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Environmental Risks in Real Estate

aerial photograph of commercial real estate development with text overlay 'Environmental Risks in Real Estate'

Environmental risks are hazards that can have an adverse impact on the value, use or condition of a property. These risks can range from natural disasters such as floods and earthquakes to man-made issues like pollution and contamination. In recent years, the real estate industry has become increasingly aware of these environmental risks and their potential impacts.

The Importance of Considering Environmental Risks

There are several reasons why it is important for the real estate industry to consider environmental risks.

  • Financial Implications: Environmental risks can have a significant financial impact on a property. For example, if a property is located in an area prone to flooding, insurance premiums may be higher. In extreme cases, the cost of remediation and clean-up can be substantial and may even render the property unusable.

  • Legal Implications: Property owners have a legal responsibility to ensure that their properties are safe and do not pose a risk to human health or the environment. Failure to address environmental risks can result in legal action and financial penalties.

  • Reputation and Public Perception: In today's society, there is growing concern about the environment and sustainability. Potential tenants, investors, and stakeholders may view a property with environmental risks as undesirable or even harmful, which can have a negative impact on the overall reputation and perception of the property.

  • Regulatory Compliance: There are various environmental regulations in place that commercial real estate owners must comply with. Failure to comply with these regulations can result in fines and legal action.

Types of Environmental Risks in Real Estate

There are several types of environmental risks that can affect a property. Some common examples include:

  • Air and Water Pollution: This can be caused by nearby industrial activities, chemical spills, or improper waste disposal.

  • Land and Water Contamination: Contamination of land can originate on the site or from the activities from the current or previous owners, or from off-site sources. For instance, a property located in an area where oil & gas development is prevalent can become contaminated with oil and gas wastes and byproducts in the water and soil sources.

  • Natural disasters: Properties located in areas prone to natural disasters like floods, hurricanes, and earthquakes are at a higher risk of damage and disruption. Droughts impact real estate as well- they can lower property values and slowly cause damage to the foundation of buildings.

  • Climate change: The effects of climate change, such as rising sea levels and extreme weather events, can have a significant impact on coastal properties and properties located in areas susceptible to wildfires. Moreover, the heightened energy requirements during the summer months pose a risk to the energy grid, potentially resulting in blackouts or brownouts in specific regions. This situation could prove troublesome for industries that heavily depend on constant and abundant energy supply around the clock, such as data centers, warehouses, and pharmaceutical storage facilities.

  • Preservation: Real estate development often clashes with state and local environmental preservation efforts. Developers must take into account the presence of floodplains, wetlands, conservation areas, and wildlife when undergoing a development project.

Mitigating Environmental Risks

While it is impossible to completely eliminate all environmental risks, there are measures that can be taken to mitigate their impact. These include:

  • Due diligence: Before purchasing or developing a property, conducting thorough research and due diligence is crucial. This may involve hiring environmental experts and conducting site assessments to identify any potential risks.

  • Insurance: Property owners can protect themselves from financial losses by obtaining appropriate insurance coverage for environmental risks.

  • Remediation and clean-up: If a property has been contaminated, it is important to take prompt action to remediate and clean up the site. This may involve working with environmental consultants and regulatory agencies.

  • Compliance: Staying up-to-date with environmental regulations and complying with them is crucial in mitigating risks and avoiding legal issues.

In today's world, it is essential for the commercial real estate industry to consider environmental risks when purchasing, developing, or managing a property. Failure to do so can have significant financial and legal implications. By conducting due diligence, obtaining insurance, and implementing sustainable practices, developers can mitigate these risks and contribute to a more environmentally responsible future. 

COMING SOON: Environmental risk reports (contamination, drought, natural disasters) for any U.S. property will soon be available in LandGate’s free property reports and our LandApp tool. 


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