What is a Property Condition Assessment Anyway?

Chances are if you have been in the industry awhile, Property Condition Assessments (PCAs), Property Condition Reports (PCRs), or Commercial Building Inspections, are an everyday procedure. If you had to explain what they were to someone outside of real estate or engineering, how would you break it down in common terms?

 A real estate investor wants to obtain financing for a commercial building from a lender. Said lender wants to know exactly what the condition of the building is since this can impact the financial performance of the asset as a whole. Both the real estate investor and lender want the reassurance regarding their investment that a due diligence tool such as the Property Condition Report provides.  Different lenders can have varying requirements regarding a PCR, but the industry standard is the ASTM E2018 Guide for Property Condition Assessments; Baseline Property Conition Assessment Process.  This is a walk through survey of the property by an architect, engineer, or a commercial building inspector who prepares a narrative report (this is the Property Condition Assessment, Property Condition report, or Commercial Building Inspection).  Evaluations of systems such as HVAC, plumbing, electrical, and fire suppression as well as the structure, foundation, roof, and other building characteristics are included in the report.

What is in a Property Condition Report

The PCA discusses each building system, and will describe all of the significant concerns or defects that were found during the inspection.   Each report will include a table of Immediate Repairs and a table of Replacement Reserves over the desired reserve period.   Significant concerns are generally considered those that are costly or present safety issues.  Logically, safety concerns usually show up in the Immediate Repairs Table along with failing or damaged building systems and maintenance issues that have been deferred. Capital expenses that will be required in the longer term, such as HVAC system replacements, will be in the Replacement Reserve Table.  The estimated cost for repairs and replacements are included in the tables.

The details or extent of a report can vary depending on who is using the information from the report and how.  Familiar entities that have specific requirements and even separate titles regarding a requested PCR are: Standard & Poor’s, Freddie Mac, Fannie Mae (called a Physical Needs Assessment), and Housing and Urban Development (HUD)/ Federal Housing Authorities(FHA) (called a  Project Capital Need Assessment).

A Green Property Condition Assessment  is a version of the PCA that includes assessment of a building’s energy and / or water consumption and efficiency, and possibly other sustainability issues with the property. The “green” element can take many forms but is often an Energy Audit in conjunction with the PCA, or possibly an LEED- style checklist.

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