Selling Real Estate near Gas Stations, Dry Cleaning Facilities, or Auto Mechanics: Understanding the Impact on the Sale Process
Due Diligence for Properties near Sources of Environmental Contaminants and Our Experience with Purchasing a Commercial Property near a Gas Station in Portage County, OH.
When selling a property located near a gas station, dry cleaning facility, or auto mechanic it is important for the seller to recognize the unique factors that can impact the value of the property and the sale process. One of the primary concerns for buyers of properties near these types of facilities is the potential for environmental contamination.
In this article, we will discuss what sort of due diligence sellers of properties near sources of environmental contaminants should expect from buyers, as well as our experience buying commercial real estate immediately adjacent to a gas station.
Table of Contents
A brief preview of the Environmental Site Assessment (ESA) process
What do lenders consider a safe distance to not require an ESA?
Our experience with purchasing an office and retail building adjacent to a gas station
Finding an environmental consulting firm
Our experience with Phase I ESA
Conclusion of Phase I ESA
Understanding environmental contamination
Gasoline and other fuel products from gas stations, oil, coolant, solvents, disposed of by mechanics, and dry cleaning solutions contain chemicals that can contaminate the soil, air, groundwater, posing health risks to people and animals who come into contact with them.
The strict rules governing the containment, handling and disposal of these chemicals do not always prevent releases.
When releases do happen, such as when an underground gas storage tank leaks, they may have serious implications for nearby properties requiring tens, if not hundreds of thousands of dollars for remediation work to make the properties safe.
2. Additional due diligence for buyers of properties near gas stations, dry cleaning facilities, auto mechanics and other sources of environmental contaminants
Buyers of properties near sources of environmental contaminants will typically undertake to assess the potential environmental hazards affecting their property.
Due to the additional due diligence the buyers will need to do, owners of properties near sources of environmental contaminants should expect the sale process to take longer than for properties not located near such sites.
What the due diligence process entails will obviously depend on the buyer and the source of the environmental contaminant.
For example, someone buying a property near a new Shell gas station will be less concerned about gasoline releases contaminating the adjacent property than someone buying a property near a run down, mom and pop gas station.
Cash buyers may opt to do their own research, by searching through federal and state environmental record databases for records of releases, underground storage tanks etc. and speaking with local fire department and building officials.
However, buyers relying on traditional financing will likely not be able to DIY the environmental assessment because most convenitional lenders will not lend against these types of properties without first getting an Environmental Site Assessment (“ESA”), conducted by a licensed environmental consulting firm.
3. A preview of the Environmental Site Assessment (ESA) process
The ESA typically includes several phases, including:
Phase I ESA: This is an initial investigation that involves reviewing historical records and conducting a site visit to identify any potential environmental hazards.
This may include reviewing local, state, and federal environmental databases, as well as interviewing current and past property owners, tenants, and the local fire department.
Phase II ESA: If potential environmental hazards are identified during Phase I ESA, a Phase II ESA may be necessary.
This involves collecting and analyzing soil and groundwater samples to determine the extent of the contamination.
Remediation and Mitigation: If environmental hazards are identified, the environmental consulting firm will provide recommendations for remediation or mitigation.
This may include excavation and removal of contaminated soil, installation of remediation systems, or monitoring and maintenance of the property to prevent future contamination.
4. What do lenders consider a safe distance to not require an ESA?
There is no universally defined standard distance that applies to all lenders. It depends on the type of business and environmental contaminant.
Lenders may also consider other factors such as the local regulations, site-specific conditions, and the type of property being financed when determining the need for an ESA.
When we spoke with lenders about buying a property adjacent to a gas station, most told us that they consider property within a quarter mile of a gas station potentially warranting an ESA.
Sellers seeking to find out at the outset whether an ESA will be required can call popular lenders in the area and ask whether an ESA would be required. (Sellers of commercial real estate, particularly small commercial properties, should call the commercial lending departments of local/regional lenders.)
5. What should the seller of a property near a gas station/dry cleaner/car mechanic do to prepare for the sale?
Sellers should be prepared to provide buyers with information about the property's environmental history.
Typically, nearby property owners are notified of spills or releases. Sellers should have this information handy to share with the buyers.
However, it is usually not recommended for the seller to hire an environmental consulting firm to conduct an ESA before listing a property.
Getting a clean environmental assessment will satisfy some buyers. But those relying on traditional financing will need to have an environmental consulting firm expressly approved by their lender conduct the ESA.
Sellers can certainly offer to pay for the ESA once they have a buyer.
In 2022, we purchased a commercial property very close to a Speedway gas station in Portage County, OH.
Due to its proximity to the gas station, we decided to hire an environmental consulting firm to complete ESA Phase I before purchasing the property.
6. Our experience with purchasing an office and retail building adjacent to a gas station
In 2022, we purchased a commercial property adjacent to a gas station in Portage County, OH.
While we ultimately bought the office and retail property for cash, we wanted to be sure that it was not on contaminated land so that we would be able to refinance the property in the future.
In addition to being adjacent to a gas station, our due diligence was complicated by the fact that the property had previously been marketed as a dry cleaning business.
Finding an environmental consulting firm
We called around local and national banks and got lists of environmental consulting firms from whom banks would accept ESA reports.
We settled on one firm that appeared on most of the lists we received. Most banks informed us the ESA would be valid for as long as two years.
Our experience with Phase I ESA
We paid $2,400 for Phase I ESA. It took four weeks to complete.
Phase I ESA included a site inspection and review of the following Federal environmental databases:
The Federal NPL sites list for the Property and all sites within an approximate minimum search distance of 1.0 mile.
The Federal Delisted NPL sites list for the Property and all sites within an approximate minimum search distance of 0.5 miles.
The Federal SEMS list for the Property and all sites within an approximate minimum search distance of 0.5 miles.
The SEMS Archived sites list for the Property and all sites within an approximate minimum search distance of 0.5 miles.
The Federal RCRA CORRACTS for the Property and all sites within an approximate minimum search distance of 1.0 mile.
The Federal RCRA non-CORRACTS TSD facilities list for the Property and all sites within an approximate minimum search distance of 0.5 miles.
The Federal RCRA Generators list for the Property and adjacent properties.
Federal IC/EC registries for the Property.
The Federal ERNS list for the Property.
It also included a review of the following OH environmental databases:
Ohio EPA’s MSL/DERR Database for the Property and all sites within an approximate minimum search distance of 1.0 mile.
State and tribal-equivalent NPL for the Property and all sites within an approximate minimum search distance of 1.0 mile.
State and tribal-equivalent SEMS for the Property and all sites within an approximate minimum search distance of 0.5 miles. The Ohio EPA’s spills database for the Property.
State and tribal landfill and/or solid waste disposal site list for the Property and all sites within an approximate minimum search distance of 0.5 miles.
BUSTR’s LUST list and tribal leaking storage tanks for the Property and all sites within an approximate minimum search distance of 0.5 miles.
BUSTR’s Registered UST list and tribal registered storage tanks for the Property and adjacent properties.
State and tribal IC/EC registries for the Property.
State and tribal VCP sites for the Property and all sites within an approximate minimum search distance of 0.5 miles
State and tribal Brownfield sites for the Property and all sites within an approximate minimum search distance of 0.5 miles
The environmental consulting firm also reviewed:
EDR Historical databases (EDR appears to be a private, third-party environmental database)
ODNR Oil and Gas Well Map: (http://www.dnr.state.oh.us/Website/Geosurvey/oilgas/viewer.htm)
Historical ownership records of the property filed with the Portage County Auditor’s and Recorder’s Offices
Historical Sanborn fire insurance maps
Historical aerial photographs available from EDR
City directories
Zoning and land use records from the Portage County Auditor
Records request to the Portage County Health District
Records request to the City’s Building Department
Records request to the City’s Fire Department
Records request to the Ohio Department of Commerce, Division of State Fire Marshal, BUSTR office
Lastly, Phase I ESA included an analysis of physical settings sources from:
1994 Kent, Ohio, quadrangle USGS 7.5 minute topographic map
The 1983 (Revised 1996), Kent, Ohio, Bedrock Topography Map, published by the ODNR
Soil Survey Map of Portage County, Ohio, published by the United States Department of Agriculture and obtained from the Web Soil Survey website (http://websoilsurvey.nrcs.usda.gov/app/WebSoilSurvey.aspx)
Conclusion of Phase I ESA
The ESA Phase I uncovered that the gas station adjacent to our property had several accidental releases over the years. The records revealing the spills were available on Ohio’s BUSTR website.
The documents extensively detailed the efforts made in identifying, remediating, and monitoring the damage caused by the releases, including soil boring and installing monitoring wells around the gas station to monitor the levels of chemicals in the surrounding soil and groundwater.
Ultimately BUSTR cleared the gas station, satisfied that the monitoring wells did not reveal unsafe amounts of chemicals in the nearby areas.
After analyzing the foregoing data sources, the environmental consulting firm concluded that the property we were buying never performed dry cleaning on-site.
Phase I ESA concluded with a finding that there were no recognized environmental conditions in connection with the commercial property we were buying.
This was excellent news because several environmental firms we spoke with informed us that ESA Phase II can cost between $10,000 and $60,000 as it involves collecting and analyzing soil and groundwater samples as well as boring deep into the ground.
If you are considering selling a property located near gas station, dry cleaning facility, or an auto mechanic, reach out to LP Property Group. With our firsthand experience in buying commercial and residential real estate in these areas, we can make the sale process simple, fair and fast. We also offer the convenience of cash transactions. Contact us today to discuss a fair and competitive cash offer for your property.
Disclaimer: The above is solely intended for informational purposes and in no way constitutes legal advice or specific recommendations.