Environmental risk isn’t a box to check anymore – it’s a portfolio‑level business threat that can lead to a bad deal if you don’t address it smartly. As climate pressures intensify and regulations tighten, the industrial sector is being pushed to rethink how it assesses, prioritizes and manages exposure across its entire footprint.
At I.CON East in Jersey City, New Jersey, this week, Kathryn Peacock, strategic director at Partner Engineering and Science, Inc., led a lively conversation with three leaders on the front lines of this shift: Drew Cooper, partner at DLA Piper; Canaan Crouch, PG, managing director at Jencap Specialty Insurance Services; and Andrew Dorn, senior manager of EHSS at Illinois Tool Works. Together, they broke down how property buyers and sellers can manage environmental strategy so it’s not a money pit.
What makes environmental liability “sticky”?
The regulation shaping the regulatory environment is the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) – also known as Superfund. Waste disposal liability is a large component, and Cooper said, “if you’re using common sense when thinking about your environmental liability exposure, you’ve already lost.” Everyone is liable under CERCLA, he added, from the current owner to operators and owners involved when the waste occurred.
Cooper shared a story about a fourth-generation family business that manufactures nuts and bolts that received a letter from the Environmental Protection Agency (EPA). For decades, the company had generated water containing small amounts of oil and rust in the process of cleaning its product. The landfill they used for disposal became a Superfund site; the EPA defined their water as “sludge,” and Cooper’s client had no choice but to cut a $180,000 check. This is an example of cradle-to-grave liability, and the risk is real for buyers and sellers.
What is “all appropriate inquiry”?
Peacock brought the discussion around to all appropriate inquiry (AAI), which actually refers to a defense you build when regulators come after you for environmental liability. It’s very specific due diligence that allows you to say, “I looked, and there wasn’t an issue. I made sure of it. I did the proper due diligence. You can’t hold me responsible.” However, Cooper stated, “We had a site in Texas for a client where the EPA Assistant Regional Council said, ‘Wow, this is the first time I’ve actually seen all appropriate inquiry be effective in my 25 years here.’” Still, if you don’t conduct an appropriate inquiry, the panel agreed that without it, you don’t have any hope of an exemption from liability.
Dorn stated that a Phase I study is key to obtaining an AAI defense. Cooper added that it’s also important to separate the AAI from the compliance review. Hiring a lawyer to conduct the compliance review provides the added benefit of “privileged and confidential” information. While data is not privileged, opinions and recommendations will be, which can help down the road in disputes. Given Crouch’s role as an insurance broker, this privileged and confidential information can help prevent the omnibus environmental exclusion from denying coverage in client insurance policies. However, if you are doing a deal in states like Massachusetts or New Jersey, which already mandate studies through private consultants, then hiring an attorney does not matter.
While Phase I studies are non-invasive, Phase II studies are more a la carte. Likening it to going to a doctor, Cooper stated that you pursue a Phase II when there’s a specific concern coming out of a Phase I study. However, “think about the overall deal metrics before moving to Phase II, and how they will likely change for you as the buyer or seller,” Cooper stated. Crouch highlighted that this will likely reduce property value, so you will need to be thoughtful.
And Dorn joked, “When you get a recommendation for a Phase II, go get a different Phase I study.”
It’s better to know than not to know.
All kidding aside, the panel agreed that environmental liability is something to assess and not ignore. And unlike what some people say about federal regulations easing, you must be aware of state regulations and local interests.
For instance, Peacock highlighted that one out of every two former dry cleaner sites tested positive for contamination exceeding regulatory standards, with an average remediation cost estimate of $400,000 (though the highest cost in data collected by the Environmental Bankers Association was $2.67 million). Other panelists have seen remediation cost estimates, which are important for lenders and insurers, as much higher for larger industrial sites.
Buyers and sellers should understand environmental exposure and how it affects the economics of a deal. Dorn warned that you risk selling a property only to have a buyer come back to claw back millions from the deal. You’ll look like the bad guy to regulators if that happens. “And don’t use someone else’s environmental consultants,” warned Cooper. “Don’t save money by using a seller’s assessment if you are the buyer. They have different interests.”
This post is brought to you by JLL, the social media and conference blog sponsor of NAIOP’s I.CON East 2026. Learn more about JLL at www.us.jll.com or www.jll.ca.
