Conduct evaluations to gain valuable asset insights
The largest asset for many businesses is their building – the place where work is performed. Properly functioning buildings help businesses succeed while defective buildings cost ownership time and money. There are many questions to help determine if a building is adequately performing, such as: Are floor vibrations affecting production? How long until the roof needs to be replaced? Are my workers safe when they service mechanical units? How much do I need to budget for that repair? Do we meet current Americans with Disabilities Act requirements?
Assessing the performance of a building is critical for property managers and owners, regardless if the building is being acquired, maintained or sold. Risk management is paramount, and design professionals can help you manage the risk.
Due diligence studies vs. condition assessments. Due diligence studies and condition assessments can be similar in the information they provide, but their purpose is different. Due diligence studies are performed during building acquisitions. Like a home inspection for a home purchase, a due diligence study will advise a potential buyer of the risks associated with the building, such as the remaining lifespan of the cooling system, are there enough restrooms and can the structure support the business operations.
Condition assessments can provide an owner or property manager with information about the risks associated with a building. This information is used for creating building maintenance plans, changing the use of a space or a general evaluation of the performance of the building. For example, it can help identify how much one should budget for parking garage maintenance, how long it will take to recoup the cost to upgrade the lighting systems, and if a conference room could be converted into a gym.
Levels of evaluation. If potential buyers (due diligence study) or current ownership (condition assessment) is considering an evaluation for a building, they should be aware of the different levels of assessment. A single-family home is a relatively simple building to evaluate that usually can be performed by one inspector. If the home inspector has enough experience, he generally will find the common problems associated with homes. For commercial buildings, this may not be the case.
Some companies that perform commercial building evaluations approach it like a slightly detailed home inspection. They sell themselves as a “one-stop shop,” evaluating based on a checklist of common problems. Perhaps this approach is adequate for small commercial buildings like restaurants or gas stations, but a higher level of evaluation should be considered for more complicated buildings or buildings with planned alterations.
A higher level of evaluation is performed by licensed design professionals who are experts in their fields: architects, engineers (structural, civil, mechanical, electrical, plumbing, fire protection, etc.), code consultants, vibration experts, cost estimators, garage consultants, fall protection experts, etc. Commercial buildings usually are too complicated for the “boiler-plate” approach. A team of design professionals offers a more thorough, comprehensive approach to building evaluations.
What do you get? A typical due diligence study or condition assessment report includes a brief background or history of the building, a review of the relevant documents associated with the building (e.g., as-built drawings), general observations of the design professional, recommendations for repairs or maintenance, discussion of specific ownership questions or concerns, and a cost estimate. Arguably, the most important section of a report is the cost estimate. It can be developed by design professionals with experience in their field (e.g., mechanical, drainage, structural, etc). These types of estimates often are referred to as an opinion of probable cost. Alternately, cost estimates can be developed by a professional cost estimator, usually a contractor. The former generally is sufficient when a “ballpark” cost estimate is needed, but the latter should be engaged when a more detailed cost is warranted. Accurate cost estimates are crucial in a due diligence study to help negotiate the purchase price; they are crucial in condition assessments to help determine annual maintenance budgets.
Following are several examples.
Foundation movement. We performed a structural due diligence study of an office building located in an area with known problematic soil conditions. During our evaluation, we observed slab-on-grade heave, which caused cosmetic damage to floor finishes, partition walls and other elements supported from the slab. Furthermore, we observed cracks at the wall panel joints and concluded (in collaboration with the geotechnical engineer) that the foundations of the building had moved, but it was unclear if the movement had subsided. Based on our evaluation, recommendations and cost estimate for repairing the building, our due diligence study helped everyone involved understand the potential risks with the purchase and helped both parties provide remedial measures.
Purchase negotiation and maintenance budget. Sometimes it is possible to achieve two goals in one evaluation. While performing a due diligence study on a parking garage, we were asked to complete a cost estimate of repairs needed to address life-safety concerns and to extend the useful life of the structure. From the potential buyer, we understood that our cost estimate would be used for negotiating the purchase price of the garage and as a future maintenance budget tool for deferred maintenance. In this case, we helped the potential buyers better understand the costs of their purchase, both up front and over time.
While due diligence studies and condition assessments are relatively common in the building industry, their importance cannot be understated. Whether a potential buyer is negotiating a purchase price, an owner is inventorying building repairs or a property manager is budgeting for window-washing operations, an accurate, thorough building assessment is valuable information for risk management. This is why we recommend a thorough, professional evaluation over the boiler-plate method of assessment. A few extra dollars spent on a more comprehensive building assessment will frequently pay dividends in the long run.
Featured in CREJ’s July 2020 Property Management Quarterly