REITS

A real estate investment trust (REIT) is a corporate organization that principally owns, and in the majority of cases, manages income-producing real estate such as assisted living facilities, skilled care nursing homes, manufactured home communities or similar land lease properties, shopping centers, offices, apartments, hotels/motels, warehouses, and storage facilities. Many REITs are traded as an equity on major stock exchanges. By law, REITs must possess specific qualities. For example, most of its assets and income must be tied to real estate investing and it must distribute no less than 90 percent of its annual taxable income to its shareholders. REITs represent an exceptionally challenging real estate industry.

 

The difference between a REIT and other kinds of property management companies is huge. Not only must the properties produce income, they must also appreciate in value. There is little room for environmental negligence or less-than-exhaustive environmental due diligence.

Federated Environmental: Added Value to Real Estate Investment Trusts (REITs)

Federated Environmental completes comprehensive Phase I Environmental Site Assessments (ESAs) in accordance with the (a) United States Environmental Protection Agency (USEPA) Standards and Practices for All Appropriate Inquiries {(AAI), 40 CFR Part 312} and (b) guidelines established by the American Society for Testing and Materials (ASTM) in Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process /Designation E 1527-13 (ASTM Standard Practice E 1527-13): Phase I Environmental Site Assessment, for real estate transactions, property development, bank financing, re-financing, securitizations, and foreclosures, and other in-house proactive risk management programs.

The purpose of a Phase I Environmental Site Assessment is to gather sufficient information to develop an independent professional opinion about the environmental condition of the property and to identify actual or potential environmental contamination which may impact the property value or effect claim to an “innocent land owner” exemption following acquisition. Assessments are also performed at end-of-lease cycles between tenants  or to evaluate a tenant’s activities within a leased property for insurance purposes. In many instances, these aspects of property ownership and operation are critical to the successful operation of a REIT.

The establishment of an “innocent landowner”  defense against joint and several liability pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA 1980-81), and  perhaps more importantly the Superfund Amendments and Reauthorization Act (SARA, 1986), requires REITS contemplating acquiring a property to satisfy “all appropriate inquiry” and perform “due diligence” into the property  history and ownership. This inquiry requires that the REIT obtain an environmental assessment by a registered environmental professional to determine whether a property is subject to contamination or contains hazardous materials. Toxic torts are also a key environmental concern for REITs.

Federated Environmental’s REIT clients have relied on our Phase I Environmental Assessment product for over two decades. Developed with our experience and commitment to technical and regulatory competence and on-time delivery, a Phase I Environmental Site Assessment from Federated Environmental is a remarkable value. Federated Environmental’s scope of work and report formatting are easily tailored to REIT client specifications. Our Phase I Environmental Site Assessment scope of work includes (if requested) additional “non-scope” items such as preliminary evaluations for asbestos-containing building materials, lead-based paint, radon gas accumulations and water quality.

Of note, Federated Environmental is mentioned in George Allen’s book, How to Find, Buy, Manage, and Sell a Manufactured Home Community (Real Estate Practice Library), Wiley Law Publications, June 1996. George Allen, the book’s author, states, “It’s relatively safe to say that few, if any firms, do more of this type of work (pre-acquisition assessments) on behalf of this asset class (manufactured home communities).” Federated Environmental’s MHC REIT clients have included names such as Sun Communities (Southfield, MI), one of the country’s premier providers of manufactured home communities and RV resorts.