The purpose of all Commercial Property Condition Assessments (PCA), ASTM E2018, is to make sure that the property and building that you think you are buying or renting is actually the property being received. You will have made that decision, in part, based on information obtained through a professional inspection and a Property Condition Report (PCR). Every real estate transaction is different and every transaction has its own unique set of considerations and conditions to validate before finalizing. Utilizing external professional experts in the physical property due diligence process is critical to the overall accuracy and profitability of your property transaction.
The purchase or lease of commercial real estate, whether it is a basic commercial net lease, a commercial triple net lease, the purchase of a church, a retail outlet, or the purchase of a million-square-foot office / warehouse, the Prospective buyer or lessee should conduct an appropriate level of due diligence when investigating the physical quality of the commercial real estate in which they are investing.
You need to know not only the physical characteristics of the real estate and buildings being purchased, but also the condition and approximate age, to assess the good with the bad, so that you can properly balance the risks and rewards offered together. with your real estate. real estate deal. The most important part of the real estate transaction process, in addition to the purchase price and the profitability balance, is a well-documented review of the actual physical condition of the real estate. Otherwise, you could become the not-so-proud owner of a commercial property that doesn’t suit your needs, costs more than you can afford in maintenance, or the last regret for investors: capital expenditures are sinking. on a property on a regular basis that someone else is using and making money, and you are not. Suddenly, that long-term lease with a solid anchor doesn’t seem so appealing anymore.
The commercial real estate inspection process begins before the real estate purchase offer is written or signed, by visiting the site and discussing the physical condition of the property with the Owner and real estate brokers. This process should be considered invaluable in establishing the relationships necessary to obtain the information that will be necessary to fulfill your due diligence with a Commercial Property Condition Assessment (PCA).
During the negotiations and the drafting of the real estate sale / lease contract, it is important to recognize the reluctance of the seller or lessor to points such as the existence and availability of important documents such as guarantees, maintenance contracts, architectural and engineering plans and / or local municipality reviews and inspections. A negative reaction to a request for release of these documents by the seller or landlord may involve possible deferred maintenance and / or inattention related to the property and building conditions and inspection problems.
Once the commercial real estate sales contract is signed, the due diligence period begins, focus on maximizing time and cost efficiency and prioritizing concerns to start checking expensive high-cost items from top to bottom. Assuming the vendor provides adequate documentation for your review, adequate time should be allocated to verify the information provided. The additional effort and money that will need to be spent to compensate for a deficiency in the documentation available through additional property condition assessment and additional and / or expert field inspections should be considered essential and figure in the cost of the transaction of the property. Ask the seller for all documents and contacts the seller received during their due diligence process when they purchased the property to speed up the fact finding.
Review of existing ownership documents, where available, may include:
Accessibility studies, architectural building plans, certificates of occupancy, citations from competent authorities, emergency evacuation plans, environmental studies, electrical system construction plans, fire detection testing and maintenance records, fire door inspection reports , fire protection system construction plans, Fire and restoration records, maintenance records, mechanical system, construction plans, violation notices from the competent authorities, building permits, plumbing system construction plans, reports of Previous inspection, roof system construction plans and warranties, safety inspection records, vendor condition disclosures, sprinkler system Test records, system and material warranties, current tenant information, current title insurance policy, notices of any condition new or special assessment or tax notices, copies of all current property bills, service contracts, evidence of current zoning, Plan as built ns and specifications, all construction related documents including warranties, all past and present uses of the property, third party reports or inspections, any land surveys and improvements in the seller’s possession.
One of the best tools available to the commercial property due diligence team is the interview process that can unlock a wealth of potentially useful information about the property in question.
The interview of any available key personnel with specific knowledge of the property’s conditions may include:
Owner, tenants, maintenance foreman, contracted maintenance services personnel, or other contracted companies that routinely work on the property and / or building.
Property inspection, real estate inspection, construction inspection, due diligence survey, as they may be tagged in the due diligence report, is essential to ensure the adequacy of the construction considering the intended use of the occupants and the geography and the surrounding weather. Providing the available drawings and specifications should be helpful here, but will not end the investigation. A qualified third-party inspection company with experience in the type of property to be inspected should conduct an assessment of the current condition of the commercial property. A previously performed property condition assessment or inspection is almost always provided for the use of a single party in a single transaction and is protected by law and is not reusable or transferable to any other party. The focus of the inspection should be primarily on the condition of the site and building components, such as site drainage, parking, building structure, mechanical and electrical systems, and general accessibility and usability of the property. Various climates and geographic regions will require more specific inspection knowledge, so hiring a local inspector is always a good idea, if possible, rather than hiring a company outside of Wisconsin to perform due diligence on a building from California high rise on a fault line.
Site inspection and walk-through to observe existing conditions may include:
Land and topography, parking, paving, access, building exterior and facade, building interior, roofing systems, structural systems, mechanical systems, electrical systems, plumbing systems, fire protection systems, vertical transportation systems and any number of other special systems.
The Americans with Disabilities Act of 2010 is the current guideline for accessibility standards across the country and is a federal law, so it is non-negotiable and, to some extent, yes, it is retroactive even to most commercial and public buildings. ancient. Many states also have additional and / or stricter or specific accessibility standards. Most professional property assessment and inspection companies can also conduct both abbreviated and comprehensive accessibility surveys as part of a real estate transaction.
Basic Abbreviated Accessibility and Full Compliance Surveys may include:
The abbreviated survey that looks for only the basic ADA accessibility components visible during the tour and documented according to the ASTM abbreviated survey form and checklist provides a quick check on the overall status of compliance. The full compliance survey involves physical measurements of distances, slopes, and push / pull forces required within accessibility standards to allow a certain level of physically disabled person to successfully navigate a property, site, and building.
Environmental Due Diligence known as Environmental Site Assessment (ESA) is the most widely used Environmental Inspection Report. The typical level of reporting preferred by lenders to demonstrate due diligence is called ASTM E1528 Limited Phase I Environmental Transaction Assessment Standard. This explores the past use of the property and surrounding properties to identify any potential environmental issues on the site or adjacent or future liabilities. These reports typically require a significant monetary investment and take several weeks to complete, so they should be done as soon as you have determined that you will continue your due diligence. The purpose of this inspection is to determine if the property contains hazardous materials or poses a threat in any way to its surroundings. This could be caused by underground storage tanks located on the property or by runoff from the property to the water table or any other hazard listed by the Environmental Protection Agency. While the report is expensive, the cost of eliminating an environmental hazard can be astronomical. While not all agreements will require you to obtain a Phase I Site Environmental Assessment, many lenders will require it as part of their loan guidelines. For a relatively new development with a clean environmental record and no industrial neighbors, a simpler, less expensive, and much faster ASTM E1528 standard can satisfy legal and lender requirements.
Any basic environmental due diligence report can include:
Investigation of historical site use, aerial photography records, property transaction records, construction records, building records, EPA mapping data, local municipality topography mapping, and a site tour to visually identify potential indicators of environmental problems.
The information in this document is a purely professional opinion and is provided for general real estate inspection reference only and is not in any way intended to be a definitive guide, or a guarantee of past, present, or future legal, state, or federal requirements. , not a measure. of the performance of any professional services company. Best of luck in all your future real estate, real estate and construction deals!