Fannie Mae Physical Needs Assessment (PNA)

August 21, 2013

Fannie Mae and its DUS Lenders require a Physical Needs Assessment which is their version of the Property Condition Report. The Physical Needs Assessment is defined in the Fannie Mae Delegated Underwriting and Servicing guide, Part 111, Chapter 3, 308. The Physical Needs Assessment is required for Fannie Mae financing on many types of residential properties, including apartment communities, assisted living facilities, skilled nursing facilities, student housing, and manufactured housing communities. The Physical Needs Assessment is similar to an ASTM E2018 Property Condition Assessment in many respects, though there are distinct differences.

Read more about Fannie Mae Physical Needs Assessments.


What is a Property Condition Assessment Anyway?

October 6, 2011

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.

Property Condition Assessment

January 9, 2009

Property Condition Assessments are commercial building inspections focused on identifying all immediate repairs and deferred maintenance conditions for a given building.   Property Condition Assessments should include a discussion of all site improvements and building systems, including:

·         Site Pavement Systems

·         Site Landscaping

·         Building Foundation

·         Building Structure

·         Roofing Systems

·         HVAC Systems and Equipment

·         Mechanical, Electrical, and Plumbing Systems

·         ADA Compliance

·         Fire Suppression Systems

·         Conveyance Systems (Elevators and Escalators)

Property Condition Assessments should be conducted by experienced building inspectors, building engineers, civil engineers, or structural engineers.  Most reputable engineering firms will prepare PCAs to meet the standards of ASTM E 2018 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process.

Property Condition Assessments typically include a table describing all immediate repairs and a table describing replacement reserves that will be required over a reserve period (most commonly 12 years). 

Some Property Condition Assessments include specialist inspections.  While the commercial building inspector should be knowledgeable about all building systems, specialists can bring valuable expertise.  For example, a license elevator inspector carries a key to the elevator shaft, while a building inspector by law cannot open an elevator shaft. 

Some common add-ons to Property Condition Assessments are the following:

o   Probable Maximum Loss Assessments

o   Slope Stability Assessments

o   Indoor Air Quality Assessments

o   LEED Conversion Assessments

o   Building Energy Audits

My firm Partner Engineering and Science provides high quality Property Condition Assessments nationwide. 

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