Risk, Responsibility, and Remediation: Environmental Liabilities in Commercial Properties

Fresh paint can hide a five-figure problem. We sit down with Shelley Hines, CEO of DCG Environmental, to talk through the environmental liabilities that routinely get missed in commercial property purchases and why the walkthrough is never the whole story. If you own, buy, manage, or broker commercial real estate, this is the practical reality check that can save you from costly remediation, stalled projects, and tenant blowback.

We dig into the big ticket risks first: asbestos that only shows up when you remodel, moisture and mold that creep behind walls and above ceilings, and the uncomfortable truth that prior property use can follow you home through soil and groundwater contamination. Shelley breaks down how Phase I Environmental Site Assessments work, when a Phase II makes sense, and how historical records can reveal issues from decades ago even if the building looks “updated” today. We also talk indoor air quality, VOCs, smoke damage, and chemical residue that can trigger health concerns and lease problems after occupancy.

We close with the decisions that keep deals from going sideways: don’t rush due diligence, don’t rely only on what a seller says, and make sure your insurance policy matches the risks of the building you’re buying. If this helped, subscribe, share it with a colleague, and leave a review so more owners and investors stop buying invisible problems.

To learn more about DCG Environmental visit:
https://www.DCGEnvironmental.com
DCG Environmental 
Serving Property Owners in Dallas, Houston, and Austin 
972-876-0008 

Transcript

Why Hidden Risks Matter

SPEAKER_00 0:27

DCG Environmental believes finding the problem is the first step to making everyone safe.

SPEAKER_01 0:43

Behind every commercial property is a hidden layer of responsibility, the environmental risk that can impact value, safety, and long-term operations if they're not identified early. Welcome, I'm Julie Schwenzer, co-host and producer back with the awesome Shelly Hines, the CEO of DCG Environmental. Shelly, so this is an area where your expertise saves clients from major surprises. Can we please talk about environmental liabilities and commercial properties, like what owners, buyers, realtors, brokers, and managers, we all should be paying attention to?

SPEAKER_02 1:17

Environmental issues are usually one of the most overlooked and most expensive risks in purchasing commercial buildings. What you don't see through the walkthrough can really lead to unexpected remediation costs, project delays, tenant complaints or lawsuits, regulatory violations, like an environmental risk equals a financial risk.

Asbestos As A Deal Breaker

SPEAKER_02 1:38

So some of the top hidden environmental liabilities when purchasing a building is asbestos. If you're not checking for it before you're purchasing a building and you find out after the fact, maybe when you want to remodel it or demo it in some kind of way, that's when it becomes real expensive because you didn't know it was there in the first place. And I always try and teach brokers and investors to use this as a negotiation tool. Have that building checked for asbestos prior to purchase. It is expensive to remediate. You can leave it in place, it doesn't always have to be removed. And this also is talking about Texas laws. Not all states are the same. So if you're listening from outside of Texas, your state may or may not have the same rules that we do. So that's that can vary by state. But it is one of the big things that you want to watch for, regardless of whether it's regulated or not, it is damaging to your health. So you definitely want to know. OSHA does regulate everybody, and you have to regulate you have to protect your workers from hazardous materials. So if you're gonna purchase a building and demo a few walls or move some things around, you'll want to know if there's asbestos there prior to doing any of that work.

Mold Moisture And Tenant Complaints

SPEAKER_02 2:48

Mold and moisture issues are good to be checked out on a building if you've got a building that's been sitting for a while, if the AC has been turned off. Sometimes there's been a building that's sitting for a while, but it's been maintained and the AC is still running, and they have a guy on site making sure that the building is still operating correctly and not having any leaks, but often uh hidden behind the walls or above ceilings, uh leaks caused by HVAC issues and poor drainage. Sometimes uh TDLR, the Texas Department of License and Regulation, depending upon how much mold is there, it's regulated by the state, needs to be remediated by a licensed mold remediator. So mold can lead to tenant complaints and business interruptions. So you purchase a building, you didn't know something was there, people start moving in and complaining, oh, I'm always having headaches or I feel sick when I'm here. Then you start unlaying your discovering that there was mold there prior to the purchase, you just didn't know it. So now you've got to deal with it. So having those things double-checked before you purchase a building can save a lot of time and money. Um,

Phase One And Phase Two Essentials

SPEAKER_02 3:49

sometimes there could be soil or groundwater contamination from prior uses, like if you're purchasing a building that used to be a dry cleaner, a gas station, or an industrial site. Uh sometimes they use petroleum as solvents or heavy metals. So liability transfers with the property ownership. That's where phase ones and phase twos come into play, and those are investigations of a property prior to purchase. A lot of times a bank loan will require you to have a phase one, and depending upon what's found during that investigation, could make you go to a phase two. So, for instance, if you're buying a regular commercial building and we do a phase one, we do a lot of historical checks on the property. We check with TCEQ for any leaking gas tanks around it. Maybe it used to be a dry cleaner and now it's a restaurant, and then now you want to turn it into a hair salon. Doesn't matter what that phase one does is it checks the history of the property from the beginning of times. Like it went back before it was just dirt all the way to development. Um if we find anything like possible uh underground storage tank leak or things like that that may have affected the soil, or um maybe it's an industrial plant or a mechanic shop, and we see oil staining on the ground. Sometimes though that will kick into a phase two, and a phase two is more geological study, like they'll do groundwork or they'll do borings and they'll see how far did that oil go down into the ground? Did it reach a water table? So those knowing those things before you purchase are key because that's expensive, and that liability transfers to the owner. So, you know, a lot of times people are like, Oh, I'm paying cash, I'm not gonna do all that. But now you're taking on the liability of all of that if you don't get it checked out first. So big recommendation on a phase one for any type of purchase.

VOCs Residue And Indoor Air Quality

SPEAKER_02 5:44

Um, and then indoor air quality, chemical residue, um, VOCs, it's called volatile organic compounds. Most things off-gas some kind of smell. Uh, and that's what VOCs are. Was there any smoke damage prior to purchasing this building? Or is there any prior chemical use? Maybe there's you know, we do this a lot in paint booths. Uh, hexavalent chromium is a big um thing that comes from paint booths that is damaging to your health. So you want to know if that's been cleaned up and remediated before you purchase the building. Um a lot of those can impact tenant health and lease agreements, so you definitely want to know what was there prior to purchasing. Has it been cleaned up or is it gone before you start changing the building into something else? Because usually those are the ones that we find a lot after occupancy, after people get inside and say, Oh, this is really bothering me. There's some kind of smell in here. Not everybody's smell smells the same way, not everybody reacts to them the same way. So always good to check that out. But

Due Diligence Mistakes That Sink Deals

SPEAKER_02 6:44

usually where deals go wrong are skipping or rushing on uh environmental due diligence, uh relying solely on what the seller tells you, and then misunderstanding of phase one readings or what they say, and then not engaging in an environmental consultant uh prior to purchasing, so that we can double check all these things before you get into it. And then just how to protect your investment is to definitely get a phase one so that you get all the historical data on that property, and understand what it was used for in the past, maybe not even the most previous owner, but maybe the owner before that, so that you know I've seen deals where somebody moves in for six months and then they turn around and sell it, or maybe they just buy it and then paint the walls and fix a couple of things and then turn around and sell it again. So there's you know, flipping, especially a lot in houses we see, but commercial buildings it happens as well where someone we call it lipstick on a pig. You got problems and you try and hide it, make it look pretty, and then let somebody else buy all the problems. So get that due diligence done to where we discover those problems prior to purchase. Um, you know, we look at what was that property 20 to 50 years ago if it's that old, so we can figure out if there's anything wrong or if it's safe to purchase. Or, you know, sometimes people buy knowing that there's problems and then negotiate that off the price. And so sometimes you can get some really good buildings, pay to get it cleaned up, and you've got a really nice, profitable commercial building. So it's not always a bad thing, but you want to know about it before you buy so that you can take the right steps to correct it.

Insurance Coverage Gaps To Avoid

SPEAKER_01 8:15

Yeah, those are great tips. What have you seen happen with insurance? Um, and for business owners that do find out something, you know, they did not do their due diligence and now they have a new problem to deal with when it comes to insurance.

SPEAKER_02 8:30

I would uh definitely depend upon what area you're in, you know, make sure that you have asbestos coverage, make sure that you have mold coverage. We see a lot of buildings now that don't have mold coverage, and that's it can get pretty pricey trying to clean that up, especially if it's a uh an operating commercial building. You know, you have a water leak. Texas had the big freeze in 21 where, you know, it's a Texas state law that you have to test for asbestos prior to demo, repair, or remodel. So when pipes burst, all the remediation companies are going out sucking up all the water, but they can't start opening up the walls until there's an asbestos test. And that takes time. I mean, we're known to be on site within 24 to 48 hours, it's pretty fast in our industry. Um, and then it the buildings would sit until the adjusters could get there, and while they're sitting, they're still wet and they're turning moldy. So you've got to make sure that you've got coverage for asbestos for mold. Uh VOCs I have not seen coverage for before. I'm not saying it doesn't exist. I've just not I've not gone through insurance on that piece. Um, combustible byproducts, if there's been a fire, I have seen insurance cover that testing and then uh confirm that you know all the things need to be clean. Um, and then I've seen some insurance companies that won't pay for it. So just understanding your policy and what does it cover is really important when purchasing a building. Don't most people get insurance after they've bought the building. I would do some due diligence on what would this insurance cost and what would it cover if I purchased this building so that you know the full cost and full range.

SPEAKER_01 10:07

You

Why The Guide Was Created

SPEAKER_01 10:08

know, all these great tips that you shared with us, you actually uh put together in a professional guide for clients. What inspired you to make it? Was it because you had a bunch of FAQs, or you just wanted to, you know, um share your knowledge?

SPEAKER_02 10:24

I spoke to a group, they asked me to come talk about some of the environmental issues that could be while they're investing. And so um I spoke to two groups actually. So I use this a lot when trying to educate um investors and brokers and developers and real estate agents and you know, anybody that's trying to purchase a commercial building. These are these are great things to know before you buy.

SPEAKER_01 10:48

Especially people new in the game, I imagine that there's so many things to learn.

SPEAKER_02 10:53

Yeah. And there's a lot of people never even heard of asbestos, they didn't know anything about it until they buy it, and then you don't find out about it until you go to demo or remodel it and you turn in your permit, and then they're like, Oh, where's your asbestos survey? And they're like, What? And then you find out you have asbestos in the building, you're like, Oh, I didn't know about that, and now you're another, you know, depending upon how big the building, you're thousands and thousands of dollars in to just change a wall. So it you've got to know up front before you buy whether there's asbestos there or not. It's gonna save you a lot of money in the long run.

Documentation Sellers Should Keep

SPEAKER_01 11:27

But I had a quick question on documentation. Um what do clients need to keep on them, or you know, either side of this transaction, buying or selling, like they need to, especially the sellers, they need to show proof that they did their, you know, they did everything they could to keep this place safe. Any recommendations?

SPEAKER_02 11:46

Sometimes if you are selling, um, they may have in the past experienced or had to remodel or repair, and so they would have asbestos uh documentation. Now it's only good until you change it again. So like if I come out and test for asbestos today and we say yes, it's in this flooring, and then you change that flooring, that asbestos test is no longer valid. So you have to, you know, any kind of demo, remodel, or repairs that you do to a building, keep all that documentation. If you have any remediation or any abatement done, just get yourself a three-ring binder and put it all in there so that when you go to sell, somebody like myself could come look there and say, Oh yeah, they already have this and this and this, you don't need it anymore. Or hey, they have this piece, but it doesn't apply to this part of the building because they only did it on that part of the building. So there's it's hard when you're purchasing to know whether what they're presenting applies to the entire building or not, unless you understand it and you're in the industry and you know what you're looking at. So there could be a lot of false positives out there. We've seen apartment complexes where, hey, I had an asbestos test in this one unit, and then four buildings down is completely different flooring, and they try to use that inspection report to say, oh no, we've had it tested. Doesn't apply. Different building, different unit has to have its own inspection. So there's a lot of regs and rules on that. Um proper inspection. And again, whether it's been changed or not, I've had people bring me an inspection report that was 20 years old. And I was like, I can't use that. I'm sure you've changed this building in 20 years. And they're like, No, we never have. And I'm like, I can't use it. You don't have any documentation showing me the exact flooring that this flooring set, because we have to describe when we take when we do an inspection, we have to say, you know, it's 12 by 12 VCT tile or it's green patterned, or we describe it. So if I can't walk into your facility and see exactly everything that's described, or sometimes people don't describe it, then I really can't use it in the future because I have no idea what that flooring is. If it just says flooring, I don't know, was it carpet, was it tile, was it PCT, it could have been any kind of flooring, so then it would not be valid for the future. So I couldn't, I couldn't, couldn't I couldn't verify what they said they tested.

SPEAKER_01 13:57

Okay, well, I wish we had more time, but thank you, Shelly, for walking us through the risks that do stay hidden at you know for some. So we appreciate your advice. Thank you again. Thanks.

Testing Call And Closing

SPEAKER_00 14:11

Thanks for listening to the Environmental Testing Show. If you're concerned about mold, asbestos, or other environmental hazards, peace of mind starts with proper testing. Call 972-876-0008 or visit dcenvironmental.com to schedule a convenient appointment. Because when it comes to your environment, testing is the safety plan.