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, also known as a Property Condition Report or Commercial Building Inspection, is an evaluation of a commercial real estate asset based on a thorough inspection, 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 ASTM E2018 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process. Depending on a client’s needs and preferences, some PCAs are completed by a single commercial building inspector or engineer, and others can require the involvement of specialists, such as a mechanical engineer or electrical engineer.
The most important parts of the Property Condition Assessment and Report are the Immediate Repairs Table and the Replacement Reserve Table. The Immediate Repairs Table identifies capital needs and prices all failing or damaged building systems and life safety issues. The Replacement Reserve Table identifies long-term capital expenses (typically within 12 years of inspection) 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. Typically prepared for owners or managers of real estate portfolios, FCAs help owners understand and maintain the physical condition and value of their assets, develop capital budgets, and prioritize resources. A Facility Condition Assessment can also be used to secure additional funding.
Like the PCA, the FCA involves a thorough property inspection by a team of one or more specialists. The goal of the FCA is to identify:
FCA assessments also incorporate all of the systems of each building on a parcel, but compared to a PCA, an FCA report will contain a more thorough accounting of the material components of each system, usually in the form of inventory tables. 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.
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 changes hands, 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.