Environmental issues - retail property in downtown core

[Jason J.]

Hello,

I have a signed LOI in place on a small retail strip in a core downtown area located in Minnesota. I'm in my due diligence phase and have been talking with environmental companies regarding a phase 1. One of the environmental companies I consulted with informed me that they recently did a Phase 1 and Phase 2 on a property located approximately 250 feet from the subject property. He was nice enough to forward me the results from the reports.

The phase 2 involved soil samples from various areas in a radius from the contaminated property. The contaminated property has been used as a dry cleaners for the past 30 years or so. I'm now learning how nasty the dry cleaning business can be.

As part of the soil samples, they took 1 soil boring on the subject property. The environmental company stated that there were no soil vapor issues present on the subject property but there were low levels of contamination in the ground water. The subject property is in the city core and all properties within at least a 3 mile radius I would assume have city water and sewer services.

The subject property is a class A property built in the early 2000's in mint condition with national tenants and good leases with at least 5 years left on them. The property is in a medium size city (100k+ population) and is one of the nicest properties of the downtown core for both location and parking ability.

The subject property tested for low levels of Trichloroethylene. Specifically 1.1 (shallow) and 1.9 (deep) ug/l. MN department of health lists 0.4 ug/l as a risk level. It appears the EPA lists 5 ug/l as a risk level.

I'm trying to assess the risk of purchasing the property. My 3 concerns are:

1. Being liable for cleanup/remediation of the property

2. Being liable for suits from a tenant

3. Being able to resell the property

Should I proceed with the property purchase? Phase 1 is needed I assume. Should I do a phase 2? Should the existing owner share some of the cost burden? Or should I walk away?

All advice is greatly appreciated! This would be my second commercial property (I own a multi tenant industrial that had a clean environmental phase 1).