Commercial Property Buyers and Lessees - Do This At Your Own Peril

 Commercial Property Buyers and Lessees - Do This At Your Own Peril

Robert S. Michaud, P.E.

10/1/20

Your company is looking to move into a new building. Perhaps you have outgrown your existing facility, or maybe it doesn’t have the features or location you need. You have found just what you are looking for, the deal looks good and you are ready to execute the purchase (or lease). Your accountant has looked over the numbers, and your lawyer has looked over the contract, so you have done your due diligence, right?

Not so fast. Commercial facilities can be complex assets, and whether you are purchasing it outright, or leasing it (triple net with much of the capital costs landing squarely in your lap), if you don’t have a qualified commercial building inspector look conduct a thorough inspection of the building and its equipment, you really don’t know what you are getting into. You wouldn’t buy a home without a home inspection, so why would you buy or lease a property that is far more complex than a residential building?

There is more to consider when purchasing or leasing a commercial property, and there are significant benefits for all parties – the buyer, the seller and the real estate agents involved. Let’s consider each from their unique perspective.

From the buyer / lessee perspective:

This is the most obvious perspective. As a buyer, you need to make sure that you know what you are buying / leasing. A trained, qualified commercial building inspector can find those hidden concerns that could end costing your company down the road if not addressed, and the best time to address them is during the negotiation process.

There are other considerations too. Instead of just a one-time inspection to find any potential surprises, why not take this opportunity to build a maintenance program for this new asset so that you can stay on top of the capital and maintenance related issues that are part of owning any asset. By establishing a good maintenance program from the start, you will minimize surprises and the overall cost of ownership of your new asset.

From the seller / lessor perspective:

Savvy building owners and managers know the value of properly maintaining their properties, but even the best and most conscientious maintenance programs are more focused on the day to day maintenance and may not be as in tuned to the expected lifespan of various building systems and the effect they may have on the sale of a property. For instance, you may be diligent in your roof or boiler maintenance procedures, and your efforts may have even extended the expected life spans of those systems but eventually all things reach their end of life. You may be entirely comfortable with the current operating condition of the systems in question, but a qualified and experienced independent third party inspector may shed light on how much more time could reasonably be expected and provide you the cost information that you need to either upgrade the system before selling or leasing the property, or to negotiate with during the sale / lease process. Knowledge is power, and in this case, knowing ahead of the sale or lease process gives you options and the opportunity to address them before they come up in sales or lease negotiations.

From the Realtor perspective:

Whether you are the buyer’s agent or the seller’s agent, the goal is to get to “YES”. Using the reasons mentioned above, you owe it to your clients to encourage them to engage with a qualified third party expert to remove any surprises ahead of time. No one likes surprises of this nature, and by helping your clients thoroughly throughout the process, you demonstrate your commitment to their satisfaction and increase your chances for referrals and repeat sales.

There are some real estate agents that appear to be wary of building inspections. They seem to be concerned that if problems are discovered they will jeopardize the sale process. This is short sighted and if you are working with the right inspection professional, the opposite could be true. A qualified professional can see beyond the problems and offer solutions. If the inspectors you recommend perform a superficial inspection and miss key issues, or alternatively find problems but do not offer remedies and cost estimates when appropriate, they are not serving your client well, nor are they serving the sales process well. Ultimately, you want your client to be well served so that they have a positive experience and either refer you to other and / or return themselves for future property needs. Commercial properties are potentially far more complex than residential properties which is all the more reason to engage a qualified, experienced inspector to be part of the process.

© Michaud Engineering Inc. 2020

Eat the Elephant!

 

Eat the Elephant!

Robert S. Michaud, P.E.

9/30/20

You have probably heard the old saying: “How do you eat an elephant? One bite at a time!” Maybe you have heard it a bunch of times but haven’t really thought about what it means or how it might apply to you. It is one of those clichés that kind of gets lost in the language, but like most clichés, they originated from an abundance of truth.

Take your backlog of work, for example. Odds are there are some items on that list that are there simply because they are “elephants” – tasks that are either so big, complicated, ill defined or just plain difficult that they never get the attention needed to complete them. Perhaps the problem is a lack of time, or a lack of the right skill set on your team, or insufficient resources to get the job done. Any one of these challenges can put the brakes on a project.

There are a number of ways to deal with this problem, and it is very likely that you will need to employ more than one or maybe even several strategies to get it done. The first strategy, however, should be to break the project up into small, manageable tasks – and then start attacking the tasks that CAN be done. That does a couple of things: it moves you forward towards overall completion of the project, and it begins to build momentum for yourself and your team to not only demonstrate that it can be done, but that it is, in fact, getting done. Success, even in small portions, is a powerful motivator.

Then you get stuck again. You have grabbed all of the low hanging fruit, so to speak, and the tasks that remain are outside you or your team’s capacity. Don’t stall out here, you have already made good progress. Take some time and identify the remaining tasks and the resource shortfalls that prevent you from completing them. Consider even breaking the tasks into smaller sizes to again make them more manageable. Then, seek outside help. If you and your team find yourself stuck without the right tools for the job, find someone that has them. This might be others within your own company, but more often it means hiring a contractor or consultant with expertise in a specific field. Since you have broken the tasks into bite sized chunks, you won’t be paying for a lot of services you don’t need. Instead, you can be laser focused and contract out just those tasks that you can’t self perform. Companies such as ours have make it our mission to fill in those needed resources to accomplish tasks that often are somewhat unique.

Don’t let those elephants continue to grow and stomp out your profits. Get someone to help you eat it – one bite at a time!

© Michaud Engineering Inc. 2020

Re-purposing Commercial Buildings for Residential Use

 

Re-purposing Commercial Buildings for Residential Use

Robert S. Michaud, P.E.

9/22/20

In some parts of the country, residential inventory on the real estate market is low, and the availability of rental properties is also tight. Some owners of commercial property buildings are considering converting them to apartments, condominiums, or even single family homes. This solution won’t work for every commercial property, obviously, but if you have a building or buildings that you think might be able to be re-purposed, this may be the right time to take advantage of the current real estate market.

If you have made the decision to explore your options when it comes to re-purposing your buildings, you will likely need some assistance to determine whether or not such a conversion will be feasible. Some of the questions might include:

• Are there any zoning issues that might prevent the conversion?

• Will the building(s) structurally support the physical changes needed to be converted?

• What sort of code requirements are different for residential property compared to its current use and how much will this add to the conversion cost?

• Are there sufficient utilities and space (for parking, etc.) to support the desired conversion?

For the questions above, a qualified engineering consulting firm with expertise in these areas can provide you with the answers you need so that you can make the best decisions for your property.

In order to determine whether or not to proceed with any sort of conversion, you will need to gather all of the relevant information. This due diligence effort involves an evaluation of the market conditions, rental and residential property values in the area, availability of competing properties, and expected turn around times. These focus on the revenue side of the equation – what you might expect to earn from the conversion. On the expense side of the equation, you will need to estimate construction costs, the addition of any resources or building features that may not be currently available, the feasibility with respect to zoning ordinances and code requirements, etc. If the expected revenue and probability of a quick turn around in terms of rental or sales outweighs the costs associated with the conversion, it may very well be a good choice for your assets.

Michaud Engineering Inc. can assist in these areas and also work with real estate professionals to help determine whether these changes will deliver the returns you expect in those locations. Give us a call and we can start a discussion to determine whether this might be a good choice for you.

© Michaud Engineering Inc. 2020

The Importance of Commercial Building Inspections

The Importance of Commercial Building Inspections

Robert S. Michaud, P.E.

July 29, 2020

Nearly ever new home purchase, certainly those to be purchased with any sort of loan from a bank or mortgage broker, requires a home inspection prior to the completion of the purchase process. The reason for such an inspection is clear and understandable – the home buyer and / or lender want to make sure there are no surprises with the house. A qualified and effective home inspector will be able to find those things that an untrained eye might not, and then decisions or negotiations can take place on how best to address them before the property changes hands. This is a prudent step in the process and should probably be done even if it isn’t required by the lender. Any major purchase – homes, automobiles, etc. can benefit by having a trained, independent evaluator inspect the “goods” first. After all, by definition, a lot of money is at stake.

Oddly, the same is not always the case with commercial building transactions, but it should be. Commercial buildings are frequently far more complex and expensive than residential properties. In addition, they are subject to far more code and legal requirements – especially if they are open to the public – than homes. Consider that commercial buildings are subject to all sorts of building codes – local, state and federal, plus other requirements dictated by the Americans with Disabilities Act (ADA), or Occupational Safety and Health Administration (OHSA) and perhaps others depending on the building location, use, occupancy, and more, it can be very difficult for the purchaser to fully understand the risks associated with a building that is up for sale. Add to that the much more complex construction methods used for commercial buildings, whether from a structural standpoint, building envelope, mechanical systems, electrical systems, fire alarm and prevention, security, plumbing and conveyance systems, there is far more that needs evaluation in a commercial building as compared to a residential building.

Yet, very few commercial building transactions are contingent upon completion of a pre-purchase inspection. Why is that? One would think that since commercial building transactions are fundamentally more business focused than a home purchase, and therefore are much more about the “numbers” rather than more subjective decision making criteria, that commercial building inspections would be de rigueur in the industry.

If you should find yourself in the position of purchasing a new building or buildings for your business, the money spent on a due diligence pre-purchase inspection could be the difference between a successful move for your business and a disastrous money sink.

Consider an example of a 20 year old building that appears to have been well maintained. You take the tour through it and note some cosmetic changes that need to be made. Perhaps the finishes are a little outdated and need to be freshened up a bit. The previous owner has good records of maintenance services that have been performed on the building and everything seems solid. You buy the property and move in. At first, everything seems to be going well, but then the seasons change and the packaged rooftop unit has issues and keeps shutting off. You bring in a mechanical service company and learn that it is approaching the end of its rated life, and while they can patch it up for you, repairs are likely to continue to be more frequent until you replace it. Then you notice that you routinely get trouble alarms from the fire alarm panel. When that service company arrives they explain that that particular model is no longer supported and that parts are hard to come by. You receive a letter from a lawyer explaining that a recent customer couldn’t enter your building without assistance because your front entrance was not ADA compatible and there was no wheelchair ramp for her to use. You notice that a ceiling tile in the break room has a stain on it that seems to be new. You have your maintenance technician look into it. He moves the ceiling tile and after a looking around a bit, determines that the leak is coming from the roof. You hire a roofing contractor to inspect the roof and he comes back with a detailed report which shows the location of several recommended areas to patch and also notes that this particular roof material is rated for 20 years and is now beyond its rated life and should be replaced.

If the above list of “what-ifs” sounds extreme, it isn’t. We see this sort of thing all the time. Building systems that are approaching or have sometimes exceeded their expected lifespan may not exhibit many obvious signs of impending failure to the untrained eye, but an experienced inspector will make note of current and potential risks and help quantify them for you. Whether they are age related, use and abuse, or code requirements that need to be addressed, items like those mentioned above can and should be identified and addressed prior to the purchase of a building. The decision to correct them or make allowances for the cost in the purchase price is all negotiable, but only if you have the information beforehand. Once the purchase is complete, it is very difficult to go back and get compensation even if the previous owner was aware of the problem.

For the sake of your company and the bottom line, make sure you insist on a detailed pre-purchase inspection. You will be glad you did.

© Michaud Engineering Inc. 2020

Another Opportunity

Another Opportunity

Robert S. Michaud, P.E.

July 27, 2020

Past editions of this series of articles have focused on a variety of tasks that your company can accomplish during this pandemic to put yourself in the best possible position for success once restrictions are lifted and we can resume a more normal way of life again. This articles include concepts for SMBs, mechanical room organization, balancing the time vs. money equation and planning for an uncertain future, among others. If you have missed any of these articles, you can find them here: https://michaud-engineering.com/blog-social-media and other interesting publications here: https://michaud-engineering.com/publications

We hope you have been able to weather the storm of this current pandemic. If you are reading this article, there is a good chance that you are doing your best to stay on top of things. Maybe your company has downsized or found other ways to adapt to a required change in business practices. If some of those requirements mean that some or all of you buildings are empty or experiencing limited usage, you may want to consider the following:

Conduct an ADA audit. In addition to building inspections, organizing your mechanical rooms and tackling maintenance backlog items, an internal ADA audit (either performed by in-house staff or by a consultant) can help identify those areas of your facility that should be altered, repaired or improved to be compliant with the ADAAG. There are numerous resources available if you have the staff and want to self-perform this work, but there is also real value in hiring a consultant that is familiar with the ADAAG and that is proficient in performing these kinds of inspections. You get an impartial, unbiased report of all of your buildings and its deficiencies, which should carry more weight with management. In addition, while there is a fee associated with subcontracting a service like this, in general that fee is usually more than offset by the efficiency with which the study is performed and the quality of the work from the experience of the consultant.

The results of a study such as this should then be prioritized to best meet your company goals. Perhaps the focus is on a building or group of buildings that has the most exposure to the public. Alternatively, you may want to focus on the “lowest hanging fruit” to knock out as much work as possible while the buildings are less occupied. Your consultant can help you with this prioritizing effort as well.

At the end of this effort, you will will have a plan of action, perhaps even with budgetary costs, so that you can get your buildings more into compliance with ADAAG. You may not be prepared to address all of the findings at once, but having a plan of action is the first step to full compliance and avoidance of any future problems.

© Michaud Engineering Inc. 2020

Getting it Done During the Pandemic

Getting it Done During the Pandemic

Robert S. Michaud, P.E.

July 23, 2020

The Covid-19 pandemic has certainly caused a great deal of stress and uncertainty in many businesses. The result, in many cases, is a hesitation or a holding out of projects and programs as businesses wait to see when this pandemic status may end. At the time of this writing, there is no clear end in sight. There are hopeful signs of vaccines and therapeutics that are being expedited through trials, but the reality is that we will likely be in the same business posture six months or a year from now. As depressing as that sounds, there is some up-side to it. The fact is, for those fortunate businesses that have not been completely closed by the virus, we have largely adjusted our business practices to make the best of the current situation. We have put into practice methods and procedures designed to minimize the risk to our employees and our customers. As challenging as this situation is, if you are reading this and your business is operational – congratulations, you have adapted.

So what now? No, we cannot go back to the pre-Covid “normal” days just yet, but that doesn’t mean that we are completely dead in the water either. In fact, our next challenge is going to be to get back to those “normal” operation items and get them done as best we can, even in these non-normal times (I refuse to use the term “new-normal” because that implies that our current status is the way it will always be going forward, and that just isn’t likely). The maintenance back-log has been growing over the last 4 months and it isn’t going away by itself. Those capital projects that were up for discussion at the first of the year still need to get done. The inspections of your facility and infrastructure still need to happen, even if the results from the inspections won’t be acted on until after the pandemic passes.

The bottom line is that life moves on, and so does our work. The key to our survival is our amazing ability to adapt to a wide range of circumstances. For the past few months, we have gone through several phases from locking down completely, to slowly emerging and gradual re-opening, to adapting policies and procedures. These adaptations will continue and the strongest companies will be the ones that took this opportunity to maximize what they COULD get done, rather than dwell on what COULD NOT get done.

Take some time to look at your facilities and put together plans of action to address those things that are feasible. Can you have your roof inspected safely? Sure. Can you have a consultant evaluate an HVAC problem that has been giving you trouble? Of course. How about taking a closer look at the manufacturing line to see if there are better ways to improve production and efficiency while complying with new safety protocols? Yes, there are consultants and contractors that can safely help here too.

The world hasn’t stopped turning. We cannot wait until things are back to normal to get done what needs to be done.

© Michaud Engineering Inc. 2020

Engineering Resources for SMBs

Engineering Resources for SMBs

Robert S. Michaud, P.E.

June 9, 2020

Engineering is a mysterious word to the general population. Just ask someone what they think an engineer does and you are likely to get a response that varies from a blank stare to “someone who designs stuff”. OK, so the latter is true – sometimes. The truth is, engineering is a wide and varied field that includes a number of areas of expertise. These include things like design, as noted before, but also, maintenance, reliability, product development, manufacturing, research and inspections. In addition, the term engineering describes a wide range of education disciplines that includes (but is not limited to) mechanical, civil, electrical, and chemical engineering, and sub-disciplines such as computer, aeronautical, process engineering and many more.

Large manufacturing firms often employ many engineers in a variety of disciplines as dictated by their manufacturing needs. However, small more mid-sized businesses (SMB) may not have the resources or need for a staff of engineers, but may still need engineering support on a periodic or project by project basis. This is where a partnership with a suitably experienced firm can help propel your business forward. Finding and teaming up with an engineering firm to meet your specific needs, when you need them, can help you develop new products, enter new markets and solve more challenges without having to hire additional staff (until you grow to a sufficient level where that makes sense, of course). Another benefit to partnering with an engineering firm is that through their experience and contacts, they may know of other allied manufacturing firms, products, or tools that may benefit your business further. The concept of ‘networking’ isn’t specific to just the business development people – it can be real asset in helping to solve problems, find unique solutions and improve profitability.

So how do you find the right engineering firm to deal with? The same tools of networking apply here as well. Word of mouth from resources you trust is a good start. Beyond that, trade resources like Thomasnet.com or trade organizations that you may also be a member of such as ASHRAE, IFMA, AFE and others may be able to help. Professional associations such as NSPE, ASME, ASChE, ASCE are also good resources. Lastly, looking in your local community and making some phone calls sounds pretty old school, but still works. Start with an introductory meeting similar to a job interview and see if there might be a good fit.

© Michaud Engineering Inc. 2020