Category Archives: Real Estate

Upcoming ASTM E2797-2011 BEPA (Building Energy Performance Assessment) Standard

The draft ASTM E2797-2011 BEPA (Building Energy Performance Assessment) Standard will provide another method to assess and disclose the energy efficiency of commercial buildings.  The standard is expected to be published in 2011, though no date has been specified.

BEPA was created in an effort to standardize the process of assessing the energy efficiency of a building for the purposes of pre-transaction disclosure.  Building purchasers will want to know the building’s energy consumption, and lenders will want to understand the building’s operating costs. 

BEPAs were designed to be conducted in concurrence with a Phase I ESA or PCA; however, BEPA buyers need to be aware that the personnel used for the site inspection during a Phase I or PCA may not be trained appropriately to conduct the BEPA.  The inspector for BEPA should be a mechanical or other engineer, Certified Energy Manager (CEM), LEED AP or other professional with training in building and energy systems.

More states are requiring energy efficiency disclosure of commercial buildings.  As this trend continues, more building owners, purchasers and commercial real estate professionals are recognizing the value of energy assessments not just because of these regulatory requirements, but because energy efficiency initiatives really work.  In addition to greater marketability of a building, capital investments into energy efficient system upgrades will yield substantial return on investment.

According to Tony Liou, President of Partner Energy, the EPA’s Energy Star program is currently the most commonly used energy disclosure and benchmarking tool; however, Partner Energy structures each assessment according to the client’s specifications and the most appropriate method, whether the Energy Star program, ASHRAE audits, or the upcoming BEPA standard.

Partner Energy specializes in an array of energy services including audits, modeling and benchmarking.

Property Condition Assessment and Energy Audit

Adding an Energy Audit or Energy Benchmarking to a Property Condition Assessment (PCA) can put dollars in your pocket.  A PCA gives you an indication of the current and future costs of building maintenance, but you could be missing out on many cost-savings measures. 

Energy Benchmarking is a cost-effective first step to understanding and reducing your energy consumption and carbon footprint.  Benchmarking studies a building’s current energy usage and helps determine achievable and cost-effective energy reduction goals. 

An Energy Audit is a comprehensive look at how a building consumes energy along with recommendations to reduce energy use (via no/low cost measures or capital intensive measures), costs to implement, projected cost savings and payback period.  While an Energy Audit is a more involved process and can vary in the level of detail (ASHRAE Levels 1, 2 and 3), the potential returns on investment are significant.

A building purchaser would be interested to know, for example, if a lighting system upgrade could result in a 34% internal rate of return.  Well, that’s just what one of Partner Energy’s audits uncovered.  A combination of new high-efficiency lighting and motion sensors (at a total cost of approximately $44,000) resulted in an annual energy cost savings of $14,700 and a relatively short payback period (less than 3 years).  At an 8% cap rate, the building value increased by $183,000 (over 4 times the installation cost) – certainly a sound investment!  And that did not account for potential rent increases, increases in absorption and decreases in vacancy for Green Labeled buildings.

By reducing operating expenses and increasing building value, an Energy Audit and its recommended energy efficiency measures can help building owners and purchasers achieve their energy efficiency and capital investment goals.

SBA SOP 50 10 5 (C)

With the latest SOP revisions taking effect on October 1st, 2010 there are certain elements in regards to Environmental Policies and Procedures found in SOP 5010 5 (C) (pages 199 – 206 & 310 – 317) that lenders should be aware of.

An important fact for lenders to understand is that the Reliance Letter has had a revision and as of October 1, 2010 the Reliance Letter from SOP 5010 5 (B) will no longer be accepted.   It is critical for lenders to make sure their environmental firm know of the new Reliance Letter and will sign it.  We strongly suggest that lenders make sure that their Environmental Professional understands this prior to engaging them to do the work, and understand that the Reliance Letter cannot be modified in any way.

Overall, the Environmental Requirement changes in this latest SOP were minimal and below we provide the actual revisions to the Environmental  Policies for your review.

  • When you are making a loan for less than $150,000.00 and the Environmental Questionnaire comes back showing further investigation is required, you may now have a Records Search with Risk Assessment (RSRA) performed instead of having to go to a Transaction Screen Report. SBA believed that this was more with the natural progression of reporting and therefore made this change.
  • When reviewing the NAICS Codes of Environmentally Sensitive Industries the code 8123 LAUNDRY & DRY CLEANING SERVICES it now will state if dry cleaning operations have ever existed on-site. Prior to the revision it stated if dry cleaning operations on site.
  • In Section f) Mitigating Factors that SBA will rely upon to disburse before completion of remediation or monitoring, for section f) titled Escrow Account the new SOP clarifies two issues. The first being that the money put into the escrow account can’t come from funds from the SBA loan itself. The second clarification answers the question if the money in the escrow account can be used for the actual remediation itself or if it needs to stay in the escrow account until the remediation is completed. The answer is that yes, it can and should be used for the remediation costs.
  • In Section g) Groundwater Contamination Originating from Another Site, the revision to the SOP eliminates the sentence, “and lender can demonstrate that the contamination has not caused significant damage to the collateral value and marketability of the Property”. They made this change understanding the lender really couldn’t demonstrate or comply with this requirement.
  • The Reliance Letter in appendix 3 has been modified by adding the words “as it impacts the property” at the end of the last sentence in regards to a Phase II Environmental Site Assessment.
  • Special Use Facilities (Section H), when a Phase II is required for a dry cleaners in operation for more than five years the Phase II must be conducted by an independent Environmental Professional who holds a current Professional Engineer’s or Professional Geologist’s license and has the equivalent of three years of full-time relevant experience.
  • Appendix 5: Requirements Pertaining to Gas Station Loans, Phase I’s no longer need to be conducted by an Environmental Professional who holds a current Professional Engineer’s or Professional Geologist’s license and has the equivalent of three years of full-time relevant experience. It can now be conducted by an Environmental Professional meeting the requirements as outlined in Appendix 2: Definitions.
  • Appendix 5: Requirements Pertaining to Gas Station Loans, Phase II’s must be conducted by an Environmental Professional who holds a current Professional Engineer’s or Professional Geologist’s license and has the equivalent of three years of full-time relevant experience.

Partner Engineering and Science has a SBA Division dedicated to assisting lenders in understanding SBA’s Environmental Requirements and providing Environmental Reports nationwide for 7a and 504 loans.  We are truly the SBA Experts that lenders, CDC’s, and attorneys nationwide have come to depend on!

We’re here for you.  Give us a call and let us become your Partner too!

The changes found in SBA’s SOP 5010 5 (C) can be viewed by going to:

For further clarification or to request free laminated flowcharts of 5010 5 (C) please contact Gary Reynolds at or by calling 800-419-4923.

Managing Environmental Liability

Environmental due diligence consults should not just perform  Phase I Environmental Site Assessments, they should focus on managing their client’s environmental liability. However, in order to do so, it is imperative that clients ask for the help.

Environmental consultants can perform better if they are given the opportunity to meet with the client and understand their business.  It is also a necessity to understand the client’s risk tolerance.

 All clients do not have the same risk tolerance – and they shouldn’t. For example, a child day care chain should obviously be more risk adverse than an owner of a warehouse. Consultants must also keep in mind that some investors and lenders are conservative when it comes to environmental issues. These nuances need to be expressed. 

 To be a good engineer, the client’s business must first be understand by the engineer.

Partner Engineering and Science offers clients free environmental liability management  consultations where the client’s business, their objectives, and their risk tolerance are all discussed in great detail.

Writing a sound environmental risk policy is not too difficult. Partner will give their clients multiple free samples of what lender’s policies should look like, so that they can pick the policy that fits their bank. If there are missing elements within the policy that are important to the client’s bank, they are easy to insert.  

The bottom line is, if clients are spending a lot of money on environmental due diligence, they should take a more holistic look at their environmental policy.

ALTA Survey

The acronym “ALTA” stands for American Land Title Association. Specifications of this type of Survey include (but are not limited to) determining improvements, location of property lines, utilities, identifying all easements and other conditions affecting the property. ALTA surveys are very comprehensive surveys and can typically cost thousands of dollars and can take several weeks to complete. All ALTA Land Survey must meet the “Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys” as adopted by the American Land Title Association, the American Congress on Surveying and Mapping, and the National Society of Professional Surveyors. The Alta Survey is most often performed on commercial properties.

Property Condition Assessment

When investing in commercial buildings, real estate investors are need a high quality commercial building inspection, often called a Property Condition Assessments.  

When asked to do a Commercial Building Inspection, I start by trying to understand the client’s goals.  Are they ordering the report for a lender?   Do they want a 100% detailed inspection or a walk through?   Has the seller made any significant disclosures?  Are there other stakeholders such as equity sources or partner who need to understand the condition of the building?  Once I understand the goals I propose the appropriate level of diligences, which can range from a walk-through inspection by a senior building inspector to a team of engineers and specialist digging into every aspect of the building.

Either way, the Property Condition Assessment Report which includes a discussion of the following building systems:


          Building Envelope;


         HVAC Equipment

          Mechanical, Electrical, and Plumbing;

         Paving, Drainage, Landscaping;

          Fire Suppression and Security Systems;


          ADA Compliance.

A PCA report typically includes two important tables: an Immediate Repairs Table; and a Replacement Reserves Table.   The Immediate Repairs Table is a schedule of all failing or worn out systems requiring attention in the next 90 days.   The Replacement Reserve table will typically estimate the building’s capital replacement schedule for the next twelve years.  

When I dispatch a team of engineers and building systems specialists, I call the report a Property Condition Evaluation.  These reports typically range between $5,000 and $25,000 and are appropriate for large complex assets.   The most common specialist to add is that of a structural engineer.  The structural engineer will produce a structural report or a Probable Maximum Loss Report, when in seismic zone 3 or 4.  

Other specialists that add great value are an HVAC specialist, an elevator specialist and a roof specialist.  The specialist typically produces reports that are ultimately included in the appendix of the master PCE report. 

The specialist does thing that are beyond the scope of our building inspectors.  For example, the HVAC specialist will turn on the air conditioning system in the dead of winter.  The specialist opens up the systems being inspected and collects parametric data.  The result of the more detailed inspection is a very detailed report with specialty reports in the appendices.  Partner Engineering’s project manager and field inspector is almost always a registered engineer or very senior building inspector. 

Our Property Condition Evaluations save the client significant money in most engagements.  Often clients are able to negotiate price reduction or other consideration that is 10 times our fee.  Our work typically pays for itself!