A property condition report should always be ordered when looking to acquire an existing commercial real estate building. Additionally, the Baseline Commercial Building inspection should document the condition of items such as structural frame and building envelope, mechanical and electrical systems, and life safety and fire protection – just to name a few.
But once you receive that “report card,” how do you know which items require more of your attention, and what if something was even overlooked?
Here we’ve elaborated on what to be especially mindful of during each of the primary system inspections (plumbing, electrical panels, heating and cooling units, etc.), so you can plan your budget accordingly.
Overall Building Structure
In the overall building structure portion of the inspection, the quality of the original construction will be analyzed. This includes exterior walls, windows and doors; paved surfaces; interior ceilings, walls, floors, ceiling plenum; and attics. Professionals typically rule the general life expectancy of a building to be 70-100 years, depending on the various factors checked.
Ensure the quality of the exterior building paint and sealing is recorded. If the building does need an update, such as cleaning,
painting and sealing, you will want to budget about $1.25/SF (varies per location).
Roof surface scans are highly crucial, as many times it is the landlord who will be responsible for its repair. One important item to decipher is whether the roof looks like it would last longer than five years with normal maintenance.
Regardless of the findings, you should always obtain the roof install date and any active warranties. The results may become a deciding factor in whether this property will make the cut.
When it comes to electrical, you should consider the former use and determine if it needs to be updated to accommodate your intended use. The electrical distribution system is inspected by representative sampling of the lights, plugs and other outlets.
Ensure the distribution panels were opened and covers were removed when the wiring and breakers were inspected. If the building is occupied at the time of exploration, find out if the systems can still be turned off for that amount of time.
Much like roofing, determine how much of the life expectancy is left during the plumbing inspection. The general life expectancy is about 40-60 years, but do not slide past the checkup for general function and leaks.
Perhaps even more important, the supply and waste lines should be visually inspected wherever accessible. Analyze the water heater examination of existing leaks and life expectancy.
When it comes to heating, ventilation, and air conditioning inspections, whether the systems have been neglected or received regular preventative maintenance will be revealed. Even an older unit should still have some useful years in it if properly maintained. The main takeaways to expect will be a report on the age and condition, ductwork, and if it is the proper size.
Generally, you should expect heating equipment to be more heavily inspected. Another major portion that falls under the HVAC category is the investigation for ductwork replacement, as this could end up incurring significant expenses. It is always good form to check with the property’s local code enforcement, city engineering, and other municipality authorities offices for the most up-to-date information.
An overlooked item that could end up being detrimental to your plan is the condition of the parking lot or structure. This should uncover whether and when it should be resurfaced. Look for “alligator cracking” or the distinctive appearance of an asphalt surface that is suffering from fatigue damage. The terms crocodile cracking, alligatored asphalt, and crocodiling may be used interchangeably to describe the damage pattern formed.
The long-term solution for this would be removal of all the alligatored asphalt, rebuilding of the subgrade, and finally installing new pavement. As you can imagine, resurfacing or sealing and then re-striping the parking lot can get expensive at about $0.15/SF (varies per location). However, it is a cost you can be able to anticipate.
In order to complete a well-rounded evaluation of the prospective property, you will likely want to conduct an American Land Title Association (ALTA) Survey in regards to the title insurance. An ALTA Survey describes all existing improvements and utilities within a detailed land parcel map that also depicts the property boundaries. It provides invaluable information to help identify easements, setbacks, property corners, and more.
For more information on when you may need to order an ALTA Survey, check out this resource.
Environmental Site Assessments
Another box to check before closing on the purchase is to conduct environmental site assessments (Phase I and Phase II, if required). If you end up closing on a property with contamination, it becomes your burden and responsibility to remediate.
For closing contingency language in regards to ESAs and other red flags, be sure to check out these outlined items to know before the close of escrow.
When it comes to the Baseline Commercial Building inspection performed on your prospective commercial property, there are many items in the completed report that you’ll want to highlight for special consideration. Be cognizant of the ones listed above, or you may decide to leave it up to the experienced professionals by partnering with a developer.