The Property Condition Report is a frequently used due diligence tool in commercial real estate, but the scope of work can vary widely depending on the purpose. The baseline standard for conducting a Property Condition Report is the ASTM E2018-08 “Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process“. This standard defines the consultant’s and user’s responsibilities for creating a report documenting the physical condition for a property involved in a real estate transaction. It is used in both debt and equity deals.
Debt vs Equity Property Condition Reports
There is typically a difference in the Property Condition Reports issued for these two transaction types and it is based on how the user will rely on the report. Debt transactions need a discussion of current property conditions and projection of costs over time for maintaining the improvement. Acquisitions have the same concern, but may need more detailed analysis to confirm the conditions and to address specific risks that the user has because of its position of ownership.
Users/clients for an acquisition report can include:
- Institutional – Pension Funds, Pension Fund Advisors, Attorneys
- Private Investor – Developers, Brokers, Lenders, Attorneys
- REITs
The equity Property Condition Report serves the following functions:
- A recording of property conditions for a buyer at some level of detail often specified by the buyer
- An independent evaluation of conditions, not dependent on the viewpoint of the current owner
- A forward view of what could go wrong
- A negotiation tool
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