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Jump in Environmental Reports Suggest Capital Flow in CRE

Derhake suggests the increasing volumes of ESAs is greatest in New York and Northern California.

Torrance, CA — The volume of Phase 1 Environmental Site Assessments (ESA), a leading indicator of commercial real estate lending and of general real estate market conditions in the United States, increased 13.4 percent over the same period a year ago, the largest such jump in the past 15 months, according to Environmental Data Resources, Inc., a recognized industry market monitor and information services firm.

“There is a strong correlation between the real estate lending and Phase 1 ESA reporting,” says Joseph P. Derhake PE, PE President of Partner Engineering and Science, Inc. one of the nation’s leading environmental and engineering consulting firms. “Phase 1 ESAs are ordered when there is a serious intent to arrange financing for an acquisition or to recapitalize an asset. Over the past several years, we’ve seen first-hand how illiquidity impacts commercial real estate. Increasing volumes of ESAs means more capital is flowing back into the market. If the past is prologue, we should see a continuing increase in commercial and multifamily originations through the end of the year.”

In 2011, the number of Phase 1 ESAs performed in the United States increased seven percent over 2010, a year in which the volume of commercial and multifamily originations also had increased, according to the Mortgage Bankers Association. ESA activity in the second quarter 2012 is up 8.4 percent over the previous quarter with 104,617 ESAs ordered in the first half of the year.

According to Partner, approximately 70 percent of its orders for ESAs were from traditional lenders, with 22 percent from Agency lenders such as Fannie Mae, Freddie Mac, HUD, and SBA. CMBS lenders accounted for seven percent of ESA volume.

Among the 50 major metropolitan markets with the highest Phase 1 ESA volume for the current quarter, Long Island New York showed the greatest growth rate with a 54 percent increase in the number of ESAs over the previous quarter. The Northern California markets of San Francisco (48 percent) and San Jose (44 percent) rounded out the top three. Completing the top 10 in highest growth for the quarter were Norfolk, VA (36 percent), Austin, TX (33 percent), Washington, DC (31 percent), Columbus, OH (30 percent), Charlotte, NC (29 percent), Cleveland, OH (27 percent) and New York, NY (27 percent).