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ASTM Changes That Could Affect Your CRE Transaction

Discover what is new with ASTM regarding your future Phase I reports

By: Scott Leonard | 10/16/19

  • Change is coming, possibly as soon as the end of 2019!
  • ASTM E1527-13, the Standard Practice for Phase I ESAs is well along in its mandatory revision cycle
  • Emergent trends in the CRE industry are shaping some of the most significant revision proposals
  • Mixed use sites and the growth of distributed fulfillment centers in former light-manufacturing buildings has complicated once straight-forward environmental site assessments
  • Balloting has already begun, a strong indicator that a revised E1527-13 will be in effect within a year

As part of the ASTM’s (American Society of Testing and Materials) mandatory review cycle, E1527-13, the “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process,” is under review. The drop-deadline for finalizing changes to the current Practice is 2021, but early indications are that revisions currently under discussion will be passed by late 2019.

ASTM International has, for the past 26 years, written the standards through which the environmental due diligence and commercial real estate industries comply with Environmental Protection Agency regulations so borrowers and lenders may avoid CERCLA (Superfund) liability. It published its first guidelines for performing Phase I Environmental Site Assessments in 1993 and has revised its “Standard Practice” on a regular basis ever since. The most recent revisions to the Standard Practice went into effect in 2013.

ASTM’s Committee E50 on Environmental Assessment, Risk Management, and Correction Action has assigned volunteers to task committees. These task committees report, in turn, to Subcommittee E50.02, Real Estate Assessment and Management. The goal? To solicit information from users (lenders) and producers (environmental consultants and professionals) about any issues they may have with the current Practice and propose revisions to address those concerns and/or to update the Practice based on emergent trends. As always, accommodating the wants and needs of users and of producers is a fine balancing act.

Users of environmental due diligence reports, whose risk aversion is understandably acute, want the widest possible scope of investigation, as much detail as possible, and ever stricter standards to increase standardization and thereby reduce variability among reports from various vendors. On the other hand, both users and vendors are concerned about pricing and a quick turnaround, the two biggest obstacles to obtaining all possible information about the environmental condition of a property before a loan’s closing date.

Changes in the CRE space in recent years have played a major role in shaping which of E1527-13’s standards are under review. With emerging sectors and diversification of property types, users need different products from producers. For example, as e-tail businesses continue to expand, the need for industrial warehousing, particularly in urban centers, has grown rapidly in the past decade. Increased demand for same-day delivery of everything from paper towels to beauty products to perishable items has generated strong demand for acquisition and renovation of downtown buildings once used by other industries for other purposes. This, in turn, has complicated once straight-forward environmental site assessments of, say, former light-manufacturing buildings. Is it safe to repurpose a building that once hosted a small-quantity generator of hazardous waste into a warehouse with offices?

Similarly, increased demand for work-live and other mixed-use spaces has raised questions about the appropriateness of standards developed when such hybridization was relatively rare. What risk-management concerns are raised when a pottery kiln or specialty bicycle parts fabricator is installed in an urban building that has, perhaps for decades, hosted a retailer on the first floor and private residents on the second and third floors?

For now, ASTM’s Subcommittee E50.02 on Real Estate Assessment and Management has not published the details of work item WK62299, the formal title for its mandatory revision of Standard Practice E1527-13. But balloting has begun, which is a strong sign that the EDD and CRE industries may be working under revised guidelines sometime next year. When these revisions are finally published, it is likely that the above questions – and many others – will be answered.