Refinancing Condition Assessments

When borrowing money to purchase commercial real estate, lenders will often require purchasers to obtain certain reports as part of the financing term sheet. Commonly this involves providing to the lender a report on the physical condition of the property, a Phase I Environmental Site Assessment and potentially other reports. These reports may be required when writing a new mortgage or renewing an existing mortgage.

There will be different requirements for these reports, depending upon the lender. However, most lenders are aware of the ASTM standard E2018 for Property Condition Assessments and require the reports meet this standard as a minimum. However, there may be variances to the ASTM standard that lenders require, which could include items such as a longer timeframe for considering capital replacements. The ASTM standard requires cost estimates be provided for repairs likely to exceed $3,000 within the next two years.

Some lenders will require the timeframe for planning capital replacements be extended to ten years or sometimes the term of the mortgage or the term of the mortgage plus two years. Additionally, lenders may require a somewhat higher cost threshold for cost estimating in the report. The ASTM threshold of $3,000 may be too low, and a threshold of $5,000 or $10,000 will sometimes be requested.

Through CDW Engineering’s relationships with Environmental consultants, we are capable of providing a Phase I, II and III Environmental Site Assessments as part of our Property Condition Assessment, so that both requirements can be met for the lender through one point of contact.
Often when the Property Condition Assessment or Environmental Site Assessment is required by the lender, the lender will also require a reliance letter be provided in their favour. The reliance letter allows that the lender can rely on the report as if it was addressed to them. This provides added protection for the lenders, knowing that the engineering company will stand behind their reports. CDW Engineering always provides reliance letters for lenders of our clients, free of charge.

At CDW Engineering we also know the importance of our clients selecting an engineering firm that is known to their lender and on their list of “approved” service providers. To that extent, we actively seek to ensure we are on all approved lists for the major lenders.