EL SEGUNDO, CA-From ALTA Surveys to Phase 1 Environmental Assessments, the environmental engineers and consultants at Partner Engineering and Science, Inc., will blog about it in the new Science of Real Estate. The blog is part of GlobeSt.com’s new Thought Leadership program (see below for more details). Joe Derhake, the president of the El Segundo, CA-based firm recently spoke with us to discuss some of the subjects and topics he will cover on The Science of Real Estate, which will be updated a few times a week by several Partner environmental consultants and engineers.
GlobeSt.com: Is there more of a demand for Phase 1 ESA reports now that the market is heating up?
Derhake: In the first quarter, the total Phase 1 ESA volume was up 11% from the first quarter of 2010. Our volume has grown with the market and beyond. Our volume is up 110%. The reason we outgrew the market is because we had internal growth and because we focus on the CBMS marketplace. The phase one market as a whole will probably grow in line with the commercial real estate market, with one caveat. A Phase 1 is often done in both a purchase or financing transaction, but they’re also done on foreclosures. So the commercial real estate deal volume has probably increased more than 11%, but deals replaced foreclosures quarter over quarter.
GlobeSt.com: Are there ways in which companies are approaching seismic risks differently?
Derhake: We’re seeing portfolio lenders that used to not analyze for seismic risks begin to analyze big transactions. It is caused by events in Haiti and Japan as well as a general feeling inside lending institutions that they want to underwrite a little more conservatively. We provide between one and three reports per transaction. We almost always provide a Phase 1 Environmental Site Assessment. We’ll probably do a property condition assessment on half of our projects. Sometimes people want to see a Probable Maximum Loss report too. But that third report type is now growing disproportionately.
GlobeSt.com: What is the biggest misconception about Probable Maximum Loss reports?
Derhake: The reason a Probable Maximum Loss report is a challenging underwriting tool for lenders is because there is more than one way to do it. If a lender does not specify how they expect to have the report done, then they are going to get reports done different ways. Potentially, there may be people market gaming the system and basically shopping for a lower Probable Maximum Loss number. I highly encourage lenders to have a scope of work that they send to borrowers.
GlobeSt.com: You just opened offices in Houston and Seattle. What is driving the growth in those areas?
Derhake: In terms of Phase 1 ESA volume growth, quarter on quarter, the two fastest-growing markets in the entire country were Houston at number one, at 73% growth and Seattle, at 59%.
GlobeSt.com: Are there other areas of the country you are considering?
Derhake: Our office strategy really is centered on markets where there is a big lending presence, like New York, DC, Atlanta, Charlotte, Dallas, Chicago, San Francisco and Los Angeles. Other markets are smaller and focused more on work execution. We always keep an eye on where the growth is. We are mindful that there is significant growth in Portland, OR and New Orleans, but we have no plans to open offices there at this point.
GlobeSt.com: What threatens to take the turnaround we’re experiencing off track?
Derhake: There has been plenty of news about economic indicators that are moving down or sideways. We are certainly afraid that we are going to see deals pull back as a result. What is of particular concern is what regulators are going to do with Fannie Mae and Freddie Mac in the future.
Partner Engineering and Science, Inc. is a GlobeSt.com Thought Leader, providing viewpoints and solutions to commercial real estate's biggest engineering and environmental issues. For more information about the Thought Leadership program, contact Scott Thompson at [email protected].
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