Why New Construction Buildings Still Need Comprehensive Due Diligence
Acquiring a newer property still comes with challenges.
Buildings that are only a few months or years old are often assumed to be in good condition.
Unfortunately, that’s not always the case.
An Acquisition Property Condition Assessment (APCA) provides valuable information about a property’s condition, repairs, maintenance needs, and associated costs.
For newly constructed buildings, pairing an APCA with a comprehensive Construction Closeout Report (CCR) provides an additional level of confidence.
It helps confirm the construction process was properly closed out and that ongoing maintenance plans are in place.
These more intensive reports can better inform you during your property evaluation and provide confidence that you fully understand the demands and costs to manage it.
A Customized Approach
In a recent case, an EBI client partnered with a developer to construct a 486-unit multifamily property.
The client owned a percentage stake and was considering buying out the developer’s interest.
Before making that decision, they wanted to review the construction closeout process and thoroughly evaluate the property, even though it was newly built.
As EBI further discussed the opportunity with the client, we recognized their need for a customized solution that could meet their desired goals. Together, a unique project scope was created integrating services from multiple service lines.
1. Assessing Client Needs
With every client, EBI’s consultants first work to understand any specific concerns the client may have about the property and what the client wants to know and/or accomplish through our investigations. Developing a detailed project scope addressing all client concerns requires collaboration and communication from start to finish, but is most critical in the initial planning phase.
On this project, EBI coordinated a series of preliminary calls. These discussions helped our specialists understand the structure of the deal, the nature of the property, and the client’s concerns. Together, they developed an investigation plan and reporting strategy that met the client’s expectations.
Through these conversations, EBI determined this project called for a blend of services from two specialty teams within EBI: the Construction Consulting team and the Acquisition Services team.
2. Tailored Reporting
With clear client objectives in mind, EBI’s two internal groups developed a customized service offering, including guidance documents and customized checklists outlining the project scope and expectations to ensure clarity and thoroughness, as well as fit for the property and hold strategy.
EBI and the client recognized the importance of confirming that the Architect of Record had certified the building was constructed according to the approved plans and specifications.
The team also verified that the construction contract had been properly closed out and that all required municipal sign-offs and approvals had been obtained.
In addition, EBI recommended a Mechanical, Engineering, and Plumbing (MEP) Survey and an Infrared (IR) Survey of the electrical system.
Following client approval, the EBI team implemented the plan efficiently, gathering all the documents needed for this exhaustive report and timely rolling out the project tasks within the client’s due diligence period.
3. Effective Implementation
During site visits and investigations, the EBI team gathered the required documents from the developer.
The team also collaborated with subcontractors and the municipality to develop a comprehensive “site manual” containing relevant information about the building and its systems, including warranties and operation manuals.
This helps ensure property managers have all the documentation they need for ongoing maintenance organized on site. The CCR also included a multi-point checklist outlining the status of various items and documents, including:
- Certificate of Occupancy
- Requisite sign-off by the fire marshal
- Certification of substantial completion from the Architect of Record
- Sign-offs from all design consultants not included in the Architect’s scope of work
- Confirmation that copies of all O&Ms and as-built drawings had been transmitted to the property
In addition to the information in the CCR, the client requested an APCR to gain as much information as possible on the property conditions and determine its suitability for investment. The APCR can be a powerful tool in negotiating and budgeting acquisitions.
The APCR Included More than 100 Pages of Detailed Analysis Covering:
Site Conditions
- Topography
- Pavement and Parking
- Landscaping
- Site Improvements
- Amenities
- Municipal Services & Utilities
- Natural Hazards
Building Systems
- HVAC
- Electrical
- Fire & Life Safety
- Elevator
Building Conditions
- Substructure
- Superstructure
- Facades
- Roofing
- Basements/Attics
- Interior Finishes & Components
- Suspect Mold and Moisture
Compliance Violations
- Building & Planning Department
- Fire Department
- Energy & Sustainability
The CCR and Acquisition Property Condition Report provide an extra layer of due diligence to determine the condition of the property and systems and to develop a recommended plan of action to address short- or long-term maintenance issues.
In this case, despite being a new building, EBI did find issues in both the construction and the current condition of the property and was able to report these findings and associated costs to the client. Impressed by our exceptional service and comprehensive reporting, the client has continued to retain EBI for customized reporting.
What You Need to Know
New construction does not eliminate the need for due diligence.
Thorough inspections help identify potential risks, evaluate building conditions, and support informed investment decisions.
This involves assessing properties in depth, conducting thorough inspections, evaluating potential risks, and ensuring compliance with regulations and standards.
Incorporating due diligence for new constructions is paramount to making informed investment decisions and safeguarding your portfolio’s stability and growth potential.
A few key components to remember:
1. Work with an experienced consultant
Assess your needs, customize the scope of work, and tailor reporting to fit your property and unique concerns. An experienced consultant can identify the most likely issues and recommend the report types that best support your goals.
2. Verify proper construction closeout.
Even if you worked with the developer, there is significant value in confirming the construction process was properly closed out. A comprehensive Construction Closeout Report (CCR) helps organize key documentation, supports ongoing maintenance, and simplifies future repairs or renovations.
3. Use detailed reporting to support long-term planning.
Even new buildings can have issues. An APCA provides a clearer understanding of current property conditions, future repair costs, and ongoing management needs while also serving as a valuable negotiating tool.
4. Take a comprehensive approach to due diligence.
Whether you’re purchasing a property or increasing your ownership stake, a thorough evaluation helps you better understand the property’s condition, anticipate maintenance costs, and strengthen your negotiating position.
Our Team of Experts
EBI’s Construction Consulting team provides a range of services across existing buildings, new construction, buildings soon to be out of warranty, renovations, property rehabilitation, fire and storm damage repairs, structural evaluations, and property monitoring.
The Acquisition Services team assists clients with customized and detailed due diligence investigations of property conditions and analysis of real-world costs of ownership for acquisition stakeholders.