Environmental due diligence is a critical component of the commercial lending process. Although often obscured among the profusion of punch-list tasks required to move a deal from initial request to closing, one overlooked environmental risk factor can derail even the most promising commercial real estate (CRE) loans.
Unfortunately, far too many lenders rely on outdated systems and manual processes to manage their due diligence, tickler tracking, and document retention. When coupled with a lack of ready access to expert advice when it is needed, this is a recipe for disaster.
The key is to make environmental risk management an integral course in your commercial lending program meal, rather than just a side dish.
Technology can help
One key ingredient to a successful risk management program is selecting the right technology solution to meet your needs. The commercial lending shop is among the final frontiers in adopting new technology. Too many banks and credit unions still rely on Microsoft Excel for all aspects of the process, from underwriting, workflows, and due diligence, to vendor and portfolio risk management.
Fortunately, a range of effective technology solutions are available today. Most are cloud-based, meaning they are easy to deploy and accessible from anywhere with an Internet connection. Some end-to-end loan operating systems (LOS) have risk management and environmental due diligence integrations built right in. Your environmental professional (EP) may also use a proprietary web-based platform to conduct transaction screens and record searches and facilitate document exchange. Make sure to check with them to see what is available.
But expertise is just as critical
Although a simple, easy-to-use technology system is an important element in any successful environmental risk management program, it is only one ingredient in a complex recipe. The other key piece is to have ready access to specialized expertise. While you can go the route of hiring an internal environmental expert, that is generally not cost-effective or a long-term, sustainable solution.
Environmental regulations and trends are constantly changing. For that reason alone, engaging a third-party risk management consulting firm is generally a better approach. Look for a firm with experienced, expert environmental professionals (EPs) on staff, and with the resources to stay on top of all the latest updates in compliance and best practices. Here are a few questions to ask when interviewing a new risk management consultant:
Don’t take the environmental due diligence step in any CRE deal for granted. Commit to having the right mix of processes, platforms, and people to ensure a healthful, appetizing meal for years to come.