13 Mar Real Estate Fail: Procrastination
ESA plays an ancillary role when properties are bought and sold. We do not negotiate real estate deals; we leave that to the experts — real estate attorneys and professional brokers. But we could write volumes on client actions (or inaction) that thwart, impede, or outright kill deals. In this article, ESA addresses the consequences of delays in rectifying environmental issues using a real-life, real-time example. If you want to learn from the mistakes of others and avoid the high cost and aggravation of procrastination, read on.
Cause of Death: Procrastination
DELAYS KILL DEALS. Therefore, it is incumbent upon you and the people you retain to eliminate impediments as quickly as possible so your deal stays alive through closing. Environmental issues often create such impediments. And environmental issues are common. So, the obvious solution to the procrastination deal killer is simple: DON’T DELAY. Address environmental issues up front, even before you think about selling your property.
What follows is a real-life example of how to jeopardize a real estate deal by not responding to environmental issues before the sale.
Short Cuts Make Long Delays
A current ESA client is in the process of selling an urban apartment building. Because she has many such buildings in her portfolio, she knows about heating oil tanks and their potential to harbor environmental complications. Despite ESA’s advice to address the known tank on her property in advance of any deal, the client opted to wait until she had a buyer for the building. She then retained ESA to remove the tank. However, upon ESA’s preliminary evaluation, it was deemed impractical and, worse, very expensive to remove the tank in such a dense urban setting. ESA therefore recommended the tank be closed in place. The story might have ended well right there – but it didn’t.
No one could predict what we’d find after the work started, but ESA’s 28 years on the job gives us plenty of real-life cautionary tales to learn from. To gain closure pursuant to New Jersey Department of Environmental Protection (NJDEP) regulations, soil samples taken through the tank bottom would have to be free of heating oil, demonstrating that the tank hadn’t leaked. Unfortunately for our client, the samples ESA extracted reeked of oil, so clearly the tank had leaked. Thus, despite the impracticalities of removal, the tank had to be excavated. What’s more, NJDEP regulations required that we conduct a full site investigation to determine the horizontal and vertical limits of the impacts.
One of the most unpleasant tasks I have as an environmental consultant is to call a client with news such as this — that what might have been a simple job has now turned into a considerably costlier project. Worse, my client was now under severe time constraints due to a lender-imposed closing deadline. And it gets worse still; THE LENDER WAS WARY OF FINANCING A PROPERTY WITH ENVIRONMENTAL IMPACTS. Everyone was asking questions – How will you clean the site? How long will it take? How much will it cost? To fully and accurately answer those questions, ESA needed data from a complete site characterization that was not yet available.
The result? Today, on the eve of the closing, the buyer’s lender is not yet comfortable enough to move ahead with the deal. ESA is therefore working diligently on behalf of our client to gather additional data to assuage the lender as quickly as possible. These circumstances put the buyer and the lender in a dominant negotiating position — not exactly where our client, the seller, wants to be. As I write this, I believe the lender will ultimately be satisfied, but that decision is still pending. And this entire issue would never have existed if the tank had been addressed before a deal was on the table.
So, what is the lesson learned from the above example? At the risk of repeating myself: DELAYS KILL DEALS. To the extent practical, as a property owner, you must eliminate impediments to a deal BEFORE you think about selling. Because environmental issues are universally shunned by buyers and lenders, doing so will not only save you money in the long run; it will also dramatically reduce stress and aggravation for all parties involved.