Property Environmental Monitoring
Recently, several environmental consultants have told me that their companies plan to change their Phase I ESA strategy this year to begin emphasizing their firms' value throughout the entire property ownership lifecycle.
The idea is to begin offering clients a hybrid service that combines pre-acquisition due diligence assessments with life-of-ownership environmental monitoring and the sales pitch goes something like this: "For $2,000 I can conduct a Phase I ESA now or for $2,000 and then $1,000 per year I can deliver the ESA and provide ongoing property monitoring for as long as you own the property."
So the question is "is it possible for an environmental professional to deliver $1,000 in value during the years in which a commerical property is not transacting?" These clients thinks it is very possible and I would agree with them.
Each of these firms has a slightly different idea of how they would monitor properties after the initial Phase I had been completed but they all share similar characteristics.
First, the data, findings and opinions from the original ESA would need to be archived and used going forward as a baseline. Second, periodic updates would need to occur looking for material changes such as the up-gradient adjoining property that just appeared in the state's leaking tank database. Finally, an automatic alerting mechanism would need to be developed to notify stakeholders of material changes that were identified and to suggest the appropriate actions.
Some "back of the envelope" math makes it pretty clear why these firms are excited about the opportunity. Right now, the average commercial property transacts every 7 years. If you assume an ESA averages $2,000, then the total revenue opportunity from a property is $2,000 every 7 years. But if the same property is then monitored for $1,000 per year, the total revenue opportunity from that property increases by 400% to $8,000. In addition, because the monitoring firm has attached itself to the property, the chances of winning the next Phase I project have probably been increased. After all, who knows that property better than the firm that has been monitoring it?
Given the continuing obligations language under AAI combined with the FDIC's recently updated environmental policy which emphasises monitoring portfolio loans, it seems that this may be an idea whose time has come.
The idea is to begin offering clients a hybrid service that combines pre-acquisition due diligence assessments with life-of-ownership environmental monitoring and the sales pitch goes something like this: "For $2,000 I can conduct a Phase I ESA now or for $2,000 and then $1,000 per year I can deliver the ESA and provide ongoing property monitoring for as long as you own the property."
So the question is "is it possible for an environmental professional to deliver $1,000 in value during the years in which a commerical property is not transacting?" These clients thinks it is very possible and I would agree with them.
Each of these firms has a slightly different idea of how they would monitor properties after the initial Phase I had been completed but they all share similar characteristics.
First, the data, findings and opinions from the original ESA would need to be archived and used going forward as a baseline. Second, periodic updates would need to occur looking for material changes such as the up-gradient adjoining property that just appeared in the state's leaking tank database. Finally, an automatic alerting mechanism would need to be developed to notify stakeholders of material changes that were identified and to suggest the appropriate actions.
Some "back of the envelope" math makes it pretty clear why these firms are excited about the opportunity. Right now, the average commercial property transacts every 7 years. If you assume an ESA averages $2,000, then the total revenue opportunity from a property is $2,000 every 7 years. But if the same property is then monitored for $1,000 per year, the total revenue opportunity from that property increases by 400% to $8,000. In addition, because the monitoring firm has attached itself to the property, the chances of winning the next Phase I project have probably been increased. After all, who knows that property better than the firm that has been monitoring it?
Given the continuing obligations language under AAI combined with the FDIC's recently updated environmental policy which emphasises monitoring portfolio loans, it seems that this may be an idea whose time has come.
Labels: AAI, ESA, FDIC, Phase I, property monitoring
posted by Rob Barber at
8/27/2007 10:02:00 AM
4 Comments:
Rob,
This is a really interesting concept. It seems like there is also a lot of applicability in a service like this for homeowners. Countless numbers of us live down the street from drycleaners, gas stations, and the like-- which could become environmental dangers at any time. Home owners are comfortable with monitoring systems for things like burglaries, fires and carbon monoxide. Why not environmental?
I think the residential market is a huge area of opportunity for environmental consultants. There is so much risk out there that the general public isn’t aware of!
Rob,
This is a really interesting concept. It seems like there is also a lot of applicability in a service like this for homeowners. Countless numbers of us live down the street from drycleaners, gas stations, and the like-- which could become environmental dangers at any time. Home owners are comfortable with monitoring systems for things like burglaries, fires and carbon monoxide. Why not environmental?
I think the residential market is a huge area of opportunity for environmental consultants. There is so much risk out there that the general public isn’t aware of!
I came up with the same idea a couple of years ago (I guess it's true what they say about great minds!). In my case, it was after seeing some real surprises when preparing a Phase I: the shopping center owner who was unaware that his service station lessee had an open LUST incident; and the medical office building who was equally unaware that the adjoining drycleaner had been cited for dumping used solvent in the Target Property's parking lot.
Whenever I've pitched this idea to a property owner or manager, they obviously wouldn't want something similar to happen to them ... but it hasn't yet, and they don't want to increase their expenses by 400%(!) ... in inverse proportion to my appetite for increasing my revenue by 400% (a variation of the "great minds" syndrome, perhaps).
But then again, until I made an adobe pdf file from your blog, I didn't have any visual aids to accompany my sales pitch, so, thanks!!!
Since there are only two comments so far (the first repeated twice), at least I still have the market to myself!
We work with a client who hires us not only for Phase I services but also to do annual environmental audits of all their commercial properties, and they have a ton of properties across the country. They have a web-based information system where the consultant loads up findings and recommendations. The findings remain "open" in the system until the recommended actions are implemented, then the finding is "closed." The client gets a nice break on their insurance premiums for doing these annual environmental audits. So the future is here for some property owners and managers. I hope it's contagious.
As far as the residential market, good luck on that one. That's for guys working out of their garage. See ya at the Home Show.
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