Every IOS deal we underwrite gets one document that can kill it before we talk price. The Phase I environmental report.
IOS looks like the simplest asset class in real estate. Dirt, a fence, a tenant parking trucks on it. The environmental diligence tells a different story.
What actually gets flagged:
1. Historical fuel and hazmat use. Old underground storage tanks, former gas stations, auto or truck repair, not just the site's current use.
2. Contamination migrating from next door. Your lot can be clean and still get flagged because of what happened across the street.
3. Stormwater compliance. An outdoor yard with trucks and equipment falls under industrial stormwater permitting, an ongoing operating requirement, not a one-time check.
4. Wetlands, floodplain, or protected habitat. More common than you'd think on vacant or underutilized industrial land.
5. PFAS. The one that changed the game. If the site or a neighbor ever used firefighting foam, this is now a real flag in a way it was not five years ago. What changed: ASTM tightened the Phase I standard itself in 2021, so reviewers read sites more conservatively. Then in 2024, EPA designated two PFAS compounds as CERCLA hazardous substances.
Overnight, decades of old foam use that nobody flagged before became a real diligence item on industrial and trucking sites nationwide.
Here is why it matters beyond the checklist. Every flag is friction. Friction filters out sellers who cannot clear the bar and buyers who are not paying attention. The sites that already survived this scrutiny and are already operating get harder to replace every year the bar rises.
If you are underwriting IOS right now, ask your environmental consultant one question: does your Phase I scope specifically address PFAS given this site's history? A lot of standard scopes still do not.
What is the environmental flag that surprised you most on a deal?