In the market to purchase, lease, finance or maintain a piece of commercial real estate? You can always walk through the property, read the key specifications and size it up to the best of your ability. But there’s a more formal building inspection that you should also be aware of when it comes to commercial real estate — a property condition assessment, or PCA.
A property condition assessment is a formal building review process that’s filed as a technical report. While they’re most commonly performed as part of a property transaction, they may also be performed simply to gauge the current state of the property as a condition assessment. This post will take a closer look at PCAs, why they’re important and the types of PCA reports:
Why Property Condition Assessments are Important
When you’re in the market for a new home, one of the key steps in the transaction is having a home inspection performed on the property. This comes after an offer has been accepted but prior to closing officially taking place.
During the inspection, a certified inspector will spend a few hours walking with the would-be homeowner, explaining the condition of the home, noting things that are due for repair or replacement both short- and long-term, and more. Within a day or two of the inspection, the inspector will provide a formal report of his or her findings to the would-be homeowner.
The results of the inspection can then be used in negotiations prior to closing on the home.
PCAs follow a similar protocol, consisting of a professional visiting a site, inspecting the property and then documenting any concerns, repair recommendations, requests for further inspection and the cost for potential fixes. This report is often referred to as a Property Condition Report, or PCR.
PCAs became important in the late 1970s when it dawned on several prominent lenders that there was no standard for assessing commercial property. This didn’t just put prospective buyers at risk, but also the banks.
Today, there’s an ASTM standard for PCAs, the E2018-15 Standard Guide for Property Condition Assessments: Baseline Property Condition Process. It’s reviewed and updated every eight years based on guidelines from various lenders and other organizations, such as Fannie Mae and Freddie Mac. It was last updated in 2015, and though it just establishes baseline standards, it’s a good reference guide to follow as far as Property Condition Assessments are concerned.
Types of PCA Reports
Not all PCAreports, or PCRs, are the same — and that’s because not all commercial property is the same and the reasons for PCAs are not always the same. Here’s a look at the three main types of PCA reports that are often carried out:
Entry-level: This is the type of PCA that’s often ordered when refinancing occurs. These types of reports are only required to meet the very basic guidelines set by the ASTM standard. On an entry-level PCA report, usually no system testing is carried out, there’s no in-depth investigation and measurements are not taken. These types of reports are simply designed to assess a property’s overall condition and identify any glaring issues.
Equity-level: Fitting to the name, equity-level PCAs occur when a property transaction is imminent. These are typically much more comprehensive PCA reports than the aforementioned entry-level ones, as such reports usually offer more property condition details and technical information. These assessments take much longer to perform, and may include specialists to offer further expertise. Specialists may include structural engineers, roofing contractors, veneer professionals, mechanical, electrical and plumbing (MEP) engineers, and more. Equity-level PCA reports may be used in price negotiating on commercial properties.
Facility condition assessments:Think of this type of PCA as the “best of the best,” as they’re thoroughly focused on maintenance and management. They’re very comprehensive and define prospective operation and maintenance over the course of several decades. Various specialists are often called upon to help on these assessments, and there’s usually more thorough follow-up between the assessor and the client to make sure that all aspects of the submitted report are well understood.