The Real Cost of Skipping a Site Investigation Before You Build

Every property development is a risky venture; however, some are riskier than others. Some risks can be avoided altogether. There are temptations to get started on the property development before conducting all the necessary assessments, and it makes sense, especially with budgets strained and timelines building. But that temptation ends up being one of the costliest mistakes a developer ever makes.

For example, when developers find contamination, they can't simply remediate and move on; 20% to over 100% of original costs are exceeded on projects that find contamination mid-development. This isn't a hiccup or a schedule delay; it's enough to derail a development before it even begins.

What Really Goes on Underground

Contaminated land doesn't come labeled. An empty lot doesn't present with warning signs; instead, old oil tanks, decades of gasoline spills, manufacturing dust, even naturally occurring contaminants lurk underground and wait for crews to dig them up. Previous uses of land impact the current status. That empty lot used to be a dry cleaner, gas station, or manufacturing plant. What those transactions did create remnants in the soil.

Developers may know this and justify why it's acceptable to not have an initial assessment performed with proper assessments and time dedicated to understanding what's underground before breaking ground, but they're wrong. It's more common than people think. According to studies, a large percentage of developed land in urban areas shows some level of contamination based on past use. It's frequent, especially in older industrial areas and inner-city locations.

A site investigation preliminary site investigation by certain agencies can help determine what's going on underground before any monetary commitments to construction are made. Soil samples and historic verification along with assessments for volatile compounds reveal hazards that can put construction workers and future residents at risk.

What Happens When They Find Something Mid-Development?

The worst-case scenario happens more than people want to admit. Crews dig in and set up an excavation, and work stops. Contamination is found. Work halts as authorities are called in.

A site must be assessed for what is found, and depending on what is discovered, the next steps include removing thousands of cubic meters of contaminated soil, addressing groundwater levels because they are also contaminated, or installing vapor barriers in everything that's already developed. Solutions are costly solutions that were never considered in the first place.

Furthermore, these costs aren't in a vacuum; the project has an extended timeline while remediation work occurs. Subcontractors sit around doing nothing or are shifted to other jobs, interest on loans racks up, pre-sales are delayed for settlements which means contracts get cancelled and legal obligations assessed, prospective buyers become skittish.

Loan Opportunities Decrease

Lenders have been warier about contamination sites over the past decade; they've seen too many developments that started on such contaminated sites that ended up falling victim to environmental concerns. Now, most private lending establishments require proof of site assessment for financing.

If there isn't a pre-investigation for site assessment, getting loans becomes increasingly difficult for developers. Even if a lender agrees to grant the opportunity, it will not be in their favor, higher interest rates, higher deposits, more projects without upfront assessments. Deemed riskier with no environmental assessments when they should've been done, the connection between finance and development becomes tenuous.

Here's where this starts getting costly in ways people don't realize. The difference between loans at competitive rates versus risk-adjusted rates rapidly accelerates over time, further cementing the increase on a multi-million-dollar development through tens of thousands of dollars in interest paid back to the bank.

Legal Implications

Environmental impacts have shifted for significantly tighter requirements in contaminated properties. Developers are held liable for knowing and not acting upon what they find on sites. Pollution is part of this problem; once it gets discovered within the site during active development, ignorance is never bliss.

Developers receive stop work orders, remediation efforts become required or legal action is taken against developers for liabilities against public health concerns or safety developments. Penalties accrue rapidly with bad press that haunts development efforts for decades.

In addition to regulatory concerns, there may be future liabilities for residents who find contaminants after moving in, developers could be sued for negligence in identification and proper notification of known hazards.

Risky Sites Do Not Mean No Sites

Sites that have contamination are still best developed when the process is known from the start regarding costs and requirements. Thus, developers have better negotiation tactics to secure lower purchases and integrate potential remediation into their investment plans and anticipated construction efforts.

Knowing what comes when provides proper assessments within a timeline for construction success. Should developers discover an expensive process without an upfront assessment either means purchasing a problematic site or spending more than necessary once construction efforts have dug into the ground.

The Bottom Line

The difference between successful developments versus failed ones comes down to how well developers assess pre-construction efforts before moving forward. Cutting corners with baseline work opens vulnerability that's found at the worst time possible.

It's cheaper to assess proper construction than provide remediation retroactively, causing all parties to lose valuable time and investments that would only be avoided if proper insurance was created first instead of seeing this as just another line item expense on budgets that could be lost without purpose.