|Robert Barone, R.A., is president of Moisture and IAQ Solutions, Inc., a national, full-service consulting firm specializing in providing moisture intrusion assessments, pre-construction and construction phase services, indoor air quality (IAQ) testing, and remediation oversight services. He is a co-chair of the ASTM E50 Task Group on Mold.
|Katie Schwarting is a senior director for Commercial Real Estate/Multifamily Finance at the Mortgage Bankers Association (MBA). She is responsible for facilitating programming and advancing issues, standards, regulations and legislation to support the commercial real estate finance industry. She is a co-chair of the ASTM E50 Task Group on Mold.
Surveying Mold in Buildings
New ASTM Standard Details Process
For such a primitive form of life, mold’s ability to cause commotion is virtually unsurpassed. Public misperception of the hazards associated with mold, coupled with a series of highly publicized jury verdicts involving insurance claims for mold damage, many of which were more quietly reversed on appeal, have created a level of fear and misperception that has had a significant negative impact on all phases of the real estate market. These misperceptions, although largely incorrect or exaggerated, drive down the value of structures thought to be impacted, adversely affect occupancy rates, and negatively affect commercial real estate transactions. Professionals who conduct property assessments (consultants) face similar problems: mold is ubiquitous in the environment, but the mere mention of the word in a property condition report or a Phase I environmental site assessment report (Phase I) can make otherwise calm people irrational, and result in a call for testing or analysis far greater than may be necessary.1
The overarching problem with respect to mold has been a lack of reliable information, although the gap between truth and perception has begun to close. In 2004, the National Academy of Sciences released “Damp Indoor Spaces and Health,” the first comprehensive effort to evaluate scientific, medical and toxicological information relating to mold. In 2005, the Mortgage Bankers Association released its mold white paper, “Mold: Steps Toward Clarity,” the first effort to summarize in one document available knowledge concerning mold as it pertains to the commercial real estate market.
Contemporaneously with these projects, ASTM International Committee E50 on Environmental Assessment, Risk Management, and Corrective Action created a mold task group to develop a standard guide for observing mold and conditions conducive to mold in commercial real estate. The result, E 2418, Guide for Readily Observable Mold and Conditions Conducive to Mold in Commercial Buildings: Baseline Survey Protocol, goes two steps beyond these prior works. First, as the guide itself states, its purpose is “to identify a balance between the competing goals of limiting the costs and time demands inherent in performing a BSP [Baseline Survey Process] and the reduction of uncertainty about unknown conditions resulting from additional information.” In and of itself, this approach makes E 2418 significant, but the second step taken by the standard guide is equally as important because it provides a common methodology with which all parties to a commercial real estate transaction can make a preliminary assessment of the risks that mold or conditions conducive to mold may exist in any particular building. Parties using the ASTM BSP protocol in essence are speaking the same language, a change from situations in which discussions on mold create confusion and inconsistency in industry process and practices.
With these thoughts in mind, it is appropriate to examine briefly the subject of mold as it bears on commercial real estate and on consultants involved in the physical due diligence process.
Mold and Commercial Real Estate Transactions
Mold is the name commonly given to certain species of microscopic fungi that reproduce by the creation of spores, which are microscopic and capable of traveling over great distances. Mold spores are ubiquitous in the ambient air, making virtually any location a candidate for mold infestation. In keeping with their primitive nature, molds need only a source of simple organic nutrients, moisture or water and sufficient warmth to live and grow. Many substances commonly used in the construction of buildings and homes wood, paper covering for drywall, and cellulose insulation, to name three of many provide ample sustenance for mold, and modern construction techniques, which emphasize sealing and insulating the indoor spaces in a structure, conspire to provide warmth that can support mold colony development. Moisture, including water, humidity and other forms, generally is considered to be the limiting factor on mold growth; where it is present in a structure, mold generally will occur.
For lenders, the existence of mold in a structure serving as collateral for a loan or part of a security can have an immediate and detrimental impact. Mold can directly damage the property or decrease its value. Mold growth can make areas within a building unusable or unrentable, decreasing the cash flow from the commercial property. Mold may also give rise to “stigma damages,” where a building that has had mold present, but has since been removed, remains less attractive because of the stigma associated with mold. Mold may also give rise to third-party damage claims from persons allegedly affected by it, and it acts as a negative constraint on a lender or servicer considering whether to foreclose, refinance or continue operations where mold is or has been present.
Consultants also have confronted challenges from mold and mold assessments. Prior to E 2418 there was no industry consensus for mold assessments. This situation created a gap in expectations between what a user (property owner, lender, etc.) believes is being done and what the consultant has actually assessed. The circumstances also allow for inconsistent reviews and assessments to pass unchallenged and may encourage unnecessary procedures or testing, which adds additional cost and time to the assessment process. The new guide remedies this problem by providing a balanced baseline analysis that clearly delineates the responsibilities of the consultant and the user, and it provides a practical balance between knowledge and certainty on one hand and commercial realities and expense on the other.
ASTM E 2418 in Action
ASTM E 2418 uses the BSP as the mechanism to standardize the mold and moisture intrusion assessment process. The BSP is a voluntary standard that serves as a proactive approach for those in a commercial real estate transaction who wish to obtain a limited property survey that assesses readily observable mold or conditions conducive to it. The BSP is site-specific and intended as a baseline inquiry rather than a comprehensive sampling process. A BSP does not involve sampling, although the results can suggest the need for sampling to be done, and it does not involve physical checks for hidden mold. As the standard guide itself points out, the BSP is designed to provide “appropriate inquiry” rather than an exhaustive assessment of a property. E 2418 states, “There is a point at which the cost of information obtained or the time required to gather it outweighs the usefulness of the information and, in fact, may be a material detriment to the orderly completion of transactions.” The standard guide clearly recognizes that the goal is not certainty but balance.
How does the BSP achieve this balance? It creates a four-part approach to be followed by consultants who have the requisite qualifications to analyze mold-related issues: 1) a documentation review, 2) an interview, 3) a walk-through, and 4) preparation of a report. Each step is appropriately delineated in the standard guide with comprehensive lists of questions to be asked, areas to be observed and information to be provided for review. In addition, because the BSP is a stand-alone process for mold and moisture intrusion assessment, the standard guide can be used in conjunction with other physical due diligence, including a property condition assessment or Phase I.
The BSP begins with a documentation review by an independent consultant who has knowledge and experience with commercial building structures and mold and moisture intrusion characteristics. The consultant may ask the owner or its representative to respond to a pre-survey questionnaire or confine inquiry to existing records. The owner is obliged to provide accurate records and documentation. Records to be reviewed include, but are not necessarily limited to, prior moisture intrusion or microbial growth surveys, reports on indoor air quality, complaints, citations or violation notices, maintenance records, prior Phase Is and PCRs, and records relating to occupancy, turnover, rent rolls and descriptive literature. All provide useful data on whether conditions conducive to mold development exist. The failure to provide these records is to be noted in the BSP report, and obviously may be significant.
The record review phase of a BSP is followed by an interview with “a person or persons knowledgeable of the physical characteristics, maintenance and repair” of the property in question. Appendix X2 of the guide provides a thorough checklist of questions to be asked during this interview, all of which are directly focused on obtaining information that, if answered candidly, will provide information directly bearing upon the possible existence of mold in the structure. As with the records portion of the BSP, the failure of the person or persons knowledgeable to provide full and appropriate information is to be noted in the BSP report.
The third stage of the BSP is the walk-through. In keeping with the defined nature of the process, the walk-through is not intended to reach every nook and cranny, hidden area or closed space. Instead, this stage is intended to examine representative areas for obvious mold or the conditions conducive to mold growth. The walk-through itself literally proceeds from roof to basement and focuses on everything in the structure that could produce the moisture necessary for mold to develop. The professional conducting the walk-through takes pictures and notes situations in which access is impracticable or denied. As noted above, where the owner or representative fails to allow access, the lack of access is to be noted.
The final step of the BSP is the report, which is outlined in E 2418. The report should describe the scope of services, inclusive of any deviations and/or additional services conducted during the process. The report scope shall cover the areas the consultant observed as well as detail any areas the consultant was unable to observe. Finally, based on professional judgment, the consultant will offer findings, opinions and conclusions about mold and moisture intrusion problems. Similar to PCAs and Phase Is, the essential question is one of balance between costs and practicality on the one hand and micromanagement on the other. The report may be used in the commercial transaction or form the basis for additional analysis or sampling.
The new E 2418 standard guide is a significant step forward in the ongoing demystification of the effects of mold on commercial real estate transactions. The standard guide is a proactive approach that creates a reproducible vocabulary with which commercial real estate transactions may go forward in an environment where a realistic and practical assessment of mold-related risks has occurred. //
1 Property condition reports are prepared using ASTM E 2018, Guide for Property Condition Assessments: Baseline Property Condition Assessment Process. Phase I Environmental site assessments are prepared using ASTM E 1527, Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.