“This call was an excellent demonstration of the EBA’s communal spirit, of our members coming together to share experience and insight for the betterment of our industry as a whole.” Bill Sloan, VP Environmental Risk Manager at Regions Bank and EBA President
On Wednesday, March 25th, the Environmental Bankers Association hosted a timely call for members to share their thoughts on the issues we are facing as an industry during the rapidly-evolving COVID-19 pandemic.
The event was hosted by Dennis Firestone, SVP – Premier Client Group, CBRE, with commentary provided by Georgina Dannatt, Bank of the West; Holly Neber, AEI Consultants; and Sean Leary, Vieau Associates.
Challenges of ERM During the COVID-19 Pandemic
As most of us “shelter in place” and adapt our business operations to unprecedented daily changes, it is creating challenges in completing environmental due diligence to support commercial real estate lending. Instead of working from offices, we are struggling to communicate and share files and responsibilities remotely. The once-familiar standard practices and processes have been upended. Within this new, strange business environment, environmental professionals and risk managers at financial institutions are struggling to meet the need for robust risk management in support of CRE lending, amidst limitations like closed doors at regulatory agencies and libraries, and the need to protect the health and safety of their employees. On top of this, lenders are challenged to make decisions about extending credit on a commercial property purchase against the backdrop of a now-uncertain economic forecast.
As Sloan noted in his introductory comments:
“We’re dealing with a number of challenges. It’s tougher to transfer files. There are bandwidth issues and site access issues. Some of us have difficulties getting documents printed. These types of challenges are slowing down the process so timing is unpredictable and highly variable. Report quality is a question. A client’s “date to close” is tough to meet. Consultants are out there doing the best they can to meet these demands under pressure.”
Below are highlights of what speakers shared about the challenges they’re facing during the early days of the COVID-19 pandemic—and some actions to consider based on the speakers’ insights:
“With Fannie Mae and Freddie Mac, they’ve acknowledged that limitations may apply to inspections of multi-family assets because of COVID-19, and they expect us to communicate whether these limitations will impair our ability to meet their requirements. With HUD, they’ve paused certain healthcare programs; however, an industry group is currently working on flexible site inspection methodologies that could be employed. For other programs, HUD allows inspection of vacant units only for properties of a certain age, but they still need full percentage of inspections for other types of loans.” Holly Neber, AEI Consultants
(For daily updates on HUD’s Guidance re: COVID-19)
ACTIONS TO CONSIDER:
“Since the MN governor issued an order deeming our services ‘essential,’ we produced a letter for our employees to carry on their person when accessing company property and job sites. It’s important to include references to the specific language in the order for clarity.” Sean Leary, Associate Principal/Vice President – Transaction Risk Management, Vieau Associates
Access to Property Records, Data Gaps
ACTIONS TO CONSIDER:
“Users need to be aware of whether a Phase I ESA report will hold up in the long term, especially if they’re not doing some follow up to compensate for not having, for example, a site visit or interviews or a file review. Bank ERM Departments and their clients need to think this through with their consultants upfront to determine whether the hurdles can be overcome before deciding what to engage, or whether a pause is needed altogether.” Georgina Dannatt, CHMM, REPA, Co-Chair ASTM E1528, VP, Environmental Risk Manager, Bank of the West
Every Project Is Different
ACTIONS TO CONSIDER:
“The major theme is that while we’re all still operating, most transactions require additional communication at this time. There needs to be more communication regarding access, site contact (is business open?), staff considerations regarding using social distancing practices, and potential limitations on access overall. We’re considering the type of site occupancy when looking at the limitations and whether they influence our ability to reach conclusions. We’re emphasizing communication at the time the scope is developed, after the site inspection, and within the report regarding any limitations and related considerations for ASTM or AAI.” ~Holly Neber, CEO, AEI Consultants
LightBox is committed to keeping our clients educated during this challenging time, and will continue to report on, and share information, on how our industry is adapting its practices to meet demand for risk management in support of commercial real estate transactions.