Trump International Hotel & Tower, Chicago, IL
Whether the client is a potential mortgagee, investor, or owner, IVI provides Property Condition Assessment (PCA) services in accordance with the client's risk tolerance level, budget, and transaction time constraints. Such services may range from conducting an ASTM baseline, walk-through survey to an enhanced due diligence approach encompassing a team of technical specialty consultants.
Throughout the USA, IVI annually conducts thousands of PCAs of both one-off and portfolio assets. Since the days of the RTC in the early 90s, IVI has been at the vanguard of the mortgage securitization due diligence industry. Principals of the firm were contributing editors to Standard & Poor's Criteria for Property Condition Assessments published in 1992, which was the first PCA standard created specifically for the emerging securitization market. Principals later co-chaired ASTM 2018-01 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process. This ASTM document is now the mostly widely used protocol for conducting PCAs in the United States.
A visual survey is conducted of pertinent systems such as site work,
structural system, roofing, facades, HVAC, plumbing, electrical systems, and conveying systems. Observed significant physical deficiencies are documented and opinions of probable costs are prepared for necessary repairs or replacements. Depending upon the client's requirements, modified replacement reserves can be prepared for salient systems and components requiring recurring replacement.
At IVI we are not only sensitive to the time and due-diligence cost restraints in the very competitive CMBS marketplace, but we truly understand our clients' position and requirements. We place an emphasis on service and keeping our client knowledgeably apprised of significant issues that may jeopardize or delay the closing. We take a pragmatic approach and strive to not only describe observed significant physical deficiencies in a manner understood by a potential mortgagee, but to develop solutions. With respect to client service, we consider our work done when you have closed the transaction.
44 Wall Street
New York, NY
Although the extent of due diligence exercised is a business decision, IVI is keenly aware that the risk tolerance level for physical deficiencies differs from the mortgagee client to that of an equity investor/potential owner. Our PCA services for equity investors and owners provide the client with the opportunity to enhance the due diligence process beyond the ASTM's baseline standard. We discuss such enhancement options with the client, and our proposals identify such additional due diligence services as optional alternates.
Typically, the due diligence services offered on behalf of an equity investor consists of an optional team approach comprised of specialty consultants or services such as:
Our reports are well documented with photographs and Opinions of Probable Costs to remedy the physical deficiencies observed. This document is an important negotiation tool for the transaction and serves as a preliminary improvement budget and guide after the closing.
Clients seeking to sell a property are increasingly using disclosure reports to expedite the transaction. Such reports are prepared by IVI for the seller, our client, to disclose known physical deficiencies to a potential purchaser.
These disclosure reports are not intended to supplement a buyer's independently conducted physical due diligence, but serve the following purposes:
New York, NY
For long-term net leases, it is prudent to document existing conditions at the onset of the term to establish baseline condition. It is not unusual for landlord/tenant disputes to occur at the end of the lease over discrepancies as to the building's care and maintenance over the term. Often, this results in litigation over the return of security funds. Often, claims are made that the tenant has not properly exercised sufficient preventive maintenance resulting in excess physical deterioration or system/component failure. In response, tenants belatedly claim pre-existing conditions.
IVI independently and thoroughly documents the property's existing conditions at the onset of the lease. Our unbiased written reports are well documented with video of existing conditions. Similar to an insurance policy, such reports are placed in safekeeping, and may never be required at a later date. However, if needed, they can quickly resolve outstanding issues to avoid costly delays of security and litigation.
Replacement reserves are a way of identifying, quantifying, and budgeting needed monies to fund future major building repairs and replacements. As properties age, expenditures for replacements and improvements are imperative to maintaining the asset and its competitive position in the market. Insufficient funding of replacement reserves may result in significant physical deterioration, functional obsolescence, more costly future expenditures, and will impact value, use, and aesthetics.
Lending institutions, mortgage originators, and rating agencies routinely require Modified Replacement Reserve Studies for underwriting CMBS transactions or for loans held on the books. Such studies typically identify major salient systems that, if not replaced, could jeopardize habitability or building performance. These studies are prepared at a nominal cost commensurate with the mortgagee's risk position and the asset's typical due diligence closing costs.
Real estate investors and appraisers usually have different requirements than those of mortgagees with respect to capital expenditure replacement reserves. Replacement reserve funding and expenditures can significantly impact cash flow and market value. IVI tailors our replacement reserve studies to be as comprehensive as the client requests. This can range from a fully detailed study, which is updated bi-annually, to a study with a specific number of line items complete with threshold amounts for inclusion. Such schedules can further incorporate those systems or components that may be replaced within in-house personnel or maintenance staff. Sophisticated replacement reserve software is used, which identifies the reserve account's cash balance over the term depending on an annual funding amount.
Other reasons for establishing replacement reserve schedules are:
What Types of Properties Warrant a Replacement Reserve Study?
How Does IVI Conduct a Replacement Reserve Study?
IVI identifies and quantifies all components, equipment, and systems that have recurring life cycles. Historical repairs and replacements, and the costs incurred for same, are thoroughly researched. IVI then opines on the items' remaining useful lives as to when partial or full replacement is required. The appropriate reserve account balance and required annual contributions are then determined to prevent running a negative account balance for any year within the reserve term. A typical study will contain projections for 20 years.
We work closely with ownership, property management, accountants, and appraisers to differentiate between items classified as operating expenses and capital expenditures. When determining future expenditures and budgeting for same, sensitivity analyses are prepared for different rates of inflation, investment yield rates, annual contributions, and holding periods. There are no surprises. A draft report is submitted and thoroughly discussed amongst the parties.
Since the establishment of HUD's Real Estate Assessment Center (REAC) in 1998, IVI has successfully completed surveys to Uniform Physical Conditions Standards (UPCS). IVI's UPCS and Housing Quality Standards efforts are directed by a team of experienced, HUD-certified, and highly regarded building surveying professionals. We have a command of all aspects of UPCS activity - training and logistics, technical support, client relations, and quality control. IVI also assists multifamily property owners with UPCS-related services, including REAC preparation, technical appeals, and training.