Whether you’re a loan officer, an acquisitions director, or an asset manager, you need a thorough understanding of the condition of the properties in your domain. A full-service due diligence company can offer a menu of options to help you—but how do you know which ones to choose? Two reports in particular are easy to confuse: the Property Condition Assessment (PCA)
and the Facility Condition Assessment (FCA)
. A solid understanding of the scope and purpose of each of these building assessments will help you know which one you need, and when.
A Property Condition Assessment is an evaluation of a commercial real estate asset based on a thorough assessment, including all improvements and all the systems of each building on the property. A PCA is typically ordered as part of the due diligence process when a property changes hands. A lender may request a PCA before issuing a loan, or an investor/buyer may request the assessment before purchase.
The scope of a PCA is defined in the international standard ASTM E2018 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process.
Depending on a client’s needs and preferences, PCAs can be completed by a single qualified Generalist, while other assessments can require a team effort involving the Generalist and one or more Specialists, with enhanced qualifications on a specific building system or element, such as mechanical HVAC, roofing, building enclosure, ADA/FFHA accessibility, and elevators, to name a few.
The crux of the Property Condition Assessment and Report are the Immediate Repairs Table
and the Replacement Reserve Table
. The Immediate Repairs Table identifies and provides opinions of costs for immediate and short-term capital needs, such as life safety and code violations or priority system repairs and replacement, respectively. The Replacement Reserve Table identifies long-term capital expenses (typically within an evaluation term established by the client) based on the expected useful life of the building systems and components.
While similar in nature to PCAs, Facility Condition Assessments (FCAs) serve a different purpose and User. Typically prepared for owners of real estate portfolios, such as asset managers or facility managers, FCAs can help to assess the overall physical condition of a facility to support capital investment decisions, including capital budgeting and planning, establishing and prioritizing long-term reserves, and sometimes for pre-purchase due diligence. A Facility Condition Assessment can also be used to secure additional funding. Furthermore, Federal and State Government facilities may have to comply with periodic reporting requirements for annual funding. An FCA will involve a qualified group of trained industry professionals performing analysis of the conditions of a facility or group of facilities. The primary goals of the FCA are to identify:
- Routine and/or deferred maintenance
- Systemic deficiencies
- Remaining useful life (RUL) of all major building systems
- Capital replacement needs
- Overall system compliance with the original design/engineering intent
- Compatibility with contiguous systems
- Prioritized list of repairs
- Facility Condition Index (FCI)
- Current Replacement Value (CRV)
The fundamental process of a Facility Condition Assessment will incorporate all of the systems of each building (e.g., roof, exterior walls, windows, doors, HVAC, interior finishes) on a parcel and will contain a more thorough accounting of the material components of each system, usually in the form of inventory tables. Each component will also ideally receive a numerical condition rating (i.e. from excellent to poor). Because an FCA is designed to serve as a functional tool to maintain property over time, it will often have more detailed estimates for the repair and replacement of systems and equipment than those you would find in a PCA report. Ideally, this data will culminate in a realistic projection of expenses for the ongoing maintenance of the property over a defined period. Unlike a PCA, which is typically required for a commercial real estate transaction, an FCA is utilized for proactive asset management and will generally require periodic updates every 1-4 years, depending on portfolio size. Finally, a crucial difference from a PCA, is that an FCA can be used as an opportunity to recommend non-condition related improvements, including improved indoor air quality and energy efficiency, improved facility utilization, increased safety and security, and enhanced building information technology (e.g., Wifi, 5G, rooftop solar, building management systems) utilizing a Building Technology Assessment (BTA).
An important component to the FCA is the method of data delivery. Because an FCA is a working document from which asset or portfolio managers project capital expenditures and maintenance expenses, delivery via digital platform that can interface with client-side IWMS (Integrated Workplace Management Systems) is often preferred.
In short, PCAs & FCAs are similar reports that serve different purposes: A PCA, generally requested before a property transaction, will characterize the asset at a particular point in time, give you a general overview of the costs associated with correcting existing deficiencies as well as an estimate of the costs of maintaining the property over time. An FCA, generally requested by asset managers with long-term capital planning needs, will characterize the asset in detail, including a more exhaustive inventory of existing system and components, and provide specific data regarding repair and maintenance that will allow for more accurate projections of capital expenditures and maintenance costs over time.