One of the biggest risks when buying a building is unforeseen problems with the property. Of those unforeseen issues, the Mechanical, Electrical, and Plumbing (MEP) systems represent a significant risk. Power outages, cold/hot work spaces, and leaking pipes are just a few of the issues that you may experience with existing MEP systems, and the replacement costs can be high ($30-$80 per square foot depending on systems).
A due diligence study is a necessary part of any business venture or investment. Estimating the return on the money spent is critical to determining the viability of the investment. When a building is involved there are added questions that need to be answered in the due diligence effort:
- Are there any existing encumbrances on the property or deed restrictions that limit use of the property?
- Are there easements that must be maintained?
- Are there any hazards on the property that must be remediated?
- What is the existing zoning for the property and the building use?
- Is the building code compliant?
- Will anything need to be brought up to current code as a result of a change in use or renovation plans?
- Are there existing problems in the building that need to be fixed?
- Is there any underperforming equipment that needs to be fixed or replaced?
- Are there any life safety issues that need to be corrected before occupying the space?
The answers to these questions can result in significant costs. Therefore, it is important to understand the total investment required to purchase a building and to convert it for the desired intent. If you purchase a property and then find out it will cost another million dollars to adapt it, you may not see a return on the investment
Completing a property condition assessment can help you understand the existing building, the codes it was built to pass, items that don’t meet current code that may need to be updated, as well as the viability of envelope, structure, and MEP systems.
A property condition assessment starts with a discussion. It helps the assessment team gain an understanding of the existing building and its current use, the new use, known issues, and any details of the purchase agreement. Having this big picture discussion helps the team focus on the important items during the assessment.
A site walkthrough is necessary to review the building and system installation. Existing plans of the MEP systems are very helpful during this phase, but not required. The whole building will be reviewed, and each system will be evaluated. System types will be documented; service sizes, equipment capacities, and fixture types will be listed; general observations will be noted; age and condition will be checked, and any visible deficiencies will be cited. We’ll also report any apparent code violations and life safety issues.
During the site survey, it is useful to have someone who is familiar with the building, its history, and any known issues. They can lead the walkthrough and aid in capturing any relevant problems or repairs that should be included in the report.
All of the information gathered during the initial discussion, site walkthrough, and maintenance history will be compiled into a report. Organized by system type, the report will include a system summary, installation characteristics, any specific issues, and a cost for replacement/repair (if needed). Photos will also be included to help identify the various systems and areas of concern.
The report is a useful tool to identify potential problems and estimated replacement/repair costs. These costs aid in the proforma costs analysis used to evaluate the venture and can help the buyer negotiate purchase price. Having all the data available to make an informed decision on purchasing a building is the best way to ensure the success of the opportunity.