Vol. 8, No. 41, Oct. 9-15, 1988 75 CENTS
Pollution Issues Affecting Loan Decisions
By BARRY CARROLL
Staff Writer for Tampa Bay Business
he next time you go to the bank
to find answers about a loan for
land or a commercial building.
get ready to field questions about the
history of that land or building.
And \when fees for a title search, termite
inspection and variouss other expenses
of a deal are explained, keep an eye out
for the latest item added to commercial
office and land deals: environmental
Investigations into hazardous materials
have passed bend the control of only
government officialsand into the banking
and finance community. Commercial real
estate lenders have become the latest
group of environmental watchdogs.
"We pay more attention before fi-
nancing, before buying. before selling.
And then we pay attention on an ongoing
See AUDIT, page 9
Continued from page 1
basis." says Larry Heard. senior vice
president of real estate lending at First
Discussions with Bay Area commercial
real estate lenders show they're asking
more questions, passing out question-
naires, mandating soil and air tests and
refusing loans when parties making the
transactions aren't accommodating.
The environmental audit examines the
environmental status of a business much
the same way a financial audit examines
the financial status.
The audits. often performed by third-
party engineers, search out land for
chemical leakage and dumping and
buildings for asbestos or cancer-causing
substances. They look for any material
or business activity that can be a hazard
to a person's health and later a liability
to the property owner.
The entry by banks into hazardous
materials concerns has an impact on a
wide range of people. "There are a
growing number of cases in which inno-
cent parties-real estate brokers, bankers.
buyers-have become liable."says Heard.
The bankers say their new-found
concern isn't a case of the bank playing
Big Brother or an issue only they are
"These environmental problems are a
concern to property owners," says
Julienne Bollaert. assistant vice president
of commercial real estate at Southeast
Bank in Pinellas County. "We aren't
trying to impose anything beyond those
requirements that protect their own
The audit concept began to be dis-
cussed about two years ago, sources say.
but didn't gain a high level of attention
in the Bay Area until several months
'If we have to take
over ownership of the
property through fore-
closure...we also will
take on any liabilities
-BILL PERRY. Fortune Savings Bank
"Lately. a lot more environmental
problems and issues ha\e come to the
forefront of attention." Bollaert says.
For example. The Tampa Tribune
reported in late September that hazardous
materials soured a donation by Lykes
Bros. Inc. of a dilapidated 77-year-old
building to the Lowry Park Zoological
Garden. which had hoped to sell the
land and keep 70,7 of the proceeds. Ear-
lier. a dce\lopment firm that had consi-
dered buying the building but decided
against it said the structure contained
asbestos and other cancer-causing sub-
stances. and the cleanup would cost less
than $100,000. That same company paid
$1 million to clean a de\elopmcnt site in
While engineers who make their bread
and butter on en\ ironmentalaudits warn
lenders to require these audits each and
every time a land deal is made, bankers
aren't biting. But they aren't brushing
the audits off. either.
As society moves more and more
toward a low acceptance of environmental
hazards and as the discoveries of such
hazards get lots of publicity, banks and
thrifts want to make sure they won't be
left holding the bag of hazardous material
if they foreclose on a loan.
Every land and building transaction
could be the subject of an environmental
audit. Some situations call forautomatic
review: manufacturing plants. conven-
ience stores with buried gas tanks, busi-
nesses with photographic materials and
land rated where manufacturing once
At times the attitudes about envir-
onmental pt oblems can border on para-
noia: othei times they border on apathy.
"I don't think anybody has a handle
on how extensive this problem is." says
Bill Perrr. \ice president of commercial
lending at Fortune Savings Bank.
Environmental audits do not guarantee
that the land is ha/ard-free. but they do
provide an indication of what's on the
"An en\ ironmental audit will give you
some comfort perhaps not in the same
vein as title insurance as ultimate pro-
tection. but it gives you some basic
know ledge to make a sound decision on
whether you ha\e significant environ-
mental concerns on a piece of property."
says Thomas Jackson. director of Pace
Laboratories Inc.. a consulting group
that encourages audits.
"The concern of the bank is if we have
to take over ownership of the property
through foreclosure or something else
where we also will take on any liabilities
of environmental hazards" Perry says.
Jim Watrous. senior vice president of
the loan divisionat First National Bank
of Clearwater. agrees. "There is case
precedence to show the bank is required
to clean up the sites because they are the
interim owners or owners through
"Bankers have a habit of keeping their
eyes out for potential problems," Perry
says. And they don't want to pay for the
That's part of the reason they're turning
to the environmental audits. Another
reason is because during the past 18
months seminars encouraging the audits
hale been frequent and sensational.
"We need to make sure this is not
blown out of proportion." says Heard
of First Florida Bank. "It's not prudent
to do it ever\ time. but we do need to
change our thinkingand look at it (lend-
ing deals) through an environmental
A survey of lenders shows a variety of
ways the institutions are handling the
delicate yet potentially financially de\-
astating question of environmental
Some ha\e begun asking applicants
to fill out a questionnaire asking for
information such as the history of the
land. if there are underground tanks.
w hat the prope t.~ was used for and how
it w ill he used. Othersare sending lending
officers out to the properties for a visual
cheek to look for potential environmental
11 for any reason questions are raised.
the bank might ask for an en\ ironmental
audit. If the buyer or seller reneges on
the idea of an audit or taking care of the
cleanup before the contract is signed.
some banks are telling the client there is
Fortune. First National of Clearwater
and First Florida are three that have
denied loans as a result of spotting
hazardous material or a reluctance on
the part of the client to clean up the
problem prior to the loan closing.
The issue is so new. however. that the
banks haven't developed the systems to
track how many loan requests involve
hazardous material. And some Bay Area
banks won't even say w whether they have
denied loans because of environmental
When a loan request does involve
hazardous material, customers may be
surprised and shocked by the additional
cost, Watrous says. The cost could range
from a couple of hundred dollars to
several thousand dollars if cleanup is
required. He says people must be educated
about the environmental concerns, but
he wonders if the whole concept will
blow over in a few months or years.
"Is it a fad, or is it a long-term concern?"
Watrous questions. He says the issue
has seen a quick evolution. "Fifteen years
ago nobody thought of it," he says. "Now
it's: Who should pay?"
Even five years ago. the lenders say it
wasn't a topic of concern. And five years
ago regulators were establishing hazard-
ous material rules and procedures now
considered wrong, says Heard.
Watrous predicts the Federal Deposit
Insurance Corp. eventually will require
member banks to have policies and
procedures on how they handle the
He believes such requirements will be
made so the FDIC can lower its risk of
having to bail out banks forced into a
financial crunch as a result of cleaning
up hazardous material with which they
have been stuck.
There aren't any bank or thrift regu-
lations regarding audits or procedures
vet, but Southeast's Bollaert predicts that
the banks w ill institute in-house rules in
coming years. even without a regulator)
"You will not see an\ lending institution
without a procedure." she says. "It's tha
important of an issue."O