ORLANDO — The financial fallout from mold could very well make asbestos look like "a day at the beach" for commercial real estate financiers and owners, according to experts speaking at the Mortgage Bankers Association’s 14th annual Commercial Real Estate Finance/Multifamily Housing Convention & Expo taking place here Feb. 1-4.

Charles Perry, principal of West Hartford, Conn.-based Environmental Assurance Group, is leading a Mortgage Bankers Association task force on the mold issue. "The conditions that create mold are paper, heat and water. Once you have a mold infestation, it is very difficult to remedy it. So the answer is different building materials," says Perry.

One such material is Georgia-Pacific’s glass-faced exterior gypsum sheeting. Unlike dry wall and other paper-based materials, this product is impermeable to mold. It is also inorganic, which makes it far less appetizing to the myriad strains of mold.

Building analysts report that in more than 80% of reported mold incidents, it is moisture or water in combination with a paper element that is the culprit. "To mold, paper is food. Add heat and moisture and the stage is set," says Perry.

Mold is also gold to some trial attorneys who have sued building owners — and won millions for their clients. Mold litigation is clearly a growth market for many attorneys, and owners can be held liable if their property becomes infested.

So why should lenders care? According to Perry, mold carries property or collateral value concerns for lenders along with liability concerns. Standard Property & Casualty policies exclude mold from their coverage, which means that preventing the mold is far more effective than combating it once it’s a problem, says Perry. Remediation can often surpass the cost of demolishing and rebuilding a structure if the infestation is progressive enough.

"Lenders have to inspect property for mold, or demand that builders use mold-resistant building materials," he says. Healthcare properties, affordable housing projects, hotel properties and schools are most likely to harbor mold infestations.

Just last November, the Kingsmill Resort in Williamsburg, Va., was shut down after black mold was discovered in many of its 400 units. The cause was extremely wet weather and a power outage prompted by Hurricane Isabel last summer.

But "you can’t change the weather or the temperature," says Perry. Instead, he says lenders should demand that construction loans be contingent upon the use of paperless drywall.