As a professional in environmental and business risk mitigation for 25 years, I have seen many "boo-boo" scenarios in commercial real estate, some many times. Some of the more painful ones involve gas station/convenience stores. Some of this pain is simply a result of the nature of the business involved. Often, the buyer is so excited by the reward side of the equation that he or she is blind to some of these risks.
Another factor is sometimes because these types of businesses are often acquired by folks who may have emigrated here from another country and culture, and who may not understand some of the subtleties of doing business here in the US. When these two factors are combined, it can really create some problems if someone isn't able to help keep things on a good course.
Another factor is sometimes because these types of businesses are often acquired by folks who may have emigrated here from another country and culture, and who may not understand some of the subtleties of doing business here in the US. When these two factors are combined, it can really create some problems if someone isn't able to help keep things on a good course.
In a great article on LinkedIn, my friend Habib Shah goes into many facets of this scenario. After reading his analysis, I felt compelled to add my own perspective which sadly has been hard-earned, sometimes by having to try and help people pick up the pieces after they've made a big mistake!
Here's my additional perspective:
1) A high percentage of Underground Storage Tank (UST) system leaks are caused by leaks in the transfer piping. Habib's estimate for piping replacement at $50,000 is reasonable. If the underground tanks need to be replaced, you can add $100,000 to that.
2) Stay away from single-walled piping and tanks except for in very specific circumstances. Insurers sometimes don't like to underwrite single-walled systems, and when they do, it can be more expensive. I usually recommend working with an environmental insurance specialist like Chris Bunbury who knows the tricks of the trade to mitigate these risks.
3) The older the underground tank system is, the more risk it has. Other factors which increase risk include the care with which the system was originally installed, the local geology, the diligence with which the system has been maintained and tested over the years, and the integrity, calibration, precision and accuracy of the testing methods and equipment.
4) Don't overlook the risk of existing or historical contamination liability. If not handled correctly, this can cost a buyer much more than the property is worth. Regulatory agencies are always looking for revenue, including fines and cleanup costs levied against liable parties, even if they didn't cause the contamination!
5) Don't rely upon the environmental report (or other reports for that matter) provided by the seller unless it is certified also to the buyer with their name on it.
6) Environmental reports are only good for a limited amount of time. A five year old report has little value.
7) Just because you are buying on a land contract or cash and there is no bank involved to require an environmental report does not mean you should not do your own environmental due diligence. The consequences for the buyer are the same either way. When a bank or SBA requires environmental work, they are actually doing the buyer a favor that he should be equally willing to do for himself even if there's no bank involved.
8) The sellers assurances that "everything is fine" may make the buyer feel good, but in business terms, this means little. In some cultures around the world, a handshake still means everything in terms of trust. Here in the United States, it is best to follow Ronald Reagan's sage advice to "trust, but verify". Make sure that as a buyer you hire your own professionals, and don't rely upon assurances by the seller or of people contracted only to him. They have fiduciary responsibility to the seller alone.
9) "Let the butcher cut the meat." This adage is never more true than when it comes to buying commercial real estate.
Don't try to do your own environmental due diligence or your own legal review.
Here are some cost saving resources to help you in these two key areas:
Environmental Due Diligence: Depending on your needs and the situation involved, there are environmental due diligence products available which start at less than $300. Contact me through LinkedIn (http://www.linkedin.com/in/
Attorney Review of Sale Documents: When it comes to attorneys, obviously they can be very expensive. However, there is a growing trend towards accessing legal legal advice through inexpensive service plans. These simple plans enable unlimited access to an attorney for virtually any matter without worrying about receiving a bill! Family plans start at $20 per month. Small business plans are more robust and start at about $40 per month. I've been using these services myself for years and have found them to be an unbelievable value! Contact me through LinkedIn (http://www.linkedin.com/in/
