Feb 26

Top 8 Commercial Inspection Defects

Most commercial inspections (aka property condition assessments) will uncover systems or components which are deteriorated, missing or damaged with recommendations for repair or replacement. In addition to these routine findings, a commercial inspection should identify any of the following 8 common areas of risk to a buyer.

  1. Grading and Drainage –  Your property’s surface water should have a path which easily allows water to drain away from the structure without accumulating around the foundation.
  2. Structural Problems – A commercial inspection should not show visual signs of movement with flooring, walls, ceiling and attic framing. A crack with more than 1/4 inch in width should be given further consideration.
  3. Roof Deficiencies – Your property inspection should include where the roof covering is in its expected service life and should call out accumulating or pooling on the roof.
  4. Mechanical Issues – Your commercial inspection report should identify the buildings heating, cooling and ventilation system components, how they systems are controlled and where the appliances are in their life cycles.
  5. Plumbing Defects – Your inspection assessment should identify if galvanized plumbing supply pipes are still in use and budget for replacement when possible in addition to any obvious active leaks or plumbing fixtures which have outlived their expected service life.
  6. Health and Safety Hazards – Your inspection report should identify trip hazards, exposed walkways and loose or unsafe conditions
  7. Electrical System – A good commercial assessment will size the electrical system according to current use of building and any components which have been in service over 50 years.
  8. Exterior Covering – The exterior envelope of the commercial building should be weather resistance including no areas of current moisture intrusion.

Commercial Building

Jan 19

“Debt” versus “Equity” Style Property Condition Assessments

A property condition assessment can be tailored in scope of work to either an investor-buyer or investor-lender report format. The investor-buyer format, also known as “Equity” style, is thought of to be focused on protecting the buyer’s financial interests. Alternatively, your investor-lender format, known at the “Debt” style report, will typically be written to protect the lender’s financial interests. In either scenario, a good case can be made which assumes protecting the lender’s equity is by nature protecting the buyer’s stake in the project. However, an equity type property condition assessment is typically thought to be more granular with an emphasis on the current state of the building wheres a debt style property condition assessment would be presented more as a forecast of future anticipated building investments over the life of the loan. In summary, a property condition assessment is a general overview of the buildings condition and then can be formatted to accommodate the different potential audiences.

Jan 08

Making the Case for Property Condition Assessments

A property condition assessment provides your buyer the opportunity to evaluate the physical condition of a building in relation to the expected income.

Similar to comparing the CAP rate between investment opportunities, a property condition assessment identifies where the building’s systems are in their expected life cycles and how the expected expenditures will impact your client’s return-on-investment.

For example, a building built 20 years ago should be up for a new roof system, heating and cooling system and possibly other needed investments for the building to remain in serviceable condition.

The cost of maintaining a building over the life of your loan will one way or another impact your cash flow, so why not take the prudent path and incorporate these costs into your purchase decision.

Property condition assessments can provide your clients the information needed to make sound business decisions.

Commercial Building