A Risk Assessment is a part of the due diligence process associated with commercial real estate. Commercial building inspections are important for clients seeking to know the condition of the property they may be purchasing. It also provides risk mitigation for the buyer and potentially an opportunity to renegotiate the price based on the the “true” condition of the property. A Risk Assessment evaluates all improvements on the site including utilities, outbuildings, signage & roads. It will take the condition of those components and evaluate the costs to make corrections to any deficiency. However, it does not include destructive testing and will not factor in maintenance or repairs for the future. Destructive testing for instance, would be taking down walls to find a source of water intrusion or any investigation that requires climbing a scaffold.
Many buyers will go beyond their required due diligence to evaluate and understand the costs that come with the commercial property they are looking to purchase. It is important to understand the future costs associated with ownership based on upcoming maintenance and repairs as well as any deficiencies.
The most common type of assessment buyers request beyond the RA is a reserve table. A reserve table identifies capital costs that the building owner will incur in the future. It also gives buyers a map to budget their building maintenance and capital expenses while allowing lenders to determine whether the buyer is capitalized to maintain the collateral.
Many buyers are unaware of the process that follows a Risk Assessment.
As soon as the loan application is filed, it is the lender or buyer’s responsibility to facilitate a Risk Assessment with an approved provider. The provider should find the person who knows the most about the property and send them a pre-inspection survey. The survey will ask questions such as the age of the windows, age of the roof, etc to gather as much information as possible prior to visiting the site. When an inspector visits the site and begins walking the building and property they will look at every component, such as the structural systems, HVAC, electrical, plumbing, interior finishes, building envelope, etc. Based on the inspection they will write a report that will include a description of each component, an identification of deficiencies found in inspection and a table of costs to correct the issues present.
When hiring a Risk Assessment provider, it is crucial that they can get on the site quickly to assess the property and to start the process. It is also important that they provide accurate costing.
With over 15 years in the industry, and a large national presence, DCS provides all of the necessary tools to best serve you. Let us be your first choice when scheduling your next risk assessment. Photo by Bruce Guenter