The Property Condition Report is a frequently useddue diligence tool in commercial real estate, but the scope of workcan vary widely depending on the purpose. The baselinestandard for conducting a Property Condition Report is theASTM E2018-08 “Standard Guide for PropertyCondition Assessments: Baseline Property Condition AssessmentProcess.” This standard defines the consultant's anduser's responsibilities for creating a report documenting thephysical condition for a property involved in a real estatetransaction. It is used in both debt and equity deals.

Debt versus Equity Property Condition Reports

There is typically a difference in the PropertyCondition Reports issued for these two transaction types and itis based on how the user will rely on the report. Debttransactions need a discussion of current property conditions andprojection of costs over time for maintaining theimprovement. Acquisitions have the same concern, but may needmore detailed analysis to confirm the conditions and to addressspecific risks that the user has because of its position ofownership.

Users/clients for an acquisition report can include:

  • Institutional - PensionFunds, Pension FundAdvisors, Attorneys
  • Private Investor - Developers, Brokers, Lenders, Attorneys
  • REIT's

The equity Property Condition Report serves thefollowing functions

  • A recording of property conditions for a buyer at some level of detail oftenspecified by the buyer
  • An independent evaluation of conditions, not dependent on theviewpoint of the current owner
  • A forward view of what could go wrong
  • A negotiation tool

Enhancing the ASTM Property ConditionReport

It is important for the equity user and consultant to understandthe level of diligence expected and if there are tasks the userrequires that are in addition to the ASTME2018 baseline Property Condition Report.

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S. Ira Grossman

Mr. Grossman has 40 years experience years of experience in architecture, construction and due diligence consulting throughout the United States. A respected veteran in the due diligence industry, Mr. Grossman has provided engineering and environmental services to major corporations both as an internal resource and as a third-party consultant.