A Smarter Approach to Earthquake Due Diligence
Earthquakes may strike without warning, but understanding Seismic Risk Assessments can eliminate unpredictability. Whether you are involved in property management or investment, understanding seismic risk assessment and how a building will perform during seismic activity is essential to managing long-term exposure.
Seismic Risk Assessments (SRAs), also known as Probable Maximum Loss (PML) studies, evaluate an asset’s vulnerability to earthquake damage. They integrate building-specific engineering evaluation, statistical modeling, and site-specific data to inform decisions on acquisition, lending, insurance, capital planning, and risk management.
What Is a Seismic Risk Assessment?
A Seismic Risk Assessment estimates the potential loss a building could face due to earthquake shaking, expressed as a percentage of the property’s replacement cost. These studies help identify hazardous conditions and support strategies to either transfer risk through insurance or mitigate risk through design improvements and retrofit.
Partner’s engineers conduct SRAs using standards such as ASTM E2026-24 and ASTM E2557-24, defining the scope and methodology used in seismic risk assessments. These frameworks help recommend the right level of detail based on risk tolerance and asset importance.
Four Levels of Seismic Assessment
ASTM standards outline four levels of investigation, each increasing in scope and complexity:
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Level 0: Screening
A broad review of available data and regional seismic hazard maps, used for quick portfolio screening.
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Level 1: Site Visit and Drawing Review
A site visit by a qualified ASTM Field Assessor and review of building plans to evaluate damageability and stability, crucial for real estate transactions.
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Level 2: Engineering Calculations
A detailed evaluation with additional calculations to assess building response under seismic loading, often used for higher-risk properties.
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Level 3: Detailed Engineering Evaluation
A comprehensive study involving advanced modeling and material testing, usually for industrial facilities with sensitive operations.
Understanding Probable Maximum Loss (PML)
The Probable Maximum Loss quantifies potential earthquake damage as a percentage of the property’s insurable replacement cost. Two terms define the confidence level of this estimate:
- Scenario Expected Loss (SEL): The mean or expected damage at a 50 percent confidence level.
- Scenario Upper Loss (SUL): The upper-bound damage at a 90 percent confidence level, with a 10 percent chance of exceedance.
Many lenders consider an SEL value of around 20% acceptable for mortgage or CMBS qualification, while equity investors assess long-term performance and insurance costs.
Key Factors in Seismic Risk
Partner’s engineering teams assess multiple factors influencing seismic performance, including:
- Site geology and stability (soil type, slope, liquefaction potential)
- Regional seismic hazard (fault proximity, peak ground acceleration)
- Building characteristics (age, construction type, structural systems)
- Building damageability and stability (structural response to shaking)
Advanced algorithms and modeling tools predict losses and building responses, aiding in prioritizing mitigation strategies and capital allocation.
When Are Seismic Assessments Needed?
Seismic evaluations are often required in high earthquake potential areas. Properties in Seismic Zones 3 and 4, or where Peak Ground Acceleration (PGA) exceeds 0.15g, typically require SRAs for lending or insurance underwriting.
Agency lenders like Fannie Mae and Freddie Mac use these PGA thresholds, while non-agency lenders may set higher limits.
Who Benefits from a Seismic Risk Assessment?
- Lenders and CMBS issuers use SRAs to assess collateral exposure and loan stability.
- Equity investors and asset managers rely on higher-level assessments for acquisition pricing and capital planning.
- Owners and operators gain insights into operational risks, potential retrofit needs, and business interruption exposure.
Building Confidence Through Better Data
Partner’s seismic and structural engineers are licensed professionals with extensive experience conducting ASTM-compliant seismic risk assessments and ASCE 41 seismic evaluations. By integrating field expertise, advanced modeling, and industry standards, Partner delivers seismic risk assessments that guide investment, lending, and insurance decisions.
Understanding a property’s seismic performance is a critical investment. Learn more about our Seismic Risk Assessment services or contact our earthquake due diligence team.
