Property condition assessment

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Property condition assessments (PCAs) are due diligence projects associated with commercial real estate. Commercial property and building inspections (also known as Property Condition Assessments or PCA's) are important for clients seeking to know the condition of a property or real estate they may be purchasing, leasing, or simply maintaining. Commercial Building Inspectors follow industry accepted guidelines of ASTM E2018, the only recognized standard of major lenders. These commercial inspection standards help both the commercial building inspector and the client to understand the scope agreed to for the inspection including the systems or ares to be inspected, and is used as a guide to develop said scopes and procedures. Often they are done as part of a property transfer and are done along with a Phase I Environmental Site Assessment.

Depending on client needs or accepted risks, and property types, some inspections can be fully technical requiring additional specialist contractors, or simply a general condition assessment utilizing one or two qualified commercial building inspectors. Of course each varying degree of inspection or assessment will incur various costs and time frames as agreed or negotiated between the commercial inspection company and the client or clients.

Once the inspection or Property Condition Assessment is completed, a written report (also known as the Property Condition Report or PCR) is compiled and delivered to the client within an acceptable time frame. The Property Condition Report may include such items as concerns observed, recommendations for repairs or further inspections, and Americans with Disabilities Act (ADA) compliance surveys.

Experienced commercial building owners, net lease occupants, and commercial property investors know the importance and benefits of hiring a qualified commercial building inspector to perform a Property Condition Assessment.

PCAs are not to be confused with facility condition assessments, which are similar in nature but serve a different purpose.

History[edit]

The PCA process began to formalize in the early 1990s as a response to the Resolution Trust Corporation (RTC). The process of performing PCAs began to become routine and formalized with the increased demand however there were still many inconsistencies. A 1995 Standard & Poor's Guide further defined the process and then in 1999 ASTM released a standard called 2018-99. Since 2000 tremendous growth in the securitized lending market, or commercial mortgage-backed securities, caused a spike in the completion of these reports as they were required to complete a deal. Further, this has led to advancements and convergence on the scope, methodology and cost. ASTM 2018-15 is generally accepted in the industry as the current guidance for content and practice.

It is important to discern however the difference between a PCA done for the debt/CMBS markets and that of one done for equity markets as the cost, methodology, detail and value proposition vary tremendously.

Individual owners, buyer and lessees are also ordering PCA for knowledge of general conditions before leasing or purchasing and upon the termination of a lease for proof of any required maintenance or deposit recovery.

Scope[edit]

PCAs utilize building diagnostics to identify problems, but diagnostics go further to determine solutions and predict outcomes to the found problems. A PCA covers ten major areas including:

  1. Building Site (Topography, drainage, retaining walls, paving, curbing, lighting)
  2. Building Envelope (Windows and Walls)
  3. Structural (Foundation and Framing)
  4. Interior Elements (Stairways, hallways, common areas)
  5. Roofing Systems
  6. Mechanical (Heating, Ventilation, and Air Conditioning)
  7. Plumbing
  8. Electrical
  9. Vertical Trans (Elevators and escalators)
  10. Life Safety, ADA, Code Compliance, Air Quality (Fire Codes, Accessibility, Water intrusion, Mold)
  11. Infrared Thermography for energy loss, air leakage, roofing and building envelope moisture intrusion

The PCA process generally consists of two phases: a site inspection and data analysis. The site inspection should be a thorough and representative picture of the structure and above mentioned building systems. For larger buildings, a general rule of thumb is to view 10% of the building; however, depending on the structure, floor plan and building systems, this may not be enough to afford a representative picture. The report should include a narrative summary of the building type and condition, and cost tables of the immediate and long-term expenses of the building maintenance.

Value proposition and users[edit]

The users of a PCA may include a seller, a potential buyer, a lender, an investor or an owner.

The reports may be of use for:

  • Negotiating the purchase price of a property (buyer)
  • Capital or strategic planning (an owner)
  • Loan approval (a lender)
  • Predictive/Preventive Maintenance

Cost tables[edit]

The Executive Summary of a PCR is effectively the Replacement Reserves Cost Table. The report may be 20-40 pages in length however this table summarizes most of the Deferred maintenance items found.

These tables may be from 8 years in length to 40 or even more. The typical table is 12 years for most CMBS work (loan term plus two years).

In the lower part of the image you can see that the Cost Per Unit for this report is $20. Properties fall into one of two main categories. Either they are per unit/bed/pad/room (apartment, hospital, mobile home park, hotel respectively) or they are done on a square foot basis (commercial and industrial) {reflist}

References[edit]

External links[edit]

[1]

AdairInspection.com

  1. ^ National Association of Commercial Building Inspectors and Thermographers