​A multistate real estate portfolio we acquired included several strip shopping centers. One of the Central California properties had previously included a gasoline station that had closed and disappeared from the site.

 

The station was gone, but its history was not.

 

A Phase I Environmental Site Assessment identified the former gasoline-station use. That finding warranted further investigation, so we retained qualified environmental professionals to conduct a Phase II assessment involving drilling, sampling, and laboratory testing.

 

The initial investigation found areas of petroleum contamination—what we referred to as “hot spots.” Those results led to additional testing and excavation to determine the source and extent of the contamination.

 

We brought in a backhoe and began opening the affected area. Throughout the excavation, I hoped we would not discover an underground storage tank that had simply been abandoned rather than properly removed.

 

About three-quarters of the way through the excavation, we found exactly that.

 

The two people involved in the excavation reacted as though they had struck gold. My reaction was far less celebratory. I knew immediately that the discovery would mean greater expense, additional regulatory involvement, more testing, and a longer remediation process.

 

It also created an immediate safety concern.

 

An underground gasoline tank can retain flammable petroleum vapors even when it appears to be empty. Those vapors may ignite or explode if the tank is not handled correctly.

 

The environmental contractor used dry ice to help inert the tank. As the dry ice converted into carbon dioxide gas, it helped displace the flammable vapors and reduce the danger while qualified personnel prepared the tank for removal. The atmosphere had to be appropriately handled and monitored throughout the process.

 

After the tank was safely removed from the excavation, it was transported offsite and cut apart under controlled conditions.

 

The work also created a substantial operating problem for the shopping center.

 

We had to rope off a significant portion of the parking lot while excavation, testing, and tank removal were underway. The center remained occupied, so our tenants still needed to operate and their customers still needed safe, practical access to the businesses.

 

Some tenants temporarily lost access to parking they were entitled to use under their leases. Accommodating those tenants, maintaining customer access, controlling the work area, and managing the disruption created additional expense beyond the direct cost of the environmental remediation.

 

That is an often-overlooked part of environmental risk. The cost is not limited to consultants, laboratory testing, excavation, contaminated-soil disposal, and regulatory compliance. It can also affect tenant operations, customer access, parking obligations, property management, and the owner’s relationship with the occupants of the property.

 

Removing the tank did not conclude the work. Excavation and testing continued for approximately three or four weeks as contaminated soil was identified and removed. Confirmation samples were taken until testing indicated that the targeted gasoline, diesel, oil, and related petroleum contamination had been removed to the required standard.

 

After receiving authorization from the appropriate California regulatory agency, we were permitted to backfill the excavation. Clean fill was brought onto the site, the opening was closed, and the parking lot had to be repaired because the excavation and tank removal had destroyed a substantial amount of asphalt.

 

The entire process cost thousands—and ultimately tens of thousands—of dollars.

 

That experience reinforced several lessons that every property owner, purchaser, and real estate professional should understand.

 

First, historical uses matter. A property may look entirely ordinary today while concealing a significant environmental problem created decades earlier.

 

Second, a Phase I Environmental Site Assessment is not simply paperwork required by a lender. It is an investigation into the property’s history and current conditions. In this case, the Phase I did exactly what it was intended to do: it identified a former use that warranted closer examination.

 

Third, when the Phase I identifies a recognized environmental concern and recommends further investigation, the Phase II should not be dismissed as an unnecessary expense or inconvenience. Testing can reveal conditions that cannot be identified through an ordinary visual inspection.

 

Finally, environmental discoveries can create immediate safety concerns, operating disruptions, and tenant-related costs in addition to financial and regulatory exposure.  An abandoned tank is not merely an object that needs to be pulled from the ground.  It may contain flammable vapors, contaminated residue, or other hazards requiring qualified professionals, specialized procedures, and regulatory oversight.

 

Environmental due diligence may uncover an expensive problem.  Failing to perform it, however, can leave an owner with an even greater problem after the transaction closes.

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The lesson is straightforward:  Obtain the Phase I.  Read it carefully.  If it warrants a Phase II, complete the Phase II. Then understand the findings before making a consequential real estate decision.

 

What cannot be seen beneath a parking lot may become one of the most important—and most expensive—parts of the transaction.