Wednesday, September 25, 2013 12:00 AM

Gas Transactions: A New Lending Opportunity?

By: Joseph Berlin, PE, CP and Jeff Kenneweg, EP
Tags: None

Gas Station Transactions: A New Lending Opportunity?

As the economy strengthens some lending sectors are now becoming quite strong. However, one sector (i.e. gas stations and convenience stores (C-store)) lags well behind and has few active lenders. Even those lenders that may be active in this market avoid much of the market and often for the same reason, environmental issues. However, we have seen a few lenders assessing the market and even lending on some of the more "environmentally at risk" locations. These lenders utilize a structured approach to glean the best opportunities within this group and manage or mitigate environmental risk through structured environmental risk management (ERM) programs.

A Brief Q & A for Lenders Considering Lending to Gas Stations and Convenience Stores

A few questions and answers that may help a lender assess this market:

Q. Are many lenders currently lending to sites with underground storage tanks (USTs)?
A. No. The majority of lenders are still tending to avoid this industry group.

Q. Are there means to control or transfer environmental risk?
A. All regulated UST sites are required under federal law (40 CFR 280) to have $1 million in financial assurance (FA). The FA is provided by state cleanup funds (e.g. Ohio-PUSTRCB) in 34 states. The other states, for the most part, utilize private UST insurance (e.g. Chartis, ACE, American Safety) to meet the FA requirements.

Is extensive due diligence (i.e. testing) required to assess environmental risk and underwrite?
A. This is generally very site-specific, but an initial screening (e.g. UST 360), including FA and UST system specifics, can screen sites to assess environmental conditions. If an initial screen is within parameters, a site reconnaissance and compliance review by a knowledgeable environmental professional (EP) is commonly the next step. The data developed during the site reconnaissance can then be reviewed by in-house environmental or ERM staff, EP or attorney.

How long can USTs last?
A. The older USTs installed prior to the mid- to late-1980s generally lasted up to 20 years before problems (e.g. corrosion holes) could be anticipated. When modern fiberglass and coated steel tanks (i.e. STI-p3) became the norm in the mid- to late 1980’s, releases from the perforations in the tank itself became uncommon. Modern fiberglass and coated steel tanks can generally be expected to last 20 to 30 years. Depending on the manufacturer, the original tank perforation warranty is 20 to 30 years.

Hopefully, this discussion provides some insight into how a lender may assess this market from a profitability and risk management point of view.

Please contact Joseph W. Berlin, PE, EP, CP at 616-459-3737 or Jeff Kenneweg, EP at 513-490-0664 with any questions.


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