March 18, 2018

What should you know about Property Condition Assessments?

A Property Condition Assessment (PCA) consists of a building walk-through to identify any significant deficiencies that would require more than $3000 to repair, or could not be easily repaired through routine maintenance. The findings are incorporated into a Property Condition report, so the buyer or lender more fully understands the condition of the asset being acquired.

The benefactor of the PCA differs by whether the PCA is for a property handled as an equity market or as a debt market. When the report is for an equity market, the buyer will understand the property’s deficiencies and know the possible cost scenario for owning and maintaining the property. If a debt market is handling the PCA, the lender is the more interested party. The reports indicate the costs to maintain the property during the duration of the loan, and also show that the potential borrower is probably not a risk to default on the loan. If the borrower would default, the lender would be assured that the property value would not decline due to unreported deficiencies.

A Property Condition Assessment would also include some different requirements for what is inspected depending upon whether the property is a multi-family dwelling, retail center, or office building. The following are examples demonstrating differences between the property inspections:

  • A multi-family dwelling must have all amenities such as a swimming pool or athletic courts inspected, but this would not be part of a PCA for a retail center.
  • A retail center would be inspected for a facade that is leaking, while an office property may not include this in the PCA.
  • An office facility PCA includes the equipment and systems used by the tenants within the office suite, such as IT servers and cabling. This would not be part of a multi-family PCA.

Essel utilizes the knowledge of their architects, engineers and building inspectors to complete Property Condition Assessments and more fully understand the condition of the building. Essel also has the experience to perform the appropriate inspections that relate to the type of property being assessed to provide a more accurate deliverable.

Sources: Special Criteria Document For Acquisition – Multi-Family Housing http://www.principalglobal.com/eu/realestate/download.aspx?id=21598 Standard & Poor Structured Finance Ratings Real Estate Finance Property Condition Assessment Criteria http://ivi-intl.com/pdfs/S&P_PCACriteria.pdf  
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