Amid construction recovery, builders must mind environmental concerns

September 15, 2014

In any real estate transaction, it is important for all parties to understand the full range of environmental liabilities that could arise during development projects or daily business operations.

If you are involved in a pending transfer of property with unresolved environmental concerns, it may be beneficial to retain an environmental consulting firm to perform any risk assessments and corrective action that is necessary to protect your interests. Performing a thorough site assessment and remediating any present environmental issues will help you avoid late transaction surprises, move quickly to the closing and protect your bottom line.

Today, it is particularly important for stakeholders to understand the threat that soil or groundwater contamination poses to real estate transactions. There is growing scrutiny of these issues and economic conditions are increasingly supportive of property development after many years of tight credit and low demand. Construction firms, developers and property owners do not want to miss out on emerging opportunities due to confusion about environmental issues.

Improving credit conditions support builders, developers

The Wall Street Journal recently examined the latest report on construction lending from the Federal Deposit Insurance Corporation. According to the FDIC, the total amount of outstanding construction loans increased 4 percent, to $223.2 billion, during the second quarter. Loans for small residential properties outpaced the broader construction sector, rising 5.4 percent.

Moody's Analytics chief economist Mark Zandi said he expects to see ongoing improvement in both residential and commercial construction, because the pace of construction remains relatively slow and the underlying supply and demand equation is moving in the right direction. Declining vacancy rates for office buildings and retail space in strip shopping centers are expected to support demand for commercial construction and draw more interest from financiers.

Zandi also highlighted the overall improvement in confidence, with lenders "growing more comfortable extending credit." The FDIC reported that U.S. banks increased their total loan and lease balances by 2.3 percent during the second quarter, the largest increase since before the financial crisis. It was reportedly the first time outstanding U.S. bank loans have exceeded $8 trillion.

"What we're seeing here is more consistent, steady growth instead of peaks and valleys," Centennial Bank CEO J. David Williams told the Journal.

Builders must exercise caution to overcome site-specific obstacles

The increase in outstanding construction loans recorded during Q2 was the largest since the sector began recovering in Q1 2013. However, despite the promising recovery during the past year, the construction lending market remains far below its 2013 peak of $600 billion. Several builders told the Journal that they continue to find it difficult to secure financing, but the market's current direction is positive.

Builders looking to capitalize on the current conditions must carefully manage environmental issues to mitigate potential risks. Every contaminated site has a unique mix of concerns that must be addressed before land is transferred or developed.

PPM provides a broad range of environmental consulting and engineering services to facilitate the transfer or development of real estate and avoid late transaction surprises that can derail a deal. Let us assess your potential liabilities and address any contamination issues to ensure that your interests are protected during and after the deal.

We'll perform a thorough investigation that covers all relevant environmental concerns within the project scope and promptly communicate our findings to you in a clear, concise report, allowing you to make informed decisions about how to move forward.