The Importance of Capital Needs Assessments (CNA) or Property Condition Assessments (PCA) Prior to the Purchase of Commercial Real Estate

November 8, 2023

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Current Market Conditions Continue to Drive Real Estate Pricing

The current pandemic and alarming indications of looming inflation have made a once challenging CRE market treacherous to navigate. With COVID came the mass exodus from office life to telecommuting and working from home. Rising material prices and supply chain disruptions have forced many developers, real estate investors and businesses looking to relocate to settle more and more on the purchase of existing real estate vs. building new properties. 

The mass exodus from office space has created many commercial vacancies nationwide. These vacant properties, with expiring leases, become attractive buying opportunities for suiters lying in wait. That’s the good news for potential buyers. What continues to hamper potential buyers is the rapid rise in list prices for commercial property. 

Understanding What You Are Buying

When budgeting for a potential acquisition and renovation, one must include the purchase price of the existing real estate and all costs associated with the renovation. While less expensive and generally quicker than building new, renovations of existing properties can also create budget challenges. The key to avoiding the challenges associated with renovation is to truly understand the real estate you are purchasing. Without a clear understanding of the existing property, its systems, and its needs, the buyer is sure to find themselves over budget and behind schedule on any potential renovation. 

Power to Make Informed Decisions

Here lies the importance of completing a professionally compiled Capital Needs Assessment (CNA) or Property Condition Assessment (PCA) prior to purchasing existing real estate. Obtaining the building assessment is an essential step in making informed decisions that can greatly affect offer pricing and renovation budgets.  The Building Assessment includes observation and documentation of the property site and grounds, structural systems, building envelope, mechanical systems, electrical systems, interior components and regulatory compliance. 

Based on our thorough assessment, Moran Consultants will opine on the age, condition and remaining useful life of each building component. The Building Assessment will also include Moran Consultants’ professional recommendations for repair or replacement of each building system or element. In addition to documenting the existing condition, the Capital Needs Assessment (CNA) or Property Condition Assessment (PCA) also includes estimates to repair immediate needs, estimates for future maintenance costs, and projected costs to be incurred over the course of the loan term.  

Melissa Warren, CCIM, Senior Advisor at Stirling Properties says “When working with my commercial clients, I impress upon them the importance of obtaining a property inspection from a qualified commercial property inspector who understands the sophisticated systems and reports associated with commercial property. A knowledgeable, well-qualified inspector can identify costly deficiencies, future costs associated with systems approaching the end of useful life, determine if renovations or improvements conducted are up to code and point out potential environmental or life safety issues tied to the building or property that may need further investigations. An inspection is a critical part of the commercial real estate due diligence process and can be used to shape the terms of the deal.”

What’s In It for Me?

Upon completion of the Capital Needs Assessment (CNA) or Property Condition Assessment (PCA), the potential buyer will be equipped with an unveiled, professional opinion of the overall condition, remaining useful life, and cost to repair the existing property. Not only is this information critical for negotiating the purchase price, it is also vital in the development of a complete renovation scope and budget, as well as planning for capital expenditures over the term.

A woman with curly red hair and glasses, wearing a black shirt, smiling and standing with her arms crossed against a blue and white background.