by Laura Hengle
When evaluating a commercial real estate transaction, whether for acquisition or refinancing purposes, it is necessary to ensure that all due diligence is in order and up to date. Means of reporting can include zoning reports, surveys, environmental assessments, and property condition assessments (PCA), sometimes referred to as property condition reports (PCR). When financing is involved, the lender will frequently require these items.
In preparation for the transaction, the Phase I and ALTA Survey are usually requested early in the process. The PCA may sometimes be left until the last minute or even overlooked. However, it is in the best interest of both the purchaser and the lender to require some type of physical assessment to ensure that the real property and its improvements are in acceptable condition. The PCA serves as the tool for identifying any major deficiencies that would require immediate or near-term repair or replacement which factor heavily into determining whether or not to proceed with the transaction.
If a PCA is requested, what exactly would be provided in the report? What is the “scope of work”? That may depend on what is requested but standard scope, as outlined in ASTM E 2018-15, usually includes a representative walk-through where the Field Observer will note any material or physical deficiencies of deferred maintenance for the following items:
- Site improvements
- Structural framing and building envelope
- Facades: non-invasive, visual only
- Roofs: non-invasive, visual only
- Mechanical/plumbing/electrical
- Elevators
- Life safety/fire protection
- Interior elements: in typical common areas
- ADA evaluation
Once the walk-through is complete, the physical deficiencies and deferred maintenance are identified, and an opinion of probable cost is provided. Identified issues are separated into two categories: Immediate Need and Short-Term Costs. In addition, a Replace Reserve Table is generated, which projects replacements over the loan term.
The full scope of the PCA should be reviewed by all transaction parties in advance to avoid any last-minute delays. If the above listing does not give the purchaser or the lender the level of comfort needed to proceed, additional items can be negotiated with the provider when requesting a quote for service.
To provide the greatest level of understanding of a property, a PCA can be ordered in combination with a Phase I. Engaging the services of a qualified professional to complete the property assessment goes a long way in alleviating concern for unexpected surprises throughout the transaction. Should you or your organization need assistance, you can contact us at 833.522.1685 or Environmental@NV5.com.