Property Condition Assessment PCA Report
A Property Condition Assessment is a professional evaluation of a property’s physical condition. Consequently, the current state of a property and the appearance, quality and working order of it’s structural developments are subject to evaluation. This assessment is also called a “PCA,” and provides conclusions and recommendations for transaction purposes. Moreover, a Property Condition Assessment advises on the condition of existing buildings, from an engineering and construction standpoint. PCA Reports follow an official standard set by the American Society for Testing and Materials (ASTM). And PCA reports are also overseen by professional engineering licence holders. Updated April 22, 2019.
Why do I Need a Property Condition Report?
Typically, there are three applications for PCA reports: (1) real estate due diligence; (2) loan qualifications; and (3) landlord and tenant property evaluations. In due diligence applications, a PCA report discloses material deficiencies at a site for buyers and sellers. This may also be performed alongside a Phase 1 Environmental Site Assessment Report. Whereas in loan qualification applications, PCA reports aid lenders for risk assessment purposes. Lastly, Property Condition Assessment reports also can document the state of a property upon the commencement or termination of tenant occupation. For example, when a long-time tenant of a warehouse moves out, a PCA can document the condition of the property upon the end of their lease.
What Does a PCA Cover?
The purpose of a Property Condition Assessment is to observe and document in a Property Condition Report (PCR), material and building system defects that might significantly affect the value of the property. PCAs are in anticipation of a planned transaction. Some observations and notations are typically as basis of reasonable presumptions, of a professional opinion. And presumption notations must not be subject to interpretation as factual information.
Typical PCA Limitations
It should be known by consumers that these reports strictly limit to the date of the evaluation. Consequently, consultants can make no representations after the date of inspections. In most cases, PCA reports do not comprise of building material removal or testing. However, at times, PCAs can include a level of detail, that require structural engineering observations, sampling, analytical procedures and other types of testing.
Potential concerns outside of the ASTM scope for a PCA include: in-depth structural component evaluations, mold inspection, waterproofing material inspection, subsurface sewer pipe condition evaluations, footing and foundation inspection, asbestos-containing materials (ACMs), lead based paint (LBP), lead in drinking water and more.
The PCA Standard
The Property Condition Assessment scope of work is in general conformance with ASTM E 2018-015, Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process. At minimum, the scope of work includes a site visit, interviews with property management, a file review of local regulatory agency documents, and documents by the user, and more. PCAs include a basic visual observation of exterior and interior building components and site developments. Moreover, the onsite HVAC systems are also subject to inspection. Lastly but not least, elevators, plumbing systems, electrical systems, fire safety and security systems are additionally subject to inspection. Visual inspections of a Subject Site’s premises are also in general accordance with the Americans with Disabilities Act of 1990 (ADA).
Equity & Property Condition Assessment
A main objective of Property Condition Assessment reports, is to assist the investors of commercial real estate with better financial decisions. The PCA report provides investors with a snapshot of current onsite information. This includes the condition of the real property, as well as any potential costs for necessary and foreseeable repairs. For example, an industrial warehouse may have a nonfunctional ventilation system. And per the PCA, maintenance is a requirement in order to properly ventilate the building. As a result, the Property Condition Report will categorize this concern, and report the necessity for repair. Additionally, the PCA report will provide a cost estimate for the repair.
Commercial Real Estate Due Diligence
The commercial real estate due diligence process comprises multiple services, in addition to PCA reports. And each of these services relate to different professional backgrounds. For example, transactions can require one, or a combination of the following services:
Appraisal & Commercial Property Valuation Report
An Appraisal Report is an price-value assessment of the commercial real estate, basing on current land-use and conditions. This is also called a Commercial property Valuation Report. Typically, this assessment is a requirement upon sales, title transfers, mortgages, taxes, insurance policy generation or development. Much like the other commercial property due diligence reports, the information within an appraisal report informs buyers, sellers managers and investors make better financial decisions.
Transaction Screen Assessment
A Transaction Screen Assessment is a very basic commercial real estate due diligence report, with similar intent as a Phase 1 ESA. In most cases, a Phase 1 ESA is the requirement for commercial real estate sites. However, when properties are extremely low risk, there could be a dilution of the due diligence process, in the form of the transaction screen assessment. Unlike a Property Condition Report (PCR), the a transaction screen gears towards contamination risk. Moreover, it provides an outline or brief on historical land uses which might be capable of causing contamination to a property. Depending on the results, a Phase 1 ESA may then become a requirement for completion.
Lead in Paint Survey
Lead is a toxic metal that has proven health affects to the human body. Much of the paint which exists in structures today includes lead. In fact, lead typically exists in wall paints varnishes, and other types of cosmetic coating. In general, and per the industry standard guidelines lead in most buildings is not a considerable “immediate hazard.” Although, per many building departments and agencies, lead containing products require testing and maintenance of quality/condition, to ensure that it does not become deteriorated. And on some occasions, this topic can be covered by Property Condition Assessments, as well as Phase 1 ESAs.
Phase 1 Environmental Site Assessment
A Phase 1 Environmental Site Assessment is an another component to the commercial real estate due diligence process. Similarly, Phase 1 ESAs follow an ASTM standard. However, unlike a Property Condition Report, a Phase 1 ESA report focuses on the environmental risk regarding past and present land use. Additionally, the Phase 1 ESA process incorporates and analysis of nearby environmental risks. And it provides an analysis on the impact to the subject property itself from nearby lots. Altogether, the Phase 1 ESA provides conclusions and recommendations pertaining to the potential risk of contamination onsite.
Phase 2 Environmental Site Assessment
A Phase 2 Subsurface Investigation is preliminary screening of shallow subsurface conditions. The premise of a Phase 2 ESA is to test for contamination, per the recommendations of a Phase 1 ESA. A Phase 2 ESA typically tests soil, soil gas and groundwater. If significant detectable contamination exists, there may be a reasonable indication that the property has a larger contamination issue exists.
Asbestos is the nomenclature applicable to various naturally occurring silicate minerals. This material derives from mining operations, and applies best for thermal insulation and heat transfer stability. Moreover, Asbestos has high strength for building material applications. In fact, most construction materials in commercial real estate buildings across the country already contain some asbestos. Almost all building thermal system insulation, and most old interior and exterior surface materials, are also Asbestos-containing. Asbestos containing materials also refer to as “ACMs.” And potential asbestos containing materials refer to as “PACMs.”
Radon testing can be part of the commercial due diligence services, depending on the site location. The US EPA provides a Radon gas hazard map, to aid building code adaptations. There are three Radon Zones: Radon Zone 1, 2 and 3.
Various levels of mold testing and abatement apply to commercial real estate. Most commercial real estate due diligence reports comprise a basic and preliminary visual inspection for obvious signs of mold growth. Mold grows in areas with constant moisture, such as humid environments, and include spores for easy reproduction in the right setting. Excessive moisture or water on indoor flooring and baseboards can be a safety hazard for mold growth. Other building materials such as drywall, wallpaper, particle-wood baseboards and wood-based framing can also be affected by mold, compromising it’s structural and aesthetic integrity.