August 10, 2018
By EBI’s David Stewart
Commercial real estate transactions can be highly complex and require technical knowledge in areas such as market analysis, valuation, leasing, sales, and due diligence. Due diligence can be especially daunting to navigate, with services and standards varying greatly between report types and consulting firms. Understanding the due diligence options and differences can help investors determine the level of investigation that best fits the specific needs of a transaction.
It is always wise to conduct thorough due diligence, but given the length of the current investment cycle, it is increasingly wise to help mitigate some of the substantial risks facing buyers, investors, and other stakeholders by utilizing specialized due diligence services tailored to support acquisitions. One of these services is an Acquisition Property Condition Assessment (APCA). This service goes beyond the ASTM standard Property Condition Assessment (PCA), addressing the needs and concerns of stakeholders with a lower risk threshold.
PCA or APCA: What’s the difference?
PCAs are designed to assess low-risk assets for stakeholders with higher risk tolerances. The typical scope requires a building generalist to perform a visual inspection of the property, usually under half a day, and provide a report with general documentation of the inspection. Data is gathered, and the property condition report (PCR) is written to ASTM standards.
While the PCA is entirely appropriate for low-risk assets and higher risk tolerances, it is not intended to provide the in-depth analysis and more thorough information that investors acquiring property can leverage most. Acquisition stakeholders need to understand the unique challenges and opportunities of a potential investment. There are a host of concerns primarily affecting stakeholders that, given the higher risk threshold of a PCA, do not come under review in a standard PCR.
An APCA, however, expands the standard scope to provide extra detail on all building components, roof conditions, façades, structural components, and systems such as heating, cooling, electrical and/or plumbing, to name a few. The greater level of analysis provided by an APCA gives stakeholders more comprehensive insights into a property’s needs, and can help in both the price negotiation and CapEx budgeting process.
What’s special about an APCA?
The APCA offers an entirely customizable property analysis, providing stakeholders with in-depth insights that help drive business decisions and negotiations. A team of senior staff specialists collaborates early on with clients to develop and implement a project scope and fine-tune recommendations, focusing on specific areas of interest or concern.
Within a broad suite of services geared specifically toward acquisitions, clients can tailor an APCA scope of work to fit a property’s specific needs, which typically aren’t included in a standard PCA.
Why invest in an APCA?
APCAs provide additional insight into the real-world costs of ownership or management of a property. They help purchasers understand the property condition, and what to expect in terms of repairs and maintenance, enabling them to plan and budget for those costs. This can also be invaluable to prospective owners of new buildings with warranties about to expire.
Each service provides a different value to the client. ADA reports, for instance, are a powerful negotiating tool if it’s found that a building is not in compliance. This not only ensures that the purchaser understands the work required to make the building compliant, but can also mitigate potential ADA lawsuits.
Perhaps the greatest value gained from the APCA is that it’s a compelling negotiating tool. The costs inferred from an APCA can be used to re-trade, potentially shaving tens or even hundreds of thousands of dollars off a purchase price, greatly mitigating the costs of rigorous due diligence reports. If a report indicates issues with a property, the seller is more likely to negotiate than to risk other potential buyers receiving that information. In “best and final” scenarios, the Acquisition Property Condition Report (APCR) is beneficial to purchasers wanting to understand any potential issues or costs that may be incurred for repairs or maintenance, as they calculate their budget. A potential buyer might determine that costs of maintenance or repairs reported in the APCR are too cost-restrictive or outside of their CapEx budgets, and walk away from a deal.
No matter the reason for requesting an APCR, the value of the information gained can lead to spending much less on a deal, or avoiding a property that has major issues. This peace of mind far outweighs the costs of the investigation.
For comments, questions or concerns, please contact Dennis Kaiser