Development Series: Standard vs Equity Property Condition Assessment (PCA) Report

Understand the differences between Property Condition Assessment Reports

If you’re making a significant investment on a piece of property, you will likely want to know if the HVAC will stop working in a year, or if the roof will need replacing in five, or if the cracking in the brick masonry means there is a bigger issue going on structurally. 

So how do you go about uncovering these types of issues?

Standard Property Condition Assessment (PCA)

Buying commercial real estate is similar, in some aspects, to buying a house.  There is usually a lender involved that has a specific set of requirements that must be met to close on the property. These typically include an appraisal to determine the value of the house. This report, performed by a company chosen by the lender, considers characteristics like gross living space, view and property age in addition to examining recent comparable sales, based on current market conditions of similar properties sold in the last 3-6 months.  An Environmental Site Assessment (Phase I ESA) may also be ordered to ascertain the environmental condition of the property. Neither of these reports, however, provides buyers with any information about the condition of the building they are purchasing.

That is where the Property Condition Assessment, or PCA, comes in.  Performed by qualified professionals, a PCA involves an on-site visual inspection of a property’s mechanical, electrical, and plumbing systems along with landscaping and site topography and drainage, conveyance systems including lifts, elevators, escalators, fire protection systems, and ADA (Americans with Disabilities Act) accessibility, among other things.  

The standard PCA identifies specific deficiencies that require immediate or short-term repair, or deferred maintenance items and provides recommended actions with budgetary costs.  The PCA should be performed at the same time as the other assessments being conducted on the property, and before closing.  

In some aspects, having a PCA allows prospective buyers greater leverage in negotiating the sale price of the property, especially if deferred maintenance costs are high.  The PCA also gives the buyer an understanding of what they may expect in the future.

Equity Level PCA

Now, where does a standard PCA differ from an equity PCA?  The assessment within a standard PCA is limited to visual observations, interviews and gathering of available information, whereas the assessment within an equity PCA goes beyond visual observations to include in-depth, investigative diagnostics testing to determine the function and performance of various building systems. 

“During an equity PCA, subcontractors and engineers for the various trades are contracted to perform individual assessments on building systems and components,” said Eric Guikema, Architectural Consultant at PM Environmental. “The subcontractors generate their own professional reports with opinions and cost estimates for current and future needs of the systems that they are trained to assess and we, in turn, review their reports, excerpt their costs and recommendations into the equity PCA report, and provide our own opinions, if necessary. The PCA consultant essentially serves as the ‘quarterback’ of the process by contracting and coordinating the subcontractors and delivering a comprehensive report to the client that accurately describes the physical and financial needs of the property.”

During an equity PCA for a high-rise building, dedicated assessments by trade subcontractors are often used to the fullest extent and include assessment of structural, mechanical, electrical, plumbing, fire protection, elevator, roofing and façade systems whereas an equity PCA for smaller properties may have assessments performed on any combination of these systems. 

“We also use assessments by trade subcontractors in standard PCAs on a case-by-case basis but not to the full extent that we would during an equity PCA,” said Guikema. 

Sometimes, clients will request additional testing beyond the scope of a standard PCA because they have concerns about a building component or they need to meet an internal requirement.

“A client may know that the roof is in poor condition ahead of our assessment and request a roof assessment be done by a roofing contractor in addition to the PCA,” said Guikema. “They want the most accurate cost to replace or they simply want a more detailed opinion than a visual assessment would provide.”