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Many people ask me about gas station loans and they ask what's the main reason why they
don't close and I would have to say without hesitation one of the main reasons gas station
loans don't close are environmental issues. We have this more often with purchase or acquisition
financing than we do with refinances or construction. Usually on a refinance the owner knows what's
going on at the site and usually on a construction most of the time it is not at a site where
there's been a gas station before.
It amazes me that on acquisition financing that people do not do their due diligence
to find out exactly what's going on at the site. And there's a couple of things that
happen. Either 1) The seller represents that the site is clean and there are no environmental
issues. And the seller might be right. The only problem is that a lot of times sites
they find RECs (Recognized Environmental Conditions), they are remediated, they are monitored, but
a closure letter or a No Further Action letter is never issued. So even though the seller
may be correct in the sense that the site is clean, it's still an open file with the
State. Another issue exists that sometimes sellers have paid cash for the site and they
don't necessarily go through the information that they need to find on what the issue is.
Another thing exists where maybe the environmental issues the seller or previous owner and they
are not aware of it.
So how do you get around this? How do you find out what you have before you buy it?
In reality, most environmental issues are not issues but what a lender does not want
is to be stuck with a cleanup even if it's a small amount. The easiest way to do is go
to the DEP / DEQ for a particular State and call them on the phone. A lot of times they
want you have to have a number or a facility ID which you're probably not going to have.
Most of the times they can just look it up by address ad see if there are any open files
on the site. And if there is an open site it's going to tell you that there is either
a Corrective Action Plan going on, it's in the middle or something has been identified
or the site is currently being remediated or the site is currently being monitored or
they'll tell you a No Further Action letter has been issued.
This is not a perfect system, but it certainly is better than not having a clue of what is
going on so we would encourage you before you purchase a site get on the website, call
them up, give the address of the facility and let them look up and basically let them
give you a history of what's gone on there at the site and that will help you make a
more informed decision.
As usual you should be dealing with experts in the financing of gas stations and convenience
stores. PetroMAC has a long track record of success in this asset class and we would be
able to assist you in any way that we possibly can.
Thanks so much for listening to this.