Environmental Due Diligence: Understanding Phase I and Phase II Environmental Site Assessments

Environmental due diligence is a critical part of making informed decisions about commercial and industrial real estate. Whether you are acquiring, selling, financing, refinancing, or redeveloping a property, understanding potential environmental liabilities before a transaction closes can help protect your investment, manage risk, and keep the transaction moving forward.

Citadel EHS provides environmental due diligence services throughout the United States, including the Pacific Northwest (PNW) and California. Our due diligence services include Phase I Environmental Site Assessments (Phase I) performed in accordance with ASTM E1527-21 and Phase II Environmental Site Assessments (Phase II) performed in accordance with ASTM E1903-19.

Our approach combines technical expertise with practical, client-focused recommendations. The goal is not simply to identify environmental concerns - it is to help clients understand what those concerns mean for the property, the transaction, and the decisions that come next.

What Is a Phase I Environmental Site Assessment?

A Phase I is often the starting point for evaluating potential environmental liabilities associated with commercial real estate.

Citadel EHS performs Phase I ESAs in accordance with ASTM International Standard E1527-21, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process. The Phase I process also supports compliance with the U.S. Environmental Protection Agency's All Appropriate Inquiries (AAI) requirements.

A Phase I generally includes:

• Review of historical information and prior uses of the property back to the property's first developed use, as reasonably ascertainable.
• Review of readily available environmental regulatory databases and records.
• Evaluation of surrounding properties and potential off-site concerns.
• A site reconnaissance.
• Interviews and review of available property information.
• A review of potential data gaps.
• Evaluation of potential environmental conditions.
• Preparation of a written report documenting findings, conclusions, and recommendations.

A primary objective of the Phase I ESA is to identify Recognized Environmental Conditions (RECs) associated with the property. Depending on the property's history and available information, the assessment may also identify non-scope considerations or business environmental risks that could affect a transaction or future property use, such as potential asbestos-containing materials, lead-based paint, or mold. These issues are outside the standard ASTM Phase I scope unless specifically included in the agreed scope of services.

For our clients, the most important question is often not simply, “Is there a REC?” but rather, “What does this finding mean for our transaction, and what should we do next?”

Citadel EHS focuses on providing clear conclusions and practical recommendations so buyers, sellers, lenders, attorneys, developers, and property owners can make informed decisions.

When Is a Phase II Environmental Site Assessment Needed?

A Phase I does not involve collecting soil, groundwater, soil vapor, or other environmental samples. When the Phase I identifies a potential environmental concern that warrants further evaluation, a Phase II may be recommended.

Citadel EHS performs Phase II investigations consistent with ASTM E1903-19, Standard Practice for Environmental Site Assessments: Phase II Environmental Site Assessment Process.

The scope of a Phase II is developed based on the specific environmental concern and property conditions. Depending on the site, an investigation may include sampling and analysis of soil, groundwater, soil vapor, or other environmental media, as appropriate.

For example, additional investigation may be warranted when a property has a history of operations involving petroleum products, solvents, chemicals, underground storage tanks, manufacturing activities, dry cleaning operations, or other uses that could have resulted in a release to the environment.

Rather than applying a one-size-fits-all investigation, Citadel EHS develops a targeted, risk-based scope of work designed to answer the environmental questions that matter to the client and the transaction and to support informed decisions regarding potential environmental and public-health risks.

Turning Environmental Findings Into Actionable Information

Environmental due diligence can become challenging when a report identifies a concern but does not clearly explain its significance. Citadel EHS works to bridge that gap.

When environmental conditions are identified, our team evaluates the available information in the context of the property, proposed transaction, anticipated future use, and applicable regulatory requirements. Where additional investigation is appropriate, we help clients understand the objectives, potential outcomes, and next steps before proceeding.

This approach can help clients:

• Better understand potential environmental liabilities.
• Evaluate environmental risk before closing a transaction.
• Address lender or investor environmental requirements.
• Determine whether additional investigation is warranted.
• Develop appropriate scopes and budgets for Phase II investigations.
• Evaluate potential implications for redevelopment or future property use.
• Reduce uncertainty during property negotiations.
• Make informed decisions regarding acquisition, financing, or disposition.

Environmental findings do not necessarily mean a transaction cannot proceed. The key is understanding the nature and magnitude of the issue early enough to evaluate available options and the potential costs associated with each.

Why Environmental Due Diligence Should Begin Early

Timing matters in commercial real estate transactions.

Waiting until late in the due diligence period to begin environmental review can create unnecessary pressure if historical concerns, regulatory records, or potential releases are identified. Starting the Phase I process early provides additional time to review findings and, when necessary, complete a targeted Phase II investigation before critical transaction deadlines.

Early environmental due diligence can also provide valuable information for negotiations, project planning, financing, and redevelopment decisions.

For properties with complex industrial histories, prior environmental investigations, regulatory involvement, or known contamination, involving an experienced environmental consultant early in the transaction can be particularly valuable.

Environmental Due Diligence in the Pacific Northwest and California

Environmental risk varies considerably by property type, location, historical land use, and regulatory setting. Properties throughout the United States, including California, Oregon, and Washington, may have environmental concerns associated with decades of commercial or industrial use. Citadel EHS follows the applicable ASTM standard when completing Phase I ESAs; however, state and local regulatory requirements can vary. Our team applies local regulatory knowledge and experience to help clients better understand property-specific environmental risks.

Citadel EHS provides environmental due diligence support for a broad range of properties, including commercial developments, industrial facilities, manufacturing properties, warehouses and distribution facilities, redevelopment sites, and other real estate assets.

Our professionals understand that environmental due diligence is part of a larger business decision. We work closely with property owners, prospective purchasers, developers, lenders, attorneys, and other stakeholders to deliver technically sound assessments in a format that supports timely decision-making.

How Citadel EHS Can Help

Citadel EHS provides comprehensive environmental due diligence and environmental site assessment services throughout the United States, including California and the Pacific Northwest. Our services include ASTM E1527-21 Phase I Environmental Site Assessments, ASTM E1903-19 Phase II Environmental Site Assessments, environmental records and historical property evaluations, soil and groundwater investigations, soil vapor evaluations, and environmental consulting associated with commercial and industrial real estate transactions.

Depending on the property type, age, and planned use, Citadel EHS can also provide asbestos, lead-based paint, and hazardous materials surveys as part of the due diligence process. These services can be added to the scope of work when requested to help identify additional environmental and building-related risks before acquisition, renovation, or redevelopment.

Our objective is straightforward: identify potential environmental risks, explain their significance clearly, and provide practical recommendations that help our clients move forward with confidence. For more information about these services, our full range of environmental offerings, and how we can assist with your specific project, please contact Craig Peterson or Mark Drollinger.

Contact Citadel EHS

Pacific Northwest: Craig Peterson, Principal Environmental Engineer - cpeterson@citadelEHS.com - (503) 333-0856

California: Mark Drollinger, Technical Director - mdrollinger@citadelehs.com – (408) 645-9457