Author: Angie Ellis, REM, CES, EP, Senior Due Diligence Manager, Moran Consultants

Before a single unit is built, acquired, or revitalized, every multi-family development hinges on one foundational step in due diligence: the Phase I Environmental Site Assessment (ESA). This comprehensive evaluation is the bedrock of environmental risk management, exposing existing or potential concerns that could impact project viability, financing, or long-term occupancy. By identifying these risks early, developers, lenders, equity partners, and public agencies can move forward with greater confidence. This ensures projects meet regulatory requirements and ultimately serve families in need of safe, sustainable housing.

The Importance of Phase I ESAs in Multi-Family Projects

Phase I ESAs are conducted in accordance with ASTM E1527-21 and are designed to satisfy the U.S. Environmental Protection Agency’s All Appropriate Inquiries (AAI) requirement under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). In the context of multi-family housing, where properties often involve long-term tenancy, shared infrastructure, and financing a Phase I ESA can significantly impact risk exposure and financing eligibility.

The assessment process includes a detailed evaluation of:

• Historical land uses (both on and off-site)
• Current site operations, such as maintenance areas and chemical storage
• Nearby property uses and their potential for migration impacts
• Regulatory database records and agency file reviews
• On-site reconnaissance for observable indicators of contamination
• Other relevant research and findings through interviews, municipal data, and documentation identified

Who Commissions Phase I Environmental Site Assessments?

These assessments are commonly commissioned by:

• Developers
• Buyers and syndicators
• Lenders and underwriters
• Public housing authorities and government agencies
• Attorneys and risk managers
• Equity investors

These parties rely on Phase I ESA findings to evaluate environmental risk, inform investment and asset management decisions, protect loan security, meet regulatory of funding requirements, support due diligence strategies, negotiate deal terms, and secure long-term financial interests.

Common Environmental Red Flags in Multi-Family Developments

Although many multi-family properties may appear harmless at first glance, past uses of the site or neighboring properties can conceal significant environmental risks. Typical findings have included:

• Former Automotive Uses: Sites historically used for gas stations or auto repair may contain undocumented underground storage tanks (USTs) or residual petroleum-impacted soils. Even when these sites have been inactive for decades, subsurface contamination often persists.
• Historic Dry-Cleaning Operations: Dry cleaning solvents, particularly perchloroethylene (PCE), are long-lived and mobile in the subsurface. The presence of an on-site or adjacent dry cleaner, even if no longer in operation, often warrants further assessment.
• Fill of Unknown Origin: Infill sites may contain mixed or diverse backfill materials such as construction debris or coal ash. Geotechnical reports flagging undocumented fill should trigger an environmental evaluation to determine composition and potential impacts.
• Suspect Transformer Equipment: Older pad-mounted or pole-mounted transformers may contain polychlorinated biphenyls (PCBs). If original documentation or testing is unavailable, this presents a regulatory and disposal concern.

How Environmental Professionals Make Determinations

Behind each Phase I ESA is an Environmental Professional trained to examine historical context, current conditions, and regulatory data. Determinations are made through a structured, yet nuanced process:

• Historical Research: Comprehensive reviews of Sanborn maps, aerial imagery, topographic maps, city directories, and building records help reconstruct the operational history of a site. Activities such as vehicle repair, solvent use, or manufacturing often leave a lasting environmental footprint.
• Regulatory File Review: State and federal environmental databases are reviewed for records of spills, violations, remediation actions, and site closures. The presence or absence of enforcement history informs the level of environmental concern.
• Site Reconnaissance: Visual inspection of the property is critical. Field observations such as stained pavement, chemical odors, distressed vegetation, and improper chemical storage offer real-time indicators of environmental conditions.
• Professional Judgment in Context: A gas station on an adjacent property may not constitute a Recognized Environmental Condition (REC) if it is upgradient, remediated, or hydrogeologically isolated. Professional discretion, grounded in experience and regulatory knowledge, allows the Environmental Professional to classify conditions as RECs, Historical RECs (HRECs), Controlled RECs (CRECs), or de minimis concerns.

Case Study: Infill Redevelopment with Historical Industrial Use

A developer pursuing the revitalization of a long-vacant parcel in the downtown core commissioned a Phase I Environmental Site Assessment as part of the due diligence process for a tax credit-financed affordable housing project. Historical research revealed that the site previously operated as a machine shop, followed by decades of use as a surface parking lot. Although no structures remained on-site, the Phase I ESA identified potential environmental concerns related to historical use.

A limited Phase II ESA was recommended to evaluate subsurface conditions. Soil sampling confirmed low concentrations of petroleum hydrocarbons and chlorinated solvents. Based on these findings, the developer enrolled the site in the state’s brownfield program, which provided regulatory oversight, liability protections, and a clear risk management framework. With institutional controls in place, the project moved forward, aligning redevelopment goals with environmental compliance.

Strategy for Identified RECs

When a Phase I ESA identifies a Recognized Environmental Condition (REC), it does not halt the project. Instead, it helps define the path forward by identifying areas where further evaluation, risk management, or regulatory engagement may be needed. Common next steps include:

• Phase II ESA: Targeted soil, groundwater, and vapor sampling may be recommended to confirm or delineate the extent of contamination. This helps determine whether conditions warrant further action or can be managed in place.
• Regulatory Program Enrollment: Depending on the nature of the impacts and state-specific options, the site may be eligible for a Voluntary Cleanup Program (VCP), Brownfields Redevelopment Program, Petroleum Restoration Program, or other risk-based corrective action (RBCA) pathways. These programs often offer regulatory oversight, liability protections, and in some cases, funding incentives for remediation.
• Remedial Action Planning: If contamination is confirmed, environmental consultants may develop a site-specific plan that includes remediation, engineering controls, institutional controls, or long-term monitoring tailored to the intended land use and regulatory requirements.
• Risk Management and Transfer: Parties may structure environmental insurance, indemnification clauses, or escrow reserves to manage residual risk and allocate responsibilities among stakeholders. These tools are especially important in transactions involving lenders, investors, or public entities.

Ultimately, identifying a REC is not a deal-breaker. It is an inflection point to take informed, strategic steps to address environmental conditions and keep the project on track. In fact, early identification of RECs can strengthen negotiating positions, inform more accurate budgeting and timelines, support eligibility for cleanup grants or tax incentives, and help structure appropriate liability protections through insurance or indemnification agreements.

Conclusion: The Value of Phase I ESA Due Diligence

In multi-family development, a Phase I ESA is more than a due diligence formality. It is a strategic risk management tool. Whether building senior communities, revitalizing distressed properties, or acquiring stabilized portfolios, understanding a site’s environmental history is essential to protecting financial, reputational, and operational outcomes.

When performed by a qualified Environmental Professional, a Phase I ESA provides clarity, compliance, and confidence. It gives the information they need to make informed decisions, secure funding, and stay on schedule, all the while advancing a shared goal of creating safe, affordable housing for communities.

About Moran Consultants

Moran Consultants is a nationally recognized consulting firm offering services ranging from initial due diligence assessments to construction loan monitoring and owner’s representation. With over 250 years of combined industry experience, Moran mitigates risk for lenders, syndicators, investors, and owners while adding value to every stage of the project lifecycle.