Purchasing a building is a strategic decision that can entail greater risk without the right approach. One way to avoid risk is by completing a property condition assessment. A property condition assessment, or a commercial real estate PCA, is an evaluation of real estate via a thorough inspection and assessment in which all systems and improvements are reviewed.
A property condition assessment is for organizations that are:
- Considering purchasing real estate.
- Seeking help with capital planning.
- Considering the disposition of owned real estate and wanting to understand the impact of deferred maintenance on pricing.
Continue reading to learn whether you should complete a PCA and the right time to do so.
Benefits of a Property Condition Assessment
As a prospective owner, a property condition assessment offers benefits that can help you now and in the future. Some of these benefits include:
- Identification of property deficiencies provided in a detailed report.
- Development of proposed solutions and corresponding cost estimates.
- Confident and educated framework for long-term capital planning.
- An accurate assessment of the value of a building.
- Enabling you to be a better, more informed negotiator.
- A basis against which the building’s condition can be assessed after closing.
When To Complete a Property Condition Assessment
The right time to carry out a property condition assessment is before you buy and close a property. Completing a PCA ahead of time can help you avoid risks in property purchases and sales. Sometimes, both the seller and the purchaser will get separate PCAs to help negotiate the final purchase price.
If an owner purchases a property where additional maintenance is needed or where key equipment is worn out, they may assume major expenses. On the other hand, if tenants are responsible for building maintenance, they may be held liable for previously existing conditions if they failed to assess them. Completing a property condition assessment and generating a pre-lease or pre-purchase report means you are only liable for issues that occurred once the building is your responsibility.
Examples of PCAs in leases include situations where the tenant is responsible for HVAC equipment in major industrial or headquarters buildings, in large, expensive leases with significant responsibilities being transferred to the tenant, and in retail situations with absolute triple nets.
4 Steps To Completing a PCA
For a truly thorough inspection and assessment, it’s best to hire an experienced real estate advisor, like Allegro. The Allegro team follows a clear, step-by-step process that helps your company get the most out of a property inspection.
1. Assemble a Team of Experts
The first step to completing a PCA is to identify relevant experts based on your needs. In addition to the existing team of qualified real estate advisors, this team also often involves roofing, MEP, or structural experts in the assessment of the subject property’s condition.
2. Tour the Desired Property
Once the team is assembled, Allegro coordinates a tour of the building with the experts. Inviting industry experts to inspect the property can strengthen the evaluation since the systems and improvements will be reviewed by individuals who understand them.
3. Gather Recommendations and Cost Estimates
After the tour and inspection have been completed, Allegro collects recommendations and cost estimates. A final inspection report is also provided, which contains the valuable results from the tour.
4. Create an Actionable Plan To Address Deficiencies
As a final step, Allegro creates an action plan, based on the assessments and recommendations, to address any deficiencies of the subject property. This is also when you will meet with Allegro to go through the report and discuss the plan moving forward.
Completing a property condition assessment at the right time can help your company avoid risks by identifying property deficiencies, and offering proposed solutions and their respective cost estimates. A qualified team can also help you gain confidence and knowledge for long-term capital planning.
Build Your Entire Commercial Real Estate Strategy
Ordering a PCA is just one facet of your CRE strategy. And your overall business strategy is incomplete without a strong corporate real estate strategy to match. When approached correctly, effective real estate portfolio optimization allows for more efficient operations, improved company culture, and superior financial results.
Download our free CRE strategy white paper to learn how your real estate portfolio impacts critical aspects of your business.