Commercial Property Assessment Guide Gets an Update 

Most homeowners are familiar with the residential home inspection process. However, many are not as familiar with the more complex commercial property inspection process.
Tim Sprinkle

Most homeowners are familiar with the standard residential home inspection that is typically a part of the buying process. A third-party inspector is hired to look over the home and its major systems, ensuring there are no surprises or repairs that need to be addressed prior to closing.

What’s less well known is that a similar process exists for commercial properties and facilities such as office buildings, industrial structures, multifamily housing, healthcare facilities, and other structures. Known as a property condition assessment (PCA) in that context, these include a visual evaluation of primary building systems and components such as structures, roofs, HVAC/mechanical equipment, parking and paving, fire/life safety, electrical, plumbing, vertical transportation, utilities, and more. A PCA is a useful way for a user to determine the general condition of the property and identify deficiencies that need to be addressed immediately or in the near term. It may include costs for long-term planning.

READ MORE: Standards for Real Estate Assessment: A Closer Inspection

ASTM International’s committee on environmental assessment, risk management and corrective action (E50) maintains the standard guide for property condition assessments: baseline property condition assessment process (E2018). The guide outlines a standard process for PCAs and provides a framework for evaluating the primary improvements and identifying material deficiencies at commercial real estate properties via walk-through surveys and research. According to Jim Bartlett, senior vice president at Bureau Veritas and chair of the subcommittee on real estate assessment and management (E50.02), it is the most-cited standard in the U.S. for transactional scopes of work to support commercial real estate acquisitions, financing, investments, and capital expenditure planning.

The guide itself recently went through an extensive revision process that included more than 140 changes, updating guidelines that were published in August 2015, to place more emphasis on establishing user objectives for each PCA and guiding PCA consultants on how to refine their scopes of work to address each user’s unique risk tolerance, schedule, budget, and purpose. The revisions include new sections to emphasize the user’s options and responsibilities; a new “Referenced Documents” section that compiles the documents referenced in the guide; and a significant amount of “cleanup” to improve readability, reduce redundancies, and add clarity to previously ambiguous provisions in response to an industry-wide survey that was conducted early in the three-year process.

As Bartlett explains, little was left untouched. “Every section, almost every definition, was fine-tuned to reflect the realities of where the PCA stands in the marketplace today.”

“The E2018 standard is used for many purposes,” he says. “And the crux of the changes came down to the many evolving and unique ways that users are applying the standard to their unique situations. You can't just come to a consultant and assume that their standard PCA will magically meet your needs. It's important to understand the purpose for which it's being used, what the user’s goals and objectives are in ordering the report, and to make sure that the consultant understands the full situation.”

This has become increasingly important for PCA consultants, he adds, as lenders have sought to rely on reports prepared for borrowers and vice versa. Subsequent users who obtain copies of a PCA prepared for others may have their own unique needs and objectives, which the revised guide better addresses. 

“The same standard framework can be used for multiple purposes,” Bartlett says. “And that has caused issues and confusion within the industry over the years since E2018 was originally introduced, particularly as use cases have increased.”

One such use case is the facility condition assessment (FCA). FCAs are used by property owners and managers looking to understand the condition and inventory of the major building components and systems at a site as part of their long-range capital planning and management of that facility. FCAs often cite E2018 as the standard of care, but it isn’t a perfect fit. 

“The PCA standard is geared toward producing a static property condition report for a specific point in time,” explains Bartlett. “But there's a smart building revolution going on that is migrating asset management away from spreadsheets and into databases and advanced maintenance management systems. And those systems don't populate themselves. Somebody has to go efficiently collect and record the facility data and opine on condition, remaining useful life and replacement costs, and this may also include asset inventories and barcoding. E2018 includes useful limitations that apply to both PCAs and FCAs, but it is ultimately most suitable for transactional purposes.”

In early April, E50.02 approved a new work item to consider the creation of a new standard specifically for FCAs that will closely align and complement the revised and improved guide.

Tim Sprinkle is a freelance writer based in Colorado Springs, CO. He has written for Yahoo, The Street, and other websites.

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