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CRE Finance World, Summer 2014

The Evolving Approach to Environmental Risk Management and Due Diligence Responsive Customized Solutions Independent Complex Deals A publication of Summer issue 2014 sponsored by CRE Finance World Summer 2014 67 Common techniques for overcoming environmental challenges include: • Cost Estimates: For environmental issues that can be quantified with a cost estimate, lenders may create a set aside to be held in escrow to ensure that the remedy is completed post close. Cost estimates and hold-backs may be an excellent tool for issues } that are well-defined. These may also be effective in the event that a site is nearing regulatory closure and is in a monitoring- only phase. Environmental consultants may have more difficulty creating a useful cost estimate for a site with significant unknowns. However, a “plausible worst case scenario” cost estimate, even with a wide margin of error, may be useful in the event of a transaction with a strong borrower or collateral with very strong value fundamentals. • State Funded Cleanup Programs: Some states maintain cleanup funds for leaking Underground Storage Tank (UST) and Dry Cleaners sites. These funds may be a valuable tool if: 1) the state fund is solvent (many are not) and projected to be so into the foreseeable future and 2) if the property qualifies for the receipt of the funding. • Seller Indemnification: A motivated seller may agree to retain responsibility for the resolution of a known environmental issue. This agreement is typically managed through an indemnification agreement. Scrutiny by legal counsel is a must in these scenarios. Verification that the seller has sufficient financial resources to fulfill their obligations is required. This often requires that a cost estimate for the needed work be considered along with the seller’s financial standing. In the case of a gas station site with a “big oil” What our clients are saying: Professional Deep Experience Customer Service Distressed Deals Fast Smart Asset Management . Servicing . Customized Solutions TRIMONTREA .COM


CRE Finance World, Summer 2014
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