Property Talk

CommonGround Launch

2008-04-10T05:33:00.000-07:00

If you are reading this, then you've probably figured out that our industry now has its own social networking site; CommonGround. CommonGround was built to become THE global community for property due diligence professionals and my hope is that this goal will be reached as rapidly as possible. What makes CommonGround different from other social networks is its exclusive dedication to the property due diligence industry.

Most of us are aware of the successes that MySpace and Facebook have enjoyed recently. What many people are not as aware of are that thousands of niche communities also exist for very targeted audiences of professionals who are involved in similar lines of work. These niche communities provide rich and highly focused content that help their members perform their jobs at a higher level. By joining a business community, members will be able to contribute and consume content, ask and answer questions and establish themselves as an industry thought leader within a certain geography or subject matter. These communities exist already for doctors, lawyers, IT professionals and even airline pilots. Why not for property due diligence professionals?

So log on and check it out. Take a few minutes to set up your own profile and start looking into the various discussions, blogs, downloads, podcasts and events. Pose a question or answer someone else's. For the next few weeks, the name of the game will be to get comfortable navigating the site and begin building your own personal network. After that, its anyone's guess where the community decides to take itself.

My hope is that this platform will provide our entire industry with a valuable service that improves the quality of environmental due diligence everywhere. But how we get there will be up to the community itself. Community members will determine the community's success themselves based on individual involvement and cooperation. Some people will be "lurkers" who quietly observe others without saying much themselves. Others will get very involved right away, constantly searching for ways to use the community to promote their brand or expertise. If we are to learn anything from observing other professional communities, it is that the people who benefit the most are the ones who get engaged early and stay engaged over time.

EDR's Environmental Content

2008-03-20T09:55:00.000-07:00

Last summer I made a blog post in which I stated that there were three (3) pillars to EDR's business strategy. These pillars are content, workflow solutions and community. Nearly everything we do at EDR should create value in one of these three areas or else it's probably not worth doing.

Since then, much of the news coming out of EDR has been about workflow solutions (EDR OnDemand, PARCEL, Vapor Intrusion Screen) and community (CommonGround) while content has not been talked about as much. However, behind the scenes, a ton of work has been going on related to expanding our underlying database to include more categories of important environmental content. After all, our company name is Environmental DATA Resources so we can't forget that everything we do is predicated upon having an unmatched core database. To give you a sense of how this core database has grown, consider the following statistics:

There are over 46 million records in EDR's database yet only 13 million of these (28%) are aggregated from publicly available government databases.
The majority of EDR's records (over 33 million) come from other sources and most were created via scanning and digitization efforts that have been going on for the past decade. For example, over 1.5 million "image records" exist as a result of scanning hardcopy historical maps and aerial photographs while another 1 million records where created by EDR's Data and Content Development Group.

But perhaps most impressively, over 20 million database records have been created by scanning and digitizing historical city and business directory publications dating back to the 1800's.

As a "content company" these efforts are extremely important. I believe that some day in the near future, Google, Yahoo! and Microsoft will make it possible (and very easy) to search the publicly available EPA or state environmental databases and have the search results displayed on a map (which of course is what has been EDR's business for the past 15 years). On the surface this might seem like a very scary thing for a company like EDR. In reality, however, I think the opportunities here are much greater than any perceived risk.

The fact that most of EDR's content comes from sources other than government databases provides some level of insulation in a Google dominated world. Additionally, user generated content continues to aggregate with EDR's platforms allowing clients to save and re-consume their contributions in the future.

The real opportunity for information company's (like EDR) and domain experts (like environmental professionals) will come when there is complete ubiquity of environmental information on the web and the opportunity will lie in the ability or willingness to deliver context and provide answers to those with questions. Who's going to be there when someone Google's their home address and finds out that there is a leaking underground storage tank next door? Who is going to answer this person's questions and help guide them towards resolution? Who is going to take Google's search results and add valuable context to the local loan officer, attorney or business owner?

Realtors have been asking themselves these same questions as property listings continue to become available online at sites other than the local MLS. Perhaps closely following this industry will provide EDR and our environmental consulting partners with a window into our collective future?

EDR Reorganization

2008-02-11T06:27:00.000-08:00

Today EDR has announced and will begin implementing a reorganizational plan which has been developed over the past few months. This plan is a direct response to the decline in real estate transactions we have witnessed since the credit crunch began in August 2007. As I have mentioned in earlier blog posts, and despite the benefit of a growing customer base of environmental professionals, the volume of monthly transactions in the marketplace has declined by 8 percent. This reorganizational plan has several elements to it which I will now attempt to outline.

Twenty seven positions across the company have been eliminated causing layoffs. However, 7 of these people have been offered new positions within EDR and all will have a few days to consider their new offer. I expect that once their decisions have been made, the net number of layoffs will be between 20 and 22. To put this into some perspective, EDR's employee base has grown by 30 people since February 2007. These layoffs will reduce this to about 10 to 12 new positions created since last year.

This reorganization plan will also include a restructuring of our outside sales team. Since the 1990's, EDR's field sales team has been organized by geography with each sales person having an assigned territory. Going forward, we will shift to a new sales model that is organized not by geographical boundaries but instead by customers. Sales professionals will now be assigned specific customers for which they will be responsible. The goal of this new sales model is to better align EDR personnel with our clients businesses in order to develop stronger individual relationships and mutually beneficial partnerships.

In addition to the downsizing and reorganization on the employment side, a new operating plan will also be implemented for the remainder of this fiscal year. This new operating plan calls for cost reductions in areas including advertising, promotions and events and will reduce total operating expenses to a level similar to last year.

As you might imagine, a situation like this is difficult for everyone involved, most especially those people who have been laid off. I wish each person the best of luck as they begin seeking new employment and career opportunities and offer a "thank you" for their contribution to EDR's success over the years.

Going forward I believe that EDR's employment and operating plan is now aligned with the current state of the real estate markets. Since 1998 we have enjoyed a commercial real estate market that has been in near constant expansion. This changed virtually overnight last August and the ripple effects are still evident. My hope is that this period of contraction will be shallow and short lived and that our markets will begin expanding again later this year.

Software & Information Industry

2008-02-01T07:16:00.000-08:00

For three days this week, some colleagues and I attended the Software & Information Industry Association (SIIA) Summit in New York. The event pulled together a broad range of business executives from both the content world and the software world to discuss emerging trends and the rapid rate of change that the internet has brought upon all of us.

For me, the best part of the conference was seeing firsthand that the things EDR is dealing with are the same things that all other content companies are dealing with and essentially confirming that we're not "off the reservation". For example, there was a lot of discussion about how content companies must expand into the software space in order to add value to our content. Increasily, content must be delivered into applications that then help the consumer work with the information more efficiently in order to, ultimately, make better business decisions. In EDR's case, simply dropping a report into someone's lap won't cut it in the future. Instead, our content must instantly and seemlessly be delivered electronically into workflow tools. Here our content co-exists with other content elements to create a more valuable experience for the user.

Two other major themes of the conference were "community" and the role of "user generated content". Today a large percentage of our employees and customers are members of various social networking communities. The biggest of these are obviously MySpace and FaceBook. Both communities are great for personal social interaction but neither really provides a lot of benefits to businesses communities. This is causing the creation of literally thousands (or more) niche business social networking communities built around very precise business areas. Communities exist now for oncologists, scuba divers and model train enthusiasts. Members in these niche communities now have a place where they can go that is geared exclusively towards very finite topics and activities and, as a result, the user experience is much more valuable. The result is that these niche communities then become a place where very specialized user generated content is created and shared and everyone in the community benefits.

I think the property due diligence industry is perfectly suited to benefit from these rapid changes and trends made possible by the internet and broadband connectivity. Like all other industries, we too can expect to see continued convergence between content, software and community.

Updated State of the ESA Industry

2008-01-10T11:03:00.000-08:00

It has now been nearly five full months since this blog's inception and during this time I have made fourteen entries. Three of these entries included my comments and thoughts regarding the state of the ESA industry; an industry that has clearly been directly impacted by the credit crunch. Now that the calendar fourth quarter has concluded and the numbers are in, I thought I would share what EDR is seeing in the U.S. due diligence market.

First and foremost, transactions are down. After showing strong year-on-year growth for most of 2007, ESA projects contracted in the fourth quarter by 7.4%. During the same time frame however, the number of environmental consulting firms ordering from EDR moderately increased. So at the end of the day it appears that a larger number of environmental consultants are competing for work in a transactional market that has gotten smaller.

This decline in transactions started off in the CMBS arena and for a while the only environmental consultants being directly impacted were those who focused on portfolio securitization projects. As evidence of this, only $6.2 billion in securities were issued in October as compared to over $34 billion in August. However, the situation quickly spilled over into other due diligence sectors including small balance lending, M&A and corporate real estate development. McGraw-Hill Construction is forecasting a 6% decline in commercial construction in 2008.

Today the type of commercial real estate buyer or investor is changing as well. Gone are the highly leveraged buyers and replacing them are the all-cash and low-leverage buyers. As a result, many environmental consulting firms are redirecting their sales and marketing efforts towards the foreign investor, REIT and institutional markets. This seems to be playing out most notable in the retail and hospitality asset classes.

Nearly everything I am reading is forecasting more of the same for 2008. The U.S. economy has certainly slowed with some predicting a 50/50 chance of recession this year. But whether we go into a recession or not almost doesn't matter. Even if we avoid a technical recession, the business and lending environments have changed and the ESA market this year will not look like it did last year.

These cycles are inevitable and seem to occur roughly every 7 years. During these times a few things tend to occur. First, there will likely be some consolidation in the environmental consulting industry. Second, as already mentioned, consultants will redeploy their sales teams to target markets that are relatively active. And third, firms will closely analyze their business processes to identify work areas that could be further automated.

My guess is that the companies who execute the best in these areas will come out of this cycle stronger and better positioned for the next phase of expansion.

Unbundling

2007-12-27T04:42:00.000-08:00

For years EDR's product strategy has been similar to that of many other information publishers; bundle separate products together to provide a "one-stop-shopping" experience for customers. Throughout the 1990's and early 2000's, this strategy worked well for both customers and EDR. Customers benefited because they could acquire more necessary information at one time and at a reduced cost. EDR benefited because as customers chose to purchase more bundled information packages, our revenue per project steadily increased. For a while this was a win-win strategy for everyone. However, like most business strategies, I believe this one has run its course and in the coming years will gradually fade away.

When customers purchase an EDR product they don't really want that product but the relevant information contained within the product. The product is simply a pre-packaged way of delivering this information in a form that is easy to use and work with. Pre-packaged products were necessary because the technology didn't exist to automatically extract content and display it in a more useful way. Instead, the "extraction" was performed by humans who reviewed a product, determined what was important and then manually extracted the important information and imported it into an electronic work application. Today that technology is here and is being used more frequently each day.

As clients continue to automate work processes, they are making new demands on their information suppliers. These demands go straight to the manner in which information is requested, delivered and worked with. For the first time, clients are requesting that relevant content be unbundled from a pre-packaged product and streamed directly to them. But it doesn't stop with simply streaming all content electronically because not all content is equally valuable. Today, clients are also demanding that information providers distinguish between content categories based on value and relevance. Highly important information must be treated differently from "background" information that doesn't really help improve business decision making.

Business models based on the concept of "unbundling" are everywhere. From fractional ownership of airplanes and vacation properties to RSS feeds, people today can access more of what they want without having to purchase the entire plane, house or newspaper. At first glance this has been a scary thought to businesses based on the one-stop-shop philosophy. After all, doesn't it explicitly imply a lower revenue per customer? Yes it does. However, it also allows a product or service to be accessible to a larger audience.

Recently an article was forwarded to me that talked about major business technology trends to watch for. One of these trends was, you guessed it, unbundling. Besides discussing the benefits of unbundling and other trends, the article emphasized the following point:

"Technology alone is rarely the key to unlocking economic value: companies create real wealth when they combine technology with new ways of doing business."

Over the next few years, advancements in technology will force new business models in the real estate information industry. Gone will be the one-stop-shop provider of pre-packaged products and replacing this will be the information publisher capable of seamlessly delivering critical content instantly and in a way that is completely compatible with how the consumer wishes to receive and work with this content.

Global Environmental Due Diligence

2007-12-05T04:41:00.000-08:00

Much has been written lately, including here, about the recent disruption in the commercial real estate credit markets. Things have most certainly changed since August as CMBS issuances have declined dramatically (securities issued in Augusted totaled $34.4 billion but reached only $6.2 billion in October). However, as the market continues to be viewed as a global market by investors, deal flow is moving forward outside of the United States.

At EDR we have traditionally been a company that serves the U.S. market only. However in just the past 6 months, we have suddenly found ourselves participating in due diligence projects all over the globe. In fact, the total number of countries where EDR has provided some service has now reached 20. These countries include Canada, Mexico, Germany, Russia, Spain, Bahrain and South Korea. In each case the reason EDR became involved in a cross border project was because the environmental consultant used the Parcel application to author their due diligence reports.

Anecdotally we are also hearing more often that our clients are being pulled overseas to investigate properties. In most cases these clients are serving a corporation or global real estate investment operation that is expanding or diversifying overseas holdings. This activity is not limited only to the largest environmental professional firms with offices in other countries. Rather, U.S. based firms who only have offices in America are also being asked by their clients to jump onto airplanes and travel abroad to conduct Phase 1 work. The opportunity for global expansion therefore appears to apply to a large cross section of the U.S. environmental professional marketplace.

As further evidence of these changing times, one client recently asked EDR to attend an international due diligence workshop in Europe. At this event the client flew in their practice leaders from the U.S and three European counties. The main purpose of the meeting was to discuss how they were going to coordinate future portfolio projects with properties in multiple countries. The expectation here is that on these projects the quality of work and turn around times are equal to those expected on U.S. based work. Clearly quite a challenge given the availability of information and other dynamics involved with working several time zones away from home.

During an age of global capital flows this only makes sense and was to be expected at some point. What many other industries have been experiencing for years is now reaching our industry. Some environmental professionals are clearly embracing this opportunity and are already seeing the payoff.

Where's The Growth?

2007-11-15T11:04:00.000-08:00

Last month I made a blog entry titled "State of the ESA Industry". In it I described what EDR has been seeing since the much-discussed credit crunch began over the summer. Long story short, there's fewer Phase 1 projects being conducted right now as compared to last year while at the same time the number of environmental consulting firms in the market continues to increase (e.g. less work being shared by more people).

We estimate the decline to be in the 10% range right now. Nearly all of this decline in transactional volume (so far) has been isolated to a specific sector of the commercial real estate market: CMBS. The result is that firms with clientele heavily concentrated here are bearing much of the burden. The flip side of the coin is that firms focused more on portfolio lenders, law firms, government and corporations are actually seeing year-on-year increases in transactions. We think this is where the growth will be for the next year.

It has been well documented that the small balance loan market is expanding rapidly. While definitions vary, I would broadly describe this market as having two general characteristics. First, mortgage originations are sub $2 million. Second, the lender retains the loan (and relationship with the borrower) rather than selling it.

Many environmental consultants have also recognized this as a growth area and are aggressively marketing services to it. These services are not full Phase 1 assessments but are more limited in scope and often involve no site visit. Instead, the service is more of a desktop review. The end result for the consultant is a service that, while less expensive than the full Phase 1, is often more profitable. As a side benefit, a certain percentage of these desktop reviews will uncover a condition that leads to a more detailed assessment. Based on recent changes in ordering behavior from the industry, this segment of the market appears to be expanding between 10-20% compared to last year. Further, but somewhat anecdotal, evidence of this growth is being heard within EDR's Solutions Group. Here, requests for desktop review templates has increased sharply over the past several months indicating an interest to automate these reviews as much as possible.

The Purpose of Performance Evaluations

2007-11-02T04:50:00.000-07:00

Over the past few months EDR has been attempting to implement a more structured process for conducting performance evaluations throughout our company. So far results have been mixed and I think the reason for this is that it isn't completely clear what the true purpose of performance evaluations is.

The term "performance evaluation" itself conjurs up all sorts of negative connotations. At some level it implies that Person A (who has all the power) tells Person B all the things they he/she should do to improve (while Person B sits back and takes it). Over the years I have been on the receiving end of these "talks" and have always found them, shall we say, less than motivating. The reason for my opinion is that they really never were "talks" where a back-and-forth dialogue was taking place between two people. Instead, I was always being talked to.

I think there is simply one overriding reason for conducting performance evaluations; to overlay an individual person's goals and skills with the company's goals and skills to determine how well they are aligned.

Of course, to actually do this means that one must know what the company's goals and skills are and what the other person's goals and skills are. The former should be relatively simple provided that a company's management team has done its job in communicating the organization's mission, values, goals and strategies in a clear way. The latter is more difficult because it demands a personal, one-on-one dialogue between two people who perhaps don't have a history of communicating at this level. Doing this requires a high degree of trust and, as we all know, trust is something that must be earned and takes some time to develop between people. But when it does happen, people are able to break through things that had been barriers and achieve results they hadn't thought possible before.

At the end of the day, a manager's role is to help others, both customers and employees, attain their goals. No more and no less.

EDR's Strategy

2007-10-22T04:51:00.000-07:00

A few weeks ago I outlined the essence of EDR's strategy to attendees and the annual Parcel Users Conference and thought it would also be appropriate to do so again here for those who could not attend the event. In short, EDR is working hard to deliver value to clients and end users in three primary ways:

Content

Workflow Solutions

Community

It all starts with content which means making sure that EDR's database of properties remains the most comprehensive, dynamic and current in the nation. This database obviously includes the governmental records considered "standard" by the ASTM Standard. However, huge resources are devoted to developing valuable proprietary records that provide unique insight into a property's potential for contamination. These proprietary records include categories like historical gas station locations, historical dry cleaners and former manufactured gas plant sites and are made possible because of scanning and digitizing operations at multiple EDR research locations around the country. The next step in aggregating content involves providing the industry a platform upon which customers can create, save and share (if so desired) user generated content. In just the past few months, thousands of data points have been contributed to the community database by environmental professionals from across the country. If we are to learn from examples in adjacent industries, it is possible that within a few years, the number of user generated records may actually exceed those records provided by government agencies.

As critical as world-class content is, EDR is also focused on helping customers become more efficient and productive through various workflow solutions. These solutions include the Parcel report authoring platform, the EDR OnDemand service and new services to be introduced in the future. What they all share in common are characteristics that enhance the value of the underlying content and improve the user's experience so that measurable time, productivity and cost savings can be realized. Seamlessly integrating environmental content with multiple workflow services is the largest internal development effort underway at EDR and will likely remain so for the foreseeable future.

Finally, embracing the Web 2.0 world, both technically and culturally, is the third pillar of EDR's strategy. This means gradually evolving away from being a company that only "pushes" content to an audience down a one way street and towards becoming a participant in the world's premier community of property due diligence professionals. As a media and content company, our role is simply to help get the community off the ground and provide the technology platform upon which dialogue can occur. The community itself will be comprised of consulting firms, mortgage lenders, insurers, attorneys and others who care deeply about the property due diligence field. This blog itself is actually the first step towards building this community where information and ideas can be exchanged and conveyed in an open and transparent manner.

These are very exciting times and all of us at EDR are looking forward to the challenges that lie ahead.

State of the ESA Industry

2007-10-18T05:40:00.000-07:00

While on vacation for the past two weeks I received a number of emails from clients asking for EDR's view into the state of the industry. Here is what we are seeing.

On a year-on-year basis, ESA transactions had been up by 3% through August. Then starting in September and running through October, things slowed down. For the past 6 weeks, the volume of ESA activity has declined by 14% compared to last year despite the fact that the total number of environmental consultants ordering from EDR has increased. So basically we're seeing fewer projects being performed by more firms. However, this is slightly deceptive and does not tell the entire story.

Nearly all of the transactional decline is coming from the CMBS sector of the market. Firms who specialize in portfolio securitization work for Wall Street are taking the entire hit right now and the situation is very similar to what we saw in 1998; the last time the CMBS market contracted. By contrast, the onesie-twosie balance sheet mortgage market continues to perform quite well and continues to show annual growth.

In 1998, the drivers for the CMBS decline were the Russian ruble crisis and overdevelopment in the commercial real estate market. Back then it took about one year for things to play out before volumes began to increase again. This time around, we don't have the problem with overdevelopment. Instead, the only driver seems to be the credit crunch which began in late summer. Based on conversations with firms who specialize in this area as well as with Wall Street firms, the general consensus is that the current slow down in portfolio work will not last as long. Many clients are reporting that they are already beginning bid on portfolio work again and expect to see some large projects come through in November and December.

As I mentioned in an earlier blog post, the current situation is being described not as a "real estate event" but instead as a "capital markets event". This comment is reflecting the fact that underlying commercial real estate fundamentals remain good so any decline in lending is the result of capital availability, upgraded underwriting standards and the ability for mortgages to be securitized.

Most of EDR's 6,000-plus clients do not work for Wall Street so they should not be seeing much of an impact in work volume. However, those few that do are clearly weathering a bit of a storm right now. Hopefully this period will pass relatively quickly.

Parcel

2007-09-26T06:07:00.000-07:00

Later today I will be leaving for Boston to attend the third annual Parcel User's Conference (and the first conference since EDR acquired Parcel earlier this year). Over 75 people will be at the event representing both the environmental consulting and mortgage lending industries. There are several goals associated with this conference. First, EDR will provide attendees with an overview on how Parcel adoption has been progressing since the acquisition. Second, the EDR Solutions Group will be laying out the planned enhancements to the application for all to see and comment on. And third, Parcel users and lenders will have the opportunity to share within the community their real world experiences in using the platform.

In the 12 month period prior to the acquisition, approximately 3,900 due diligence projects were authored using Parcel. This figure equates to 2% of the total market opportunity. Since the acquisition, the annual run rate for Parcel usage has increased by almost 300% to over 15,000 projects and during the next 12 month period we anticipate usage exceeding 30,000 projects.

In addition to increased usage, over 300 unique and completely customized templates have been created that allow the final report to have the same look and feel as a report authored in MS Word or in an internally developed application.

The timing for this event could not be more perfect given the recent slow down in transactional due diligence activity resulting from the late summer's events in the capital and credit markets. It is entirely possible that we may be leaving one portion of the business cycle and entering another. For the past several years, all of us have been riding a great wave where transactional activity was increasing between 2% and 5% per year. This trend continued for most of 2007 but came to a screeching halt in September. Although the month isn't quite over yet, I expect to see year-on-year due diligence transactions decline in September for the first time since 2000.

It is anyone's guess as to how long this portion of the cycle may last but one thing is for certain: in a flat to down market, history tells us that this is exactly the time when companies look closer at internal processes and search for ways to become more efficient. This usually leads to outsourcing more non-core activities in order to spend more time developing new sources of business.

Now for the really important stuff. In addition to the above topics being covered at the conference, we will all be attending a Red Sox vs. Twins game on Thursday night at Fenway Park. Given last night's Sox win and Yankee choke (I mean tough loss), things are shaping up where we may be able to witness the AL East clinching game in person. While I hope this comment doesn't lead to too much lost business for EDR in New York, I just couldn't resist :)

Carbon Footprinting

2007-09-20T04:23:00.000-07:00

For the first time, this year EDR was asked to provide our parent company (the U.K.'s Daily Mail and General Trust) with information about the business that would be used to help determine what DMGT's global carbon footprint is. The information we provided was done so in survey form and included details on things such as paper usage, annual airplane flights and average drive time to work. The survey was developed by ICF and, presumably, ICF will then compile the survey results from all DMGT companies in order to arrive at a consolidated carbon footprint for the entire organization. While the type of information we were asked to provide in the first year is rather general, I have to think it will become much more specific and granular in future years. As a result, it seems this may be a great business opportunity for environmental firms doing property condition assessments.

This is occuring at a time when the line between "environment" and "energy" is blurring. In order to quantify an organization's carbon footprint accurately, one needs to assemble property specific information about a property's physical characteristics as they relate to energy consumption. This includes details about the properties windows, heating and cooling systems, insulation and more. To me, the PCA process appears to be the perfect place to collect, organize and update this type of data. Already, several PCA firms are beginning to offer carbon footprinting services as an add-on to the basic PCA.

The end game will be to know whether or not the organization is in a position where it may need to buy credits to become carbon neutral or can sell credits to others. While the development of carbon trading markets in the U.S. is still a few years away, it is coming. For proof, just look at the recent developments in California and several northeast states that are leading the way towards carbon neutrality.

User Generated Content

2007-09-12T13:06:00.000-07:00

MySpace and YouTube. Wikipedia and FaceBook. It seems that everywhere these days communities are forming around user generated content. But what about the commercial real estate due diligence community? Where can someone go to access content about commercial real estate that has been contributed, edited, updated and commented on by professionals? I think there is significant pent-up demand for this type of information and, once someone develops the platform for the community, participation will be high.

I didn't think this until recently and the following situation changed my mind. A few years ago, EDR introduced a feature to our web service called FieldCheck. This feature allowed clients to either move the location of a mapped property to a more accurate spot or plot a site that EDR had been unable to plot. EDR would then generate a report that showed the locational changes made by our customer. However, these locational changes would only show in that report and would not show up in a report run later on in the same area. However, behind the scenes, EDR has been keeping a record of all locational changes and improvements made by our customers.

The amazing statistic that blew me away was that as of today, over 18,000 properties across the U.S. have been field verified and more accurately located by environmental consultants. Clearly, there is a willingness in our industry to proactively interact with the data and improve upon it when more information is uncovered during the assessment process.

So the question now is this: Are environmental consultants only willing to contribute content about a property's location or are they willing to contribute, share and receive other forms of content? I am not positive what the answer to this question is but over the course of the next year we intend to find out by releasing additional levels of functionality that will allow the environmental professional community to share more content.

There are many other categories of content that in theory could be collected and shared within the community. Perhaps the location of the local library or historical society could be contributed and shared. Maybe consultants would like to enhance information about a property within the government record itself, much in the same way Zillow allows homeowners to edit and update the tax assessor's records about their home. Or perhaps the EP community would see value in contributing aerial photography in return for having access to other's aerial contributions.

With each of these questions our industry will find itself facing many of the same issues that other industries are confronting regarding content ownership, transparency, data reliability and liability. However, if there is one thing we can learn from observing other industries, it is that each of these issues can be managed for the benefit of everyone provided that user generated content is displayed and described in an accurate manner.

Japan

2007-08-31T05:42:00.000-07:00

Over the past two years, more and more environmental consultants and lenders have been asking EDR if we have any plans to expand into Japan. The reason for the question is quite simple. Real estate markets are becoming more global each day and as western investors continue to expand their geographic holdings they are looking for similar due diligence service offerings in other countries. This is driving many of EDR's customers to follow their clients abroad and, likewise, is creating a need for more environmental information. While environmental information services are commonplace in parts of western Europe, nothing similar exists in Asia yet.

Due to the size of the Japanese economy combined with recent legislation, Phase I type due diligence is becoming more common in Japan. Initially, Phase Is were primarily done for western firms who were expanding into Japan. Today, however, some Japanese banks are beginning to develop environmental policies which are driving more projects. Regulatory forces may also be starting to drive activity. These regulatory changes are being driven by the Ministry of the Environment, the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure and Transportation.

This weekend I will be making EDR's first trip to Japan to meet with several environmental consulting firms, lenders and government agencies. The purpose of the trip is to begin developing the idea of building an information service to support environmental due diligence activities in Japan and to discuss partnership opportunities with local firms. As things develop, I will be sure to keep everyone appraised of the situation through this blog and other means.

Also, due to being abroad next week, I will not be making any blog posts until the second week of September.

I hope everyone has a safe and enjoyable Labor Day weekend.

Sayonara

Property Environmental Monitoring

2007-08-27T10:02:00.000-07:00

Recently, several environmental consultants have told me that their companies plan to change their Phase I ESA strategy this year to begin emphasizing their firms' value throughout the entire property ownership lifecycle.

The idea is to begin offering clients a hybrid service that combines pre-acquisition due diligence assessments with life-of-ownership environmental monitoring and the sales pitch goes something like this: "For $2,000 I can conduct a Phase I ESA now or for $2,000 and then $1,000 per year I can deliver the ESA and provide ongoing property monitoring for as long as you own the property."

So the question is "is it possible for an environmental professional to deliver $1,000 in value during the years in which a commerical property is not transacting?" These clients thinks it is very possible and I would agree with them.

Each of these firms has a slightly different idea of how they would monitor properties after the initial Phase I had been completed but they all share similar characteristics.

First, the data, findings and opinions from the original ESA would need to be archived and used going forward as a baseline. Second, periodic updates would need to occur looking for material changes such as the up-gradient adjoining property that just appeared in the state's leaking tank database. Finally, an automatic alerting mechanism would need to be developed to notify stakeholders of material changes that were identified and to suggest the appropriate actions.

Some "back of the envelope" math makes it pretty clear why these firms are excited about the opportunity. Right now, the average commercial property transacts every 7 years. If you assume an ESA averages $2,000, then the total revenue opportunity from a property is $2,000 every 7 years. But if the same property is then monitored for $1,000 per year, the total revenue opportunity from that property increases by 400% to $8,000. In addition, because the monitoring firm has attached itself to the property, the chances of winning the next Phase I project have probably been increased. After all, who knows that property better than the firm that has been monitoring it?

Given the continuing obligations language under AAI combined with the FDIC's recently updated environmental policy which emphasises monitoring portfolio loans, it seems that this may be an idea whose time has come.

Business Social Networking

2007-08-22T06:04:00.000-07:00

Earlier this week I received a phone call from a guy who told me he wanted an ESA performed on a commercial property he was buying. After explaining that EDR is an information service and that our customers are the ones who do assessments, I asked him how he heard about me and EDR. His response was that he conducted a search within the ActiveRain Real Estate Network for "environmental assessments" and came across my profile.

If you're not familiar, ActiveRain is a social networking site for people involved in real estate (mainly residential although some commerical groups have formed within the community). Think of it as MySpace for people involved in real estate.

I set up a profile several months ago in ActiveRain (www.activerain.com) as well as in several other networking sites including LinkedIn and BizNik and each profile has already produced multiple benefits. Now I must admit that I originally did so as more of an experiment than anything else. I was curious to learn about what these services were all about and how EDR should be using these services to our advantage.

The results so far have been positive. LinkedIn has produced several contacts for us with people in related fields that have led to research projects for the company.

For those of us who are generally 40 or over, I think there's a tendency to quickly disregard these new platforms as simply toys for a younger generation. This is a mistake. While MySpace and FaceBook are probably not going to generate business leads for a company, these business social networking site will if you are an active participant and spend some time in the community. Conducting a search for "environmental professionals" in ActiveRain and LinkedIn produces hundreds of findings which then lead to plenty of background information on each profile. EDR is currently using these sites in several ways, including recruitment and business development.

As for the person who found me in ActiveRain, I was able to refer him to a local environmental consultant (and EDR customer) who got the job and was very appreciative of the referral....not bad for 5 minutes of my time.

Vapor Intrusion

2007-08-20T05:34:00.000-07:00

As most environmental professionals already know, for the past year ASTM International has been working to develop a standard to assess a property's potential exposure to vapor intrusion. Word is this standard will be published sometime in 2008. Now Congress may be chiming in on the issue.

Senator Clinton (and Dole, Boxer, Lautenberg and Kerry) recently introduced a bill titled the "Toxic Chemical Exposure Reduction Act of 2007" which seeks to amend the Safe Drinking Water Act. As it relates to vapor intrusion, the bill seems to do a few things, namely:

require EPA to publish a health advisory for TCE that fully protects from vapor intrusion,
require an integrated risk information system reference concentration of TCE vapor, and
apply this established reference concentration to any potential vapor intrusion related investigations or actions carried out pursuant to CERCLA, the Safe Drinking Water Act or the Solid Waste Disposal Act.

Now, despite the general vagueness of the above, this does seem to be yet another indicator that the vapor intrusion train has left the station. The best proof of this can be found by simply conducting a Google search (news and blogs) for vapor intrusion and look at the results. There are literally new stories coming out weekly about residential and commercial properties being impacted by vapors.

For our part, we're headed to D.C. in three weeks to meet with the staffs of the above-mentioned Senators to learn more about where they'd like to take this bill and we'll report back on our findings.

The Blogging Begins

2007-08-16T09:29:00.000-07:00

This post marks the beginning of what I hope will be a long and productive multi-way conversation between EDR, our customers, our employees and really anyone who cares about real estate. I hope that in the coming weeks and months this site will develop into a great place for the exchange of ideas and information to anyone who comes across it.

As I sit here writing this, CNBC is on my split-screen showing the DJIA down another 213 points today which leads directly to the question a lot of our clients have been calling us about over the past few weeks: What will the impact of the current credit crunch be on the CMBS and general commerical real estate market? Well, the quick and easy answer is "I don't know". But I will offer up the following points I heard yesterday during a conference call with EDR's sister company; Trepp.

For starters, what is happening now is not a "real estate event" but is a "capital markets event". The point being that CRE fundamentals remain good and money continues to flow into CRE. This is not to say that things aren't changing, though. Clearly, there is less silly money out there, underwriting has become more conservative and refi activity has dried up.

All of this will certainly reduce CMBS issuances over the next few months but we're already seeing some of this business simply transfered to balance sheet lenders (who say they're swamped right now).

For most Phase I professionals I don't think there will be a huge impact on your business just because of the current re-pricing of risk in the capital markets. However, I would (and do) keep a close eye on the US consumer, consumer spending and consumer confidence. If things change for the worse here then I think we're looking at a different story.

When the CEO of Wal-Mart says "customers are running out of money", I worry a little.