When it comes time to expand your commercial real estate portfolio via acquisition, there are several factors that go into the selection of an asset: cost, location, amenities, proximity to highways, and its physical and financial condition.
Often referenced interchangeably, Property Condition Assessments (PCA) and Facility Condition Assessments (FCA) are used to evaluate asset features like maintenance needs, system functionality, and regulatory compliance. Depending on your objective, either assessment has the potential to fit your needs.
This post will explore the contents of Property Condition Assessments and Facility Condition Assessments, as well as their importance to commercial real estate transactions.
What are Property Condition Assessments (PCAs) and Facility Condition Assessments (FCAs) in Commercial Real Estate?
The goal of Property Condition Assessments (PCAs) and Facility Condition Assessments (FCAs) is to deliver a comprehensive physical conditions report of an asset via a review of its systems and improvements that have been made.
Condition assessments are often requested by the tenant, buyer, or investor and are conducted as a key part of due diligence. They can be completed by either a building engineer or an outside specialist before the transfer of an asset title.
The Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process includes guidelines established by the American Society for Testing and Materials.
Property Condition Assessment Features
Property Condition Assessments inspect the following aspects of an asset:
- Regulatory compliance, or how well features of the asset comply with laws and policies.
- Structural and mechanical systems, including plumbing, elevators, and rafters.
- Artificial and natural features that shape an area.
- Building envelope, or the separation of the interior and exterior of an asset.
- Special amenities like an onsite gym or cafe.
Facility Condition Assessment Features
Facility Condition Assessments inspect the following aspects of an asset:
- Maintenance and repair needs.
- Cost and capital needs associated with necessary repairs.
- Remaining useful life, or the predicted remaining lifespan of asset components and systems.
- Contiguous systems compatibility, or how well closely-related systems work together.
- Functionality gaps in the asset’s systems.
- How well the systems comply with the asset’s design.
The key difference between a FCA and a PCA is longevity. A Property Condition Assessment is typically a one-time, static document, while a Facility Condition Assessment is a dynamic document updated and used over time.
However, both assessments are ultimately of equal importance in a commercial real estate transaction.
The Importance of Property Condition Assessments and Facility Condition Assessments
PCAs and FCAs are frequently used by tenants, buyers, and investors to collect technical and financial information about an asset. The takeaways from these assessments can help stakeholders identify risk and determine resource allocation, both of which play an important role in the CRE decision making process.
Key takeaways from a PCA are displayed in the Immediate Repairs Table, which identifies immediate needs and estimates the cost of systems that are damaged or close to failing, and the Replacement Reserve Table, which estimates the associated costs of functional building systems based on their expected lifespan.
Key takeaways from a FCA, on the other hand, provide data that can be used to deliver a projection of maintenance costs and help secure funding.
Understanding the value of Property Condition Assessments and Facility Condition Assessments ensures that you make an informed commercial real estate decision. If you’re still unsure, reach out. An experienced professional from the Allegro Real Estate Brokers & Advisors team can help you determine which assessment best suits your needs and then assist you in executing the process.
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