Property Condition Assessments
As real estate investments have increased significantly over the past few years, the need for Property Condition Assessments (PCAs) has also increased. PCAs are a part of the standard real estate due diligence as is the Phase I Environmental Assessment. PCAs are designed to assist the lender in determining the current condition of and the borrowers ability to properly maintain the property, therefore ensuring the value of the property and protecting the interest of the lender. PCAs are most economically performed in conjunction with the Phase I Environmental Assessment.
The appraised values of commercial and residential properties have appreciated greatly in recent years. In most cases, during the appraisal process little consideration is given regarding the actual physical condition of a property’s improvements. The importance of the PCA has been recognized by the American Society for Testing & Materials (ASTM), and in an effort to define good commercial and customary practice, the Standard Guide For PCAs: Baseline Property Condition Assessment Process (E 2018) was created. Other standards also exist for PCAs, including a common requirement that the PCA is performed by a Professional Engineer. Spero Corporation performs PCAs in accordance with the guidelines set forth by ASTM unless otherwise instructed by our client. The goal of the baseline PCA established by the ASTM is to identify and communicate physical deficiencies to a user. The term physical deficiencies is defined in general as the presence of conspicuous defects or material deferred maintenance of a subject property’s material systems, components or equipment, as observed during a walk-through survey by a qualified individual.
PCAs focus on the condition of the structures and the various systems associated with a property. The typical assessment would include a review of structural, architectural, mechanical, plumbing and electrical systems. The purpose of the assessment is to: 1) document the overall physical condition of the site and pertinent components, 2) identify significant defects and deficiencies in the site systems through a physical survey, 3) review available documents and conduct interviews, 4) provide cost estimates to remedy any deficiencies, 5) estimate replacement expenditures, and 6) anticipate significant maintenance costs throughout the term of the loan.