Due Diligence Tool #5: Property Condition AssessmentJanuary 16, 2019 Commercial Development
Why is the sale price for that apartment building well below fair market value?
One way to learn more about why that building may be underpriced is to conduct a Property Condition Assessment (PCA), sometimes referred to as a Property Condition Report. In reviewing a building’s condition prior to purchase, the smart investor mitigates costly risks and can better strategize next steps.
What does a PCA include?
A PCA is a third-party opinion that discusses the building systems and their condition. The building systems most commonly inspected include: site and grounds, structural, building envelope, interior finishes, and mechanical, as well as regulatory compliance, including ADA (Americans with Disabilities Act) compliance. In addition, PCAs can provide an Immediate Repairs Table and Replacement Reserve Table.
The Immediate Repairs Table identifies short-term maintenance deficiencies that need immediate attention, such as unsafe conditions and potential building or fire code violations. It can provide estimated costs to those items needing to be corrected within the short term. Immediate repairs can include everything from adding fire extinguishers to structural repair.
The Replacement Reserves Table identifies long-term expenses that are based on the life expectancy of the building system or component. Examples of long-term expenses include future boiler or roof replacement costs based on the age and condition of those components.
PCAs support property negotiations
After a review of the property, a PCA report is provided in conformance with ASTM E2018-15. In addition with the other aspects of the due diligence process, the report further arms you to make knowledgeable decisions regarding the property. If you decide to move forward with the property, the PCA can be used as a negotiation tool. The owner may think his building is in good condition, but the wise investor will know what they are walking into and can plan and budget accordingly for the needed future improvements.
Having supported the due diligence process for hundreds of projects of various sizes and locations, Westwood’s team is ready to aid you with your project. We can help determine what is needed for your project, whether that’s a PCA, a Phase I ESA, an ALTA Survey, or another service.
Be on the lookout for future information on additional tools to help ensure peace of mind when investing.