Mold Cited as Biggest Environmental Risk among Lenders

A poll conducted by the Enviro-nmental Assurance Group has found that mold is now the No. 1 feared environmental contaminant for real estate lenders and developers.

As much as 78% of commercial and multifamily lenders and builders have heard of a real estate transaction breaking off as a result of mold-related problems, according to the Hartford, Conn.-based consulting firm.

Based on a survey of 40 "high-profile" real estate developers and mortgage banking executives, EAG reports, that 60% of the respondents cited mold as the "largest perceived threat to the bottom line." Following mold were asbestos (20% of respondents), mercury and radon (less than 1% each).

Charles Perry, principal, EAG, said, "The secondary mortgage market represented by commercial mortgage-backed securities transactions will most likely be the next target of mold's financial impact because of the new exclusions by the insurance industry.

"Investment bankers and rating agencies are beginning to develop a 'green' CMBS product in response to this new financial exposure. A lender's least favorite words are 'nonperforming loan' and today mold outpaces all other environmental concerns in its current and near-term potential to damage mortgage portfolios and loan collateral."

Lenders and builders are also considering new prevention techniques, including mold-specific inspection protocols, new detection devices and the use of mold-resistant building materials, according to EAG.

"Commercial/multifamily lenders are in a particularly urgent mood because one case of contamination could ruin multimillion-dollar deals. The Hilton Tower in Hawaii, Alderwood Plaza Shopping Center in Washington, Vail Resorts in Colorado, Brandon Regional Health Center in Ontario - these are cautionary tales for lenders," Mr. Perry said.

Citing research done at the University of Florida, EAG reports that the conditions required for mold to grow include the existence of mold spores, moisture in the air, a normal temperature range and the presence of a food source.

Paper is the primary food for mold, EAG said, and food is the most controllable variable of the above. "The development of mold inspection protocols and the required use of mold-resistant building materials - inorganic non-woven house wrap, new roofing systems, paperless insulation, raised floor systems and paperless wallboard - will significantly reduce these nightmarish issues for lenders," Mr. Perry noted.

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