RSRAs and TSAs – The Similarities and Differences

by | Aug 25, 2017 | Guides, SBA

Depending on the potential risk profile of a commercial property, Environmental Risk Managers realize that a Phase I Environmental Assessment (ESA) may not be necessary for all commercial properties targeted for commercial loans.  In these cases, environmental risk can be adequately assessed by employing alternative due diligence products, which require less effort and associated cost.

These alternatives include: Desktop Review, Records Search with Risk Assessment (RSRA) and Transaction Screen Assessment (TSA).  

These alternatives are similar in that they are not intended to provide the CERCLA liability protection offered by the Phase I ESA and are not intended to be used to assess high risk properties.  However, these products differ widely in the intended use, scope of work, preparation time and price. 

The Small Business Administration (SBA) has developed the “Records Search with Risk Assessment” (SBA RSRA) as a minimum requirement for SBA loans secured by low risk commercial properties with loan amounts exceeding $150,000.

Due to the thorough nature of SBA RSRAs, many banks have also adopted versions of the SBA RSRA format for their non-SBA, lower risk commercial properties. These banks identify this due diligence product as a “Desktop Review” (or continue to use the term “RSRA”).

The minimum scope of work outlined by the SBA for a RSRA includes

  • (1) a search of government databases (a search of regulatory listings for the subject property and surrounding area within the distance parameters defined by AAI and included in the Phase I ESA scope);
  • (2) historical records, such as aerial photographs, city directories and/or fire insurance maps; and
  • (3) a risk assessment performed by an Environmental Professional.  

An Environmental Questionnaire, which meets the SBA SOP, must also accompany the SBA RSRA.  RSRAs/Desktop Reviews generally do not reference “Recognized Environmental Conditions” (REC), but include a risk determination for the property by indicating a low or elevated/high risk.  Many banks modify the SBA RSRA format to meet their internal due diligence needs.  For example, a non-SBA RSRA/Desktop Review may not necessarily include an Environmental Questionnaire and may include less historical data. 

The bank should define the specific scope of work for a RSRA/Desktop Review, or at a minimum, understand the scope of work being proposed by the Environmental Professional to ensure their version of the report meets the bank’s risk tolerance.

The Transaction Screen Assessment (TSA) scope defined by the ASTM E1528-14 standard includes a site visit and completion of a “Transaction Screen Questionnaire,” with the answers to the questions provided by the current property owner and any major occupants, including those occupants likely to be using, generating, treating, storing or disposing of hazardous substances or petroleum products.  The TSA also includes “limited research regarding certain government records and certain standard historical sources.” 

The site visit is typically conducted during completion of the Questionnaire. According to the ASTM E1528-14 standard for a TSA, the report does not require an Environmental Professional signature. However, banks using the TSA generally require that the document be prepared and signed by an Environmental Professional.  Like the RSRA/Desktop Review, the TSA does not identify “Recognized Environmental Conditions,” but the report should identify “Potential Environmental Concerns.”  Depending on the environmental consultant engaged, the TSA could contain less historical documentation than the RSRA/Desktop product.  Therefore, banks that use the TSA often modify the scope to require additional historical sources, a full regulatory database report (which meets AAI) and Environmental Professional preparation and signature.

Similarities between the RSRA/Desktop and the TSA products include:

  • (1) neither is intended to be used to satisfy CERCLA liability protection,
  • (2) neither identify “Recognized Environmental Conditions,” and
  • (3) neither is considered appropriate due diligence for high risk properties. 

In addition to the limited historical research a TSA can sometimes provide, the timing and cost to prepare a TSA over a RSRA/Desktop Review is significant, with the fee for a TSA being several hundred dollars more than the fee for a RSRA/Desktop Review.  In addition, a TSA may take up to 10 business days to complete, whereas the turn time for a RSRA/Desktop Review is generally 4-5 business days. The primary difference between a TSA and RSRA is cost. The site visit conducted during a TSA can easily double the cost over that of a RSRA/Desktop Review.

Many banks are moving away from performing TSAs. The logic behind this move is simple.

The primary cost driver for a TSA over a RSRA/Desktop Review is mobilization to the subject property to conduct an abbreviated site inspection so that the Environmental Professional can adequately complete a “environmental check list.”  

Many banks realize if they have already paid to mobilize an Environmental Professional to visit a subject property targeted for a commercial loan, it is probably prudent to pay the additional incremental cost for a Phase I ESA over that of a TSA. A Phase I ESA will satisfy CERCLA liability protection by adequately identifying RECs on the subject property, while a TSA will not provide this assurance.

Whether your bank’s environmental policy includes a RSRA/Desktop Review, a TSA, or both for those low risk properties associated with relatively low loan amount deals, it is important to understand the limitations of the products chosen. You should also ensure that the scope of work addresses the bank’s risk tolerance and is adequate for determining the environmental risk of the property.