In commercial real estate transactions, particularly for those convenience stores (C-stores) with gas stations, conducting the Phase I Environmental Site Assessment (ESA) is traditionally considered to be the buyer's responsibility. The Phase I ESA is an integral tool during transactions, used to identify potential environmental liabilities associated with a property. However, sellers can also benefit significantly from conducting a Phase I ESA before listing their property for sale.
By initiating a Phase I ESA prior to the sale, sellers can address several critical aspects of the transaction, including expediting the transaction process and gaining an understanding of the environmental conditions that will allow the seller to be more proactive during negotiations. Additionally, the reports can be dual purposed, helping to satisfy the lender's due diligence requirements and/or facilitate the buyer's insurance underwriting process, saving time and resources.
Purpose of Conducting Phase I ESAs for C-Store Transactions
Gas stations and C-stores are inherently higher-risk properties due to their historical use of underground storage tanks (USTs) for fuel, which can pose significant environmental liabilities. The Phase I ESA serves as an essential tool in documenting the environmental history and current condition of these systems.
- Evaluating the age and records of USTs: Understanding the age and historical context of both current and previous UST systems is vital. It is imperative to review both historical regulatory records along with other historical sources such has fire insurance maps and aerial photographs. In many states, regulatory records on USTs only extend back to the 1970s or 1980s while fire insurance maps may extend back to the 1930s. Each prior generation of tanks comes with added risk for contamination of soil, groundwater, or soil vapor. Additionally, understanding the construction of current and historical tanks is also important. For example, double wall, fiberglass reinforced plastic (FRP) tanks with interstitial monitoring systems are less likely to leak than single wall steel tanks. For older gas stations, historic USTs may have been removed or decommissioned, but the risk of legacy contamination remains. A thorough review is necessary to evaluate the potential for contamination from older tanks.
- Assessing Active Monitoring Systems: Modern UST systems are equipped with monitoring technologies, such as double-wall fiberglass-reinforced plastic (FRP) tanks with interstitial monitoring systems, that significantly reduce the likelihood of leaks. A Phase I ESA will determine if these systems are in place and functioning correctly.
- Compliance with State Regulations: Each state requires specific testing and inspections for USTs, such as leak detection and annual inspections. A Phase I ESA reviews available documentation to evaluate compliance with these regulations, which can prevent costly fines or cleanup responsibilities for the owner.
Advantages for Sellers to Perform Phase I ESAs
By conducting the ESA ahead of time, sellers can uncover potential environmental concerns that the buyer will inevitably find during their due diligence. Compiling past regulatory closure letters, annual compliance reports, or even repairing a damaged tank monitoring sensor are all examples of how a seller can prepare for a future transaction.
Armed with a comprehensive environmental assessment, sellers can enter negotiations with a clearer understanding of the property's risks and liabilities. This allows them to preemptively address buyer concerns and avoid major price reductions.
With a completed Phase I ESA in hand, sellers also reduce the risk of extended due diligence periods and transaction delays. This preparedness can attract more serious buyers and provide reassurance to lenders, speeding up the closing process.
Ultimately, performing a Phase I ESA positions the seller to navigate the transaction more efficiently, offering a smoother, faster deal for both parties.
Moving Forward with Phase I ESAs
For sellers of gas station and C-store properties, performing a Phase I ESA before listing the property can yield numerous advantages. By identifying and addressing potential environmental liabilities upfront, sellers can avoid costly delays, minimize negotiation challenges, and speed up the transaction process. The disposition of c-stores can be a complicated process, work with an experienced environmental due diligence firm, such as Partner, who consults between five hundred to two thousand c-store/gas station sites per year and regularly tackle large portfolios, to ensure that there are no unwanted surprises and the deal closes smoothly and on time.
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Ryan Reynics
Ryan Reynics is a Relationship Manager for Partner Engineering and Science, Inc. (Partner) and is responsible for the origination, oversight, and management of environmental, engineering, seismic, survey, and industrial hygiene services in support of real estate transactions. He serves private and institutional equity investors, developers, financial institutions, Fannie Mae Lenders, and Freddie Mac Lender. He has extensive experience as a project scientist and project manager for environmental due diligence and environmental remediation projects.
