I almost bought a mobile home park this week. The contract was signed and I was immersed in due diligence. The seller said he had a clean Phase I. The Phase I did indeed state that it found “no substantial evidence of recognized environmental conditions”.
Being a rather anal type, I read the full report. Deep within the dense jargon filled bowels of the report was this nugget. The park is 2 blocks from a superfund site, a former zinc smelter on 160 acres. Six of those acres are covered with trailings from the manufacturing process, stacked up to 57 feet high. These trailings are contaminated with good things like arsenic and lead. It seems that over the years these trailings had been used for other things as well, like fill for the local roads and driveways. Testing of the neighboring residential properties has revealed elevated levels of lead and other industrial chemicals. The EPA has recommended further testing of nearbye property.
If this Phase I had been ordered for the lender, I am quite confident that it would have recommended a Phase II.
I believe that is the definition of Due Diligence.
We should go into any park purchase (or other purchase for that matter) with eyes wide open, suspicious of everything… not only the pysical aspects but the financial as well.
I have killed the deal. It no longer fits my investment parameters. It is to bad, I really liked the park.
In my opinion, the park itself is probably not contaminated. The problem is that all upside from the property for anything other than its current use is gone. No one who can afford to live anywhere else will want to live here.
This is a turnaround park. The roads need considerable work and the property needs a good clean-up. I had grand plans to upgrade the park, but to me this makes no economic sense now.
This park could be a real money maker for someone, but the price needs to be considerably lower than what we had agreed on. The seller cant go much lower, he has debt that was close to our agreed price as it is. This is probably a good property to rent homes on, but my business plan calls for a land lease community.