REQUIRED READING: Vapor Intrusion Essentials In The Era Of E 2600

hough ASTM International introduced its first national vapor intrusion standard, ‘E 2600: Standard Practice for Assessment of Vapor Intrusion into Structures on Property Involved in Real Estate Transactions,’ over a year ago[/b], plenty of buzz still surrounds this indoor air quality issue. Because federal guidelines on vapor intrusion were outdated and existing state standards often contradicted one another, ASTM developed a standard for the assessment of vapor intrusion – E 2600. Today, E 2600 gives property stakeholders a prescriptive methodology for screening a potential vapor intrusion condition (pVIC). To review, vapor intrusion occurs when rapidly evaporating chemicals from polluted soil and groundwater, contaminated with substances like degreasers, drycleaning solvents and petroleum products make their way into the indoor air of overlying buildings – similar to the way radon gases enter homes. Contaminants may exist in the soil, in groundwater or as vapor clouds. Overlying structures are at risk, and because contamination can migrate, nearby structures could be affected as well. ‘Lenders should be aware that vapor intrusion can directly impact not only the subject site, but also neighboring off-site properties,’ stresses Brian Blum, a project manager at Langan Engineering and Environmental Services in Elmwood Park, N.J. Vapor intrusion can affect the value of a property used as collateral, have a negative impact on a borrower's creditworthiness and ability to repay a mortgage, lead to complications should foreclosure occur, and damage a bank's reputation, brand and image. For borrowers, vapor intrusion can lead to liability from lessees and rent losses that occur as a result of tenants citing an unsafe working environment and breaking leases. In addition, a property with a vapor intrusion condition can become devalued, stigmatized or both, making it difficult or impossible for an owner to attract new tenants or sell the property. Real estate finance professionals should remember that the most commonly used environmental due diligence screen, the Phase I environmental site assessment, does not typically include a vapor intrusion assessment, because the issue is considered to be outside the scope of an ASTM E 1527-05-compliant Phase I – much the way mold, lead paint and asbestos are. [i] [b]Inside E 2600[/b][/i] Instead, lenders can screen properties for vapor intrusion either with a stand-alone investigation or by adding a vapor intrusion assessment to the Phase I Environmental Site Assessment (ESA). There are advantages to the latter option. Much of the information required to screen for vapor intrusion is already gathered during the course of the Phase I investigation, which is perhaps why most environmental professionals perform the screen as a supplement to the Phase I ESA rather than as a stand-alone investigation. Sharon Siegel, an environmental attorney with Wiggin and Dana in Stamford, Conn., says this option is likely more cost-effective as well. The ASTM standard consists of four tiers, the first two of which are screening tiers designed to quickly and inexpensively identify a pVIC. Tier 1 uses two tests, including a search distance test and a chemicals of concern test. Tier 2 consists of a plume test to determine how close the nearest edge of a contaminated plume is to the nearest structure on the target property and, if close enough, compare contaminant concentrations in the plume with state or federal risk-based concentrations. If no data exist on the contaminated plume, then Tier 2 also allows for invasive soil gas and/or groundwater sampling. If the potential for vapor intrusion cannot reasonably be screened out using these first two tiers, and assuming the transaction is going to proceed, E 2600 identifies three options: (1) proceed to Tier 3, which directs the user to applicable state or federal guidance, policy or regulation to identify if a vapor intrusion condition exists; (2) proceed directly to mitigation options identified in Tier 4 on the assumption that mitigation conducted pre-emptively may be more cost-effective to address a pVIC; or (3) gain more certainty on the presence of a pVIC through additional investigation. Orion Alcalay, vice president of due diligence Services for AEI Consultants in Walnut Creek, Calif., says the information obtained to complete Tier 1 and 2 screens may be performed as part of a Phase I ESA, but these procedures can also be performed as a separate screen. ‘A vapor intrusion assessment is not part of the Phase I ESA process as outlined in E 1527-05,’ he explains. ‘E 2600 is a stand-alone document.’ The standard is designed to indicate the potential for a vapor intrusion problem. Only by conducting a Tier 3 vapor intrusion assessment can a problem be confirmed. This level of assessment is outside the scope of work of E 2600. In those cases, the standard directs the user to existing federal or state vapor intrusion guidance, policy or regulation. Siegel adds that lenders should become familiar with applicable state laws. ‘About half of all states have laws that govern vapor intrusion,’ she says. ‘Be very careful to have a lawyer who knows the state laws well. If the state doesn't govern vapor intrusion, draft loan documents accordingly.’ [i][b]Sites of concern[/b][/i] Opinions vary about when to screen for vapor intrusion, even among professionals. The more cautious experts advise tacking a vapor intrusion screen on to every Phase I ESA, while others recommend doing so only when the site in question has a prior use associated with petroleum or chlorinated solvents or sits in proximity to other sites that do. ‘Particularly when lending on new construction projects or existing developments that have used or currently use volatile organic compounds (VOCs) – such as chlorinated solvents and/or petroleum products – on the subject property, have a vapor intrusion assessment performed,’ says Sallman, adding that these properties have the highest number of incidences of vapor intrusion occurrences. Target properties of this nature may include filling stations, drycleaning stores or industrial-type operations. Lenders should pay particular attention to properties adjacent to these types of operations and properties located over large regional VOC or petroleum hydrocarbon plumes. Alcalay recommends a vapor intrusion screen whenever sites of concern are identified in the database and when thorough regulatory research was conducted as part of the Phase I for those sites. ‘For example, if an up- to cross-gradient adjacent leaking underground storage tank site or a VOC release site which has impacted groundwater is listed in the databases, then the records should be reviewed,’ he says. Alcalay notes that this research is typically done as part of the Phase I, but some consultants do not perform such research during the initial assessment. ‘Another example would be if there is a regional groundwater problem involving VOCs and the groundwater is shallow,’ he explains. ‘Many times, there are areas which have historically been used for manufacturing, such as Silicon Valley, and VOC groundwater plumes exist.’ ‘Be careful,’ cautions John Burkart, a director of environmental services at LandAmerica Assessment Corp. in Charlotte, N.C. ‘Vapors are difficult to evaluate. Many variables come into play [during the assessment].’ He warns lenders not to assume a vapor intrusion condition exists simply because the property is next to a service station, for instance, because ‘a potential vapor intrusion condition may be present, but vapor intrusion might not be occurring.’ Conversely, testing conducted in the winter months may indicate that the building is free of vapors, but testing in the summer may reveal a condition. ‘It may take more than one test to determine impact levels and a remedial solution for the property,’ he says. ‘Lenders should be aware that the regulatory focus on vapor intrusion is relatively recent -within the last five years or so,’ notes Blum. ‘Therefore, there is the potential that past remediation or even current remediation efforts of a brownfield property may not have adequately addressed the potential for vapor intrusion.’ Siegel believes the decision whether to screen for vapor intrusion is property-specific and depends on the site's history and future use. [i][b]If intrusion is found[/b][/i] If a property fails the Tier 1 screening, lenders have several options, including proceeding to a Tier 2 screen and, if a pVIC still exists, investigating further with a Tier 3 assessment. If they choose, lenders can be preemptive and skip straight to the mitigation approach outlined in Tier 4. Blum says the cost to mitigate or preclude vapor intrusion can be estimated, and the lender can then factor those costs and potential related liabilities into the assessed value of the real estate. Another option is for lenders to put funds in escrow to cover a future assessment and potential mitigation, or even back out of the deal. Perhaps because vapor intrusion is still a somewhat new environmental concern – and because ASTM's standard is also relatively new – several misconceptions persist. One recent article stated that the E 1527 Phase I standard includes protocols for assessing a vapor intrusion condition (it does not) and that E 2600 ‘recommends prospective buyers of property automatically screen for vapor intrusion if a potential source, such as a gas station or drycleaning shop, falls within a prescribed radius of the property’ (it does not). ‘I've heard from several clients about misconceptions regarding the ASTM standard,’ reports John Sallman, an environmental professional and principal at Terracon Consultants' Dallas office. ‘One is that E 2600 is required, when in fact, the standard is voluntary.’ He warns that some consultants have been selling the standard as mandatory, but lenders are under no obligation to evaluate the potential for vapor intrusion. ‘Many developers also have a misconception that the vapor barriers that are installed beneath building slabs to retard water vapor are adequate to mitigate potential vapor intrusion when redeveloping contaminated sites,’ he says. ‘Lenders should be aware when lending on these properties that a water vapor barrier beneath the slab is not adequate,’ he continues. ‘Studies have shown that even when traditional water vapor barriers are sealed at the joints and penetrations that vapor buildup beneath the barrier can result in a breakthrough.’ [i]Derek Ezovski is managing director of commercial property due diligence services at Environmental Data Resources, a provider of environmental risk information. He can be contacted at (800) 352-0050 or dezovski@edrnet.com