Redeveloping And Repurposing Buildings: Due Diligence

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Using existing building stock is a compelling property strategy often enough that specialists in redevelopment and repurpose of buildings have arisen.  Bill Robsons (Gabriel Consultants) and Steven Arthur (ECS Mid-Atlantic) are two leading consultants in the generation of due diligence on redeveloping and repurposing buildings.

In a fascinating NAR Conference & Expo session covering the history and application of principles in zoning, construction techniques, remediation techniques and economic development principles, Bill and Steven outlined the concepts of due diligence — the investigation of a business or a person or property prior to signing a contract with a certain standard of care.

Is A Property Condition Assessment Due Diligence?

As defined by ASTM (American Society For Testing And Materials) a Property Condition Assessment (PCA) is not  the same as due diligence.  DD is about maintenance and performance of a building. A PCA can be part of due diligence,  but DD is broader.

The “when” is just as important as the “what” – the time to have a due diligence report in hand is before a buyer/broker agreement is signed.

Bringing Science Into The Mix

The area called “building science” is concerned with separating the interior, controlled environment from the exterior, uncontrolled environment.  Modern construction technologies are completely different from those of a hundred years ago.  As such, a non-specialist doing analysis of a structure that went up before the era of steel construction, or even in its early stages, can overlook too much to give a reliable assessment of the building’s performance.  That’s why specialists use modern tools to survey properties and find problems in due diligence projects.  Steven Arthur showed a wide range of slides with pictures using infra-red photography to isolate moisture, air movement and cracks in walls not easily visible to the naked eye.  Other  building science tools include ground radars and spectrographic analysis of masonry samples – the field can get downright CSI-like when it wants to.

And it wants to: structural problems in structures can too easily be hidden from the visual once-over even if the property is just a couple of decades old.  When it was built a hundred years ago, due diligence and building science are inextricably intertwined.

The entire presentation on Due Diligence in Redeveloping And Repurposing Buildings can be downloaded from Playback NAR

11. November 2012 by Wayne Grohl
Categories: Green Building, NAR 2012 Annual Convention | Tags: , , , , | 9 comments

Comments (9)

  1. Having spent 20 years in the commercial construction industry prior to becoming a commercial broker I understand first hand the consequences of understanding existing building conditions including the capacity and potential deferred maintenance issues related to the buildings mechanical systems. As a contractor we would often get the call from the proud “new” building owner who just wanted to make a few modifications to the building he just bought. Invariably, it wasn’t until a detailed scope of work was developed following in depth investigation of the building that the new owner was dismayed to learn that he was facing hundreds of thousands of dollars (or more)of unexpected costs to bring the existing building up to code or to have it meet his performance expectations.

    As oommercial brokers we owe it to our clients to help them perform the due diligence necessary to keep them from buying a money pit. It may slow down the acquisition process and may even end up killing a few deals, but once you keep a client from paying more than he/she should, you will earn their unending gratitude and will have a client for life.

  2. Not being in the commercial end of Real Estate, but Residential, I find it a great idea to restructure and repuposing old or vacant buildings. It’s like someone buying a hundred year old house and if I do not do my due diligence in making sure that my client is able to perform an inspection so they know what they are getting into, as Ginny Gilbert said, we owe it to our clients.
    So many vacant buildings can be restructured to becoming something of use, instead of sitting there empty.
    I think it’s high time builders and architects take this in stride, why be destrctive, be contructive.

  3. Repurposing of older buildings allows cities to stay in touch with their past and bring the uniqueness of the building’s architecture to the attention of the public, while at the same time returning the structure and the land it sits on to it’s potential highest and best use; for certain a higher and better use than sitting as an empty rotting shell. Problems arise when the local municipal government “development authority” take over ownership of the structure with no idea, concept or plan of how to return the property to private ownership.

  4. I think its a great thing to re-purpose such amazing structures–it adds dimension to an often flat world. Now, if we can get some conventional lending on such structures when converting to residential–that would be nice too.

  5. I am new to Commercial RE. Is there anything like “Home Inspections” for Commercial RE?

  6. I think re-purposing structures is a means for keeping in touch with our past and heritage. Also, isn’t it a great way for re-cycling and doing our part to keep our communities ‘green’. I have seen communities do this and renew and give new life to an old dilapidated area of a city. Kudos to them! This article contained the best definition of due diligence and I appreciate the difference pointed out between due diligence and a Property Assessment Condition.

  7. We’re expecting the EPA to have an increasing impact on existing residential real estate, especially for homes with aging HVAC systems, lead based paint, or asbestos. Will the impact be equally felt on the commercial side?

    • The Environmental Protection Agency (EPA) has begun to phase-in regulations of CO2 from large emitters, such as power plants and manufacturing facilities, although legislation and lawsuits to stop them are now pending. Phase 2 of these regulations could begin to regulate relatively smaller emitters, including commercial and apartment buildings depending on where EPA sets the revised regulatory threshold. Under the Clean Air Act, a building owner would be required to obtain federal construction and operating permits including the installation of “Best Available Control Technologies.” So the answer is yes, the impact is equally felt on the commercial side if not more so.

      NAR has lent its support to efforts to keep the EPA from applying the Clean Air Act to CO2, as the statute was written decades ago to address local air quality issues such as smog and not global climate change. We also filed multiple comment letters against the EPA regulating CO2 from commercial or residential buildings.

      This does not mean that commercial real estate owners and investors are not interested in energy management and efficiency. A building’s energy performance is shown to directly impact its value and billions of dollars are being spent on retrofitting. http://energystar.gov is a great place to see examples of how commercial and residential owners are leading the charge in energy management.

  8. Due diligence is needed in every transaction, but retrofitting, re purposing and restructuring an old building has it’s benefits. There is less impact environmentally, it also has it’s historic value to keep the original architecture and footprint. It can be refitted with more green properties so it can become more energy efficient and healthier while still retaining its character and value. I have seen several examples in Spokane and in NYC where the buildings have been redeveloped and re purposed and how beautiful they turn out and how the surrounding city and people benefit from it.

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