Over the past two years, more and more environmental consultants and lenders have been asking EDR if we have any plans to expand into Japan. The reason for the question is quite simple. Real estate markets are becoming more global each day and as western investors continue to expand their geographic holdings they are looking for similar due diligence service offerings in other countries. This is driving many of EDR's customers to follow their clients abroad and, likewise, is creating a need for more environmental information. While environmental information services are commonplace in parts of western Europe, nothing similar exists in Asia yet.

Due to the size of the Japanese economy combined with recent legislation, Phase I type due diligence is becoming more common in Japan. Initially, Phase Is were primarily done for western firms who were expanding into Japan. Today, however, some Japanese banks are beginning to develop environmental policies which are driving more projects. Regulatory forces may also be starting to drive activity. These regulatory changes are being driven by the Ministry of the Environment, the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure and Transportation.

This weekend I will be making EDR's first trip to Japan to meet with several environmental consulting firms, lenders and government agencies. The purpose of the trip is to begin developing the idea of building an information service to support environmental due diligence activities in Japan and to discuss partnership opportunities with local firms. As things develop, I will be sure to keep everyone appraised of the situation through this blog and other means.

Also, due to being abroad next week, I will not be making any blog posts until the second week of September.

I hope everyone has a safe and enjoyable Labor Day weekend.

Sayonara

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.

Earlier this week I received a phone call from a guy who told me he wanted an ESA performed on a commercial property he was buying. After explaining that EDR is an information service and that our customers are the ones who do assessments, I asked him how he heard about me and EDR. His response was that he conducted a search within the ActiveRain Real Estate Network for "environmental assessments" and came across my profile.

If you're not familiar, ActiveRain is a social networking site for people involved in real estate (mainly residential although some commerical groups have formed within the community). Think of it as MySpace for people involved in real estate.

I set up a profile several months ago in ActiveRain (www.activerain.com) as well as in several other networking sites including LinkedIn and BizNik and each profile has already produced multiple benefits. Now I must admit that I originally did so as more of an experiment than anything else. I was curious to learn about what these services were all about and how EDR should be using these services to our advantage.

The results so far have been positive. LinkedIn has produced several contacts for us with people in related fields that have led to research projects for the company.

For those of us who are generally 40 or over, I think there's a tendency to quickly disregard these new platforms as simply toys for a younger generation. This is a mistake. While MySpace and FaceBook are probably not going to generate business leads for a company, these business social networking site will if you are an active participant and spend some time in the community. Conducting a search for "environmental professionals" in ActiveRain and LinkedIn produces hundreds of findings which then lead to plenty of background information on each profile. EDR is currently using these sites in several ways, including recruitment and business development.

As for the person who found me in ActiveRain, I was able to refer him to a local environmental consultant (and EDR customer) who got the job and was very appreciative of the referral....not bad for 5 minutes of my time.

As most environmental professionals already know, for the past year ASTM International has been working to develop a standard to assess a property's potential exposure to vapor intrusion. Word is this standard will be published sometime in 2008. Now Congress may be chiming in on the issue.

Senator Clinton (and Dole, Boxer, Lautenberg and Kerry) recently introduced a bill titled the "Toxic Chemical Exposure Reduction Act of 2007" which seeks to amend the Safe Drinking Water Act. As it relates to vapor intrusion, the bill seems to do a few things, namely:

• require EPA to publish a health advisory for TCE that fully protects from vapor intrusion,
• require an integrated risk information system reference concentration of TCE vapor, and
• apply this established reference concentration to any potential vapor intrusion related investigations or actions carried out pursuant to CERCLA, the Safe Drinking Water Act or the Solid Waste Disposal Act.

Now, despite the general vagueness of the above, this does seem to be yet another indicator that the vapor intrusion train has left the station. The best proof of this can be found by simply conducting a Google search (news and blogs) for vapor intrusion and look at the results. There are literally new stories coming out weekly about residential and commercial properties being impacted by vapors.

For our part, we're headed to D.C. in three weeks to meet with the staffs of the above-mentioned Senators to learn more about where they'd like to take this bill and we'll report back on our findings.

This post marks the beginning of what I hope will be a long and productive multi-way conversation between EDR, our customers, our employees and really anyone who cares about real estate. I hope that in the coming weeks and months this site will develop into a great place for the exchange of ideas and information to anyone who comes across it.

As I sit here writing this, CNBC is on my split-screen showing the DJIA down another 213 points today which leads directly to the question a lot of our clients have been calling us about over the past few weeks: What will the impact of the current credit crunch be on the CMBS and general commerical real estate market? Well, the quick and easy answer is "I don't know". But I will offer up the following points I heard yesterday during a conference call with EDR's sister company; Trepp.

For starters, what is happening now is not a "real estate event" but is a "capital markets event". The point being that CRE fundamentals remain good and money continues to flow into CRE. This is not to say that things aren't changing, though. Clearly, there is less silly money out there, underwriting has become more conservative and refi activity has dried up.

All of this will certainly reduce CMBS issuances over the next few months but we're already seeing some of this business simply transfered to balance sheet lenders (who say they're swamped right now).

For most Phase I professionals I don't think there will be a huge impact on your business just because of the current re-pricing of risk in the capital markets. However, I would (and do) keep a close eye on the US consumer, consumer spending and consumer confidence. If things change for the worse here then I think we're looking at a different story.

When the CEO of Wal-Mart says "customers are running out of money", I worry a little.