-specific RECs identified in the Phase I ESA.

Some of the most common tests include:

• Geophysical Surveys – conducted to identify buried storage tanks, hydraulic lifts/reservoirs, buried septic system components, or other sub-grade features that are not apparent from the surface. These surveys are most commonly completed using ground-penetrating radar (GPR), which beams radio waves into the ground and identifies buried objects by picking up the waves reflected back to the GPR unit. Metal detectors are also commonly used to detect buried steel objects like drums.
• Soil Sampling – conducted using a drill rig that retrieves core samples of soil, or sometimes using hand-auger methods if only shallow sampling is needed. Soils are screened using a variety of field methods and sample intervals selected for laboratory analysis based on the areas exhibiting the greatest field indication of contamination.
• Groundwater Sampling – conducted by installing temporary, or sometimes permanent monitoring wells within soils with groundwater saturation. Groundwater samples are collected using specialized pumps and contained certified clean laboratory containers, and submitted for laboratory analysis.
• Soil Gas Sampling – conducted by installing vapor pins within a building’s floor slab (sub-slab) or specialized soil gas sampling points deeper within the soil column. Pre-sampling leak testing is conducted prior to sample collection using helium and sometimes other compounds to ensure that only soil gas is present in the sample points, and the soil gas is then sampled using specialized containers and submitted for laboratory analysis.

These tests are outlined in the Phase II ESA report just like the soil and groundwater sampling results and compared to state and federal criteria for further recommendations.

What Happens if the Sample Levels Exceed Regulatory Standards?

Regulatory requirements vary from state to state and sometimes at the local level. If contamination exceeding regulatory standards is identified, recommendations for cleanup (if required), continuing obligations, or other actions will be made based on both regulatory requirements and the intended use.

Many states have voluntary Brownfield or related programs that can be used to by purchasers of contaminated property to obtain liability protections, with some programs even extending those protections to cover potential third party liabilities.

In Michigan, a Baseline Environmental Site Assessment (BEA) process has been established via which liability protections for cleanup can be obtained for state-regulated contaminants at the time of initial purchase or operation, with the owner’s/operator’s liability protections contingency upon practicing appropriate due care to ensure that occupants are not exposed to contamination and that existing contamination is not exacerbated. To be eligible for liability protection, the new purchaser or new operator must conduct the BEA prior to or within 45-days following initial purchase/operation, and the BEA report must be disclosed to the state within 6 months of initial purchase/operation.

Due to the contingent nature of BEA liability protections a due care compliance report is prepared in tandem with the BEA, which documents the activities needed to achieve and/or maintain compliance with due care obligations.  Those activities can range from providing written notices all the way through to installing vapor intrusion controls on buildings at highly contaminated properties to prevent vapor intrusion and associated occupant inhalation exposures. However, the actual due care requirements are based on site-specific variables like the contaminants/concentrations present, property use, etc.

While there may be costs associated with to purchasing, operating, or redeveloping a contaminated property, many potential opportunities exist via voluntary Brownfield or other state-specific Brownfield incentives programs that can offset these environmental costs, or in some cases can be sources of additional funding to facilitate the re-use of contaminated properties.

PM Environmental – The Phase II ESA Experts

PM has extensive experience completing Phase II ESAs, Continuing Obligations/Due Care reports, and state-specific liability and economic incentives programs. We are approved by major capital markets lenders and brokers nationally. PM’s qualified staff is comprised of engineers, architects, geologists, and former bank environmental risk managers with the experience, background, and knowledge to navigate financial, real estate, and regulatory programs as part of the due diligence process.

Visit our Phase II ESA service page or contact PM today to speak with one of our professionals about your next commercial real estate transaction.