What do the third party reports run on a 12,000 sf clinic before I even know I want it

Question

Under LOI review on a two tenant clinic building, about 12,000 sf, asking $3.6m. My lender contact listed reports she'd need and I only recognized half of them. Phase I, PCA, ALTA survey, appraisal, zoning.

What I'm trying to pin down is the cash out the door before closing, because if it's a few thousand I'll pay it to learn, and if it's twenty five I need to be much more certain before I sign. Also somebody said the seller's existing Phase I can be reused, which would help. Is that true?

Rena Guide · Accepted Answer

Rough ranges first, then the trap in your last question.

A Phase I environmental site assessment is a records search and site walk by a consultant looking for signs of contamination history. On a single building in most metros that's about $2,500 to $4,000. A property condition assessment, or PCA, is an engineer's report on roof, HVAC, elevator, paving and accessibility, usually $3,500 to $6,000 at your size. An ALTA survey, which maps boundaries and easements to a national standard, runs roughly $3,000 to $7,000 and varies a lot by state and surveyor workload. A lender appraisal on a $3.6m medical building often lands $5,000 to $8,000, because the appraiser has to build medical rent comps rather than pull them off a sheet. A zoning report is a few hundred. Add legal for lease and title review.

So plan on $15,000 to $25,000, and treat most of it as spent money the moment it's ordered.

On reusing the seller's Phase I, sometimes yes for your own information, usually no for the lender. Lenders want a report addressed to them from a vendor they approve, and consultants generally treat a Phase I as stale after a set period. You can ask the seller for their old reports anyway, because they tell you what was found last time for free.

One thing worth asking about early in a medical building specifically: prior x-ray processing chemicals, dental amalgam separators, and sterilizer or lab drains sometimes push a consultant to recommend further sampling. A Phase II with soil or drain work starts around $10,000 and adds weeks. Ask the seller what uses have occupied each suite since the building went up.

sonia_alvarez · Answer

On the loan side, expect to fund a deposit up front that covers the appraisal and the environmental, and it's usually non-refundable once ordered. Lenders order those through their own approved vendor list, so pricing isn't really yours to shop. Ask her for the deposit amount in writing before you sign the LOI, not after.

raj_mehta14 · Answer

Worth knowing the alternative if $20k of dead diligence cost is the sticking point. Sponsors syndicating medical outpatient deals typically set minimums somewhere around $50k, sometimes $25k, and they've already eaten the report costs. You give up control and you're relying on their diligence instead, which is its own problem, but you're not paying $6,000 to learn the roof is done.

derekj19 · Answer

Add lease abstracting to your list if there are more than a couple of tenants. Services charge somewhere in the low hundreds per lease to pull the dates, options, exclusives and reimbursement terms into one summary. On two tenants I'd read them myself. Above six I wouldn't trust my own note taking.

What do the third party reports run on a 12,000 sf clinic before I even know I want it

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