Physical Due Diligence — PCA, Roof, HVAC, and the Walk-Through

The physical due diligence phase is where you find out whether the building you're buying is actually in the condition the seller said it was. The seller almost always understates issues. Sometimes accidentally, sometimes deliberately. Your job is to find what they didn't disclose.

This lesson covers the property condition assessment, what to inspect personally, and the specific systems that produce the most expensive surprises.

The Property Condition Assessment (PCA)

A PCA is a written report from a qualified inspector or engineer documenting the physical condition of the property. It's the central document of physical DD.

What a PCA covers

• Building envelope (roof, walls, windows, doors)
• Structural systems (foundation, framing)
• Mechanical systems (HVAC, plumbing, electrical)
• Site conditions (parking lot, drainage, landscaping, retaining walls)
• Life safety (fire alarm, sprinklers, exits)
• ADA compliance assessment
• Estimated useful remaining life of major systems
• Estimated repair / replacement costs
• Recommended capital reserve schedule

The standard format is the ASTM E2018 Property Condition Report — institutional buyers and lenders expect this format. Most professional inspectors offer it.

What a PCA costs

• Small properties (under 10,000 SF): $1,500-$3,000
• Mid-size (10,000-50,000 SF): $3,000-$6,000
• Large properties (50,000+ SF): $5,000-$15,000+
• Multifamily (per-unit pricing): $50-$150 per unit, with minimums

A 24-unit Florida MF deal: roughly $3,500-$5,000 for a quality PCA.

Lenders often require PCAs

If you're financing the deal, your lender will require a PCA. Sometimes they have a preferred vendor. Sometimes you can use any qualified inspector but the lender must approve. Sometimes the lender wants to order it themselves and bill you.

Coordinate the PCA with the lender's requirements early. Don't pay for two PCAs because you didn't check what the lender wanted.

Choosing the right inspector

Not all inspectors are equal. For commercial DD, look for:

• Engineer credentials (P.E. is the gold standard)
• Specific commercial CRE experience (not just residential)
• Asset-class familiarity (a multifamily specialist for MF, an industrial specialist for warehouses)
• Professional liability insurance ($1M+ E&O)
• Reference list (call 2-3 prior clients)
• Sample report (review one before hiring)

Beginners hire whoever the broker recommends. The broker might recommend a friend, or the cheapest option, or someone friendly to the seller. Verify independently.

Reading a PCA

A typical PCA runs 50-150 pages. Don't just read the executive summary. Look at:

1. Immediate repairs — items needing attention within 12 months. Total dollar amount matters.
2. Short-term repairs — items needed within 1-5 years. Plan capex around these.
3. Capital reserve schedule — annual reserves recommended for replacement of major systems
4. Photo log — actually look at the photos. Inspectors take 100+ photos and they tell the story.
5. System-by-system narrative — read what they said about roof, HVAC, electrical, plumbing, structure
6. Limitations — what they couldn't inspect (locked units, areas above ceilings, behind walls)

The "limitations" section is where things get hidden. If the inspector noted "Unit 14 was occupied and not accessible," that's a unit you should personally walk before going hard.

Estimated capex vs. budget

The PCA usually includes a 12-year capital reserve schedule with year-by-year estimates. Compare this to your pro forma:

• Pro forma reserves: $200/unit/year × 24 units = $4,800/year
• PCA recommended reserves: $450/unit/year × 24 units = $10,800/year

If your pro forma understated reserves by $6,000/year, that's $60K over a 10-year hold. Re-underwrite with the PCA's numbers.

Walking the property yourself

The PCA is necessary but not sufficient. You need to walk the property personally. Multiple times if possible.

What to bring on the walk

• Camera (phone is fine)
• Notebook
• Flashlight
• Tape measure
• Moisture meter (cheap, $30 on Amazon)
• A friend or partner with a fresh pair of eyes
• A printed unit list / floor plan to mark up
• The PCA report (if received) to verify findings

Multifamily walk-through

For multifamily properties, walk every unit if possible. Or at least 50% of units, prioritizing:

• All vacant units
• A sample of each floor plan type
• Units that appeared in the PCA notes
• Units with reported problems
• The worst-condition units the manager will admit to

In each unit, look for:

• Water damage / staining (ceilings, walls, under sinks)
• HVAC condition (age sticker, unusual noise, dirty filters)
• Floor condition (worn carpet, damaged vinyl, soft spots)
• Cabinet and counter condition
• Appliance age and functionality
• Window condition (drafts, broken seals, damage)
• Bathroom plumbing (leaks, low pressure, slow drains)
• Outlets and switches functioning
• Smoke detector batteries
• Door operation and locks
• General cleanliness and tenant care level

Take photos. Lots of photos.

Also walk:

• All common areas (hallways, laundry rooms, lobbies)
• Mechanical / utility rooms (boiler, electrical panels, water heaters)
• Roof (if accessible — check for ponding, debris, recent patches)
• Parking lot (cracks, potholes, drainage)
• Building exterior (siding, paint, gutters, downspouts)
• Foundation (cracks, settling, water staining)
• Crawlspace or basement (moisture, structural)
• Site drainage (where does water flow during rain?)

Each takes time. A serious 24-unit walk is a half-day commitment.

Office and retail walk-through

For commercial buildings, walk every suite or storefront:

• Tenant-installed improvements (note who built them, who owns them)
• Damage to landlord's improvements
• Signs of HVAC issues (zone temperatures, drafts, complaints from tenants)
• Lighting condition
• Storefront / signage condition
• Signs of unauthorized alterations
• Condition of mechanical / common areas
• Restrooms

For multi-tenant properties, ask the property manager to introduce you to as many tenants as possible. Tenant gossip about the building is valuable — they know what's broken, what's been fixed, who responds to complaints, what the building feels like to occupy.

Industrial walk-through

For industrial properties:

• Floor slab condition (cracks, settlement, loading capacity)
• Clear ceiling height (measure at columns, don't trust the listing)
• Loading dock condition (levelers, doors, seals)
• Drive-in door operation
• Sprinkler system age and type (early ones are inadequate for modern uses)
• Power capacity and panel age (industrial users have specific needs)
• Trailer parking and yard area
• Drainage and runoff
• Environmental indicators (oil stains, chemical storage, drain locations)

The "obvious tenant" trick

If you see anything obvious — a roof leak stain, an HVAC unit that's clearly older than the seller said, a floor with visible water damage — photograph it and include it in your DD demand to the seller. Don't bury it. Showing the seller you noticed signals that you're being thorough and reduces the seller's room to play games.

The big-ticket systems

Some systems produce most of the surprise capex. Pay extra attention to these.

Roof

The most common big-ticket failure. A new commercial roof costs $5-$15 per SF depending on type. A 20,000 SF building with a failed roof is a $100K-$300K bill.

Roof red flags:

• Visible patches or repairs
• Ponding water (areas where water doesn't drain)
• Cracked, blistered, or wrinkled membrane
• Exposed or damaged flashings
• Vegetation growing in the membrane
• Stains on interior ceilings
• Missing roof drains or improperly sized drains
• Recent re-coating (sometimes hides aging)

Get the actual roof age from the seller. Compare to typical service life:

• TPO / EPDM single-ply: 20-30 years
• Built-up roof (BUR): 20-30 years
• Modified bitumen: 15-25 years
• Metal: 30-50+ years

If the roof is past 60% of expected life, plan for replacement during your hold period and budget accordingly.

For high-risk situations, hire a roof specialist for an additional inspection. $500-$2,000 for a focused roof inspection from a roofing contractor.

HVAC

The second most common big-ticket failure. Replacement costs:

• Multifamily through-the-wall units: $3,000-$5,000 each
• Split systems: $5,000-$10,000 each
• Rooftop package units: $10,000-$25,000+ each

For a 24-unit MF with 24 HVAC units, full replacement is $75K-$120K.

HVAC red flags:

• Visible age (10+ years for residential equipment, 15+ for commercial)
• R-22 refrigerant (banned, indicates very old systems)
• Rust on coils or housing
• Unusual noise
• Tenant complaints about cooling/heating
• Inconsistent temperatures across units
• Recent service tickets indicating recurring problems

Get the age of every HVAC unit (data plate has manufacture date). Build a replacement schedule into your reserves.

For commercial HVAC specifically, hire a mechanical contractor for a focused HVAC inspection. $300-$1,500.

Electrical

Older buildings often have inadequate electrical systems for modern needs. Issues:

• Original 1970s panels (Federal Pacific, Zinsco — known fire hazards, often uninsurable)
• Aluminum wiring (1960s-70s, fire risk, may need pigtail repairs)
• Insufficient capacity for new tenant uses
• Knob-and-tube in old buildings (extremely rare in commercial but exists)
• Missing GFCIs in required locations
• Damaged or improperly installed wiring

A licensed electrician can do a quick electrical assessment for $300-$800. Worth it for any building older than 1990.

Plumbing

Old plumbing means leaks, pressure issues, and eventual costly repipes:

• Galvanized steel water lines (corrode internally, eventually fail)
• Cast iron drain lines (crack, develop holes)
• Polybutylene (banned, must be replaced)
• Lead solder (older buildings)

Repiping a multifamily building is a six-figure project. If you find galvanized water lines, plan accordingly.

Foundation and structure

Less common but catastrophic when present:

• Cracks in foundation walls (especially horizontal cracks)
• Settlement / unevenness in floors
• Doors and windows that don't close properly
• Visible cracks in structural walls
• Sagging beams or floors
• Termite damage in older wood structures (Florida is termite country)

Structural issues often need a structural engineer to evaluate. $1,000-$3,000 for a focused structural inspection if PCA flags concerns.

Specific Florida considerations

Central Florida has specific physical DD priorities most national playbooks miss.

Insurance-driven inspections

Florida insurers require specific inspections and documentation:

• 4-point inspection — roof, electrical, plumbing, HVAC. Required for older buildings (typically 25+ years). Without it, no insurer will quote.
• Wind mitigation inspection — documents the property's wind-resistance features (roof attachment, opening protection, hip vs. gable roof). Discounts insurance significantly.
• Roof condition certification — many insurers won't insure a roof past 15 years without this

If you're buying in Florida, get these inspections during DD. Without them, you won't be able to bind insurance for closing.

Insurance binding

Get an actual insurance quote during DD, not just an estimate. The Florida insurance market is severely constrained — premiums have doubled or tripled in some areas, and some properties simply can't get coverage at any price.

Order: insurance broker quotes the property → underwriter reviews → binder is issued (or denied). This takes 2-3 weeks. Start early.

Hurricane / wind risk

Older buildings without wind-resistant features face:

• Higher insurance premiums
• Insurance availability issues
• Real risk in storms

Wind mitigation upgrades (hurricane straps, impact windows, hip roof) can reduce insurance significantly but cost $20K-$100K+ to install.

Termite history

Florida termites destroy wood structures. Pull termite history from the seller — bond, treatment records, evidence of damage. Get a termite inspection during DD ($150-$500).

Water table and drainage

High water tables cause crawlspace flooding, slab moisture issues, mold. Walk the property after a rain if possible. Look at how water drains around the building.

Sinkhole risk

Some Florida areas have sinkhole risk. Sinkhole insurance is a separate add-on. Verify whether the property requires it.

Common physical DD mistakes

1. Skipping the personal walk

Trusting the PCA without walking the property yourself. The PCA is a snapshot from a stranger; the walk is your gut check.

2. Walking only the model unit

For multifamily, the manager will eagerly show you the renovated model unit. That's the BEST unit. You need to see the worst units too.

3. Going alone

A second pair of eyes catches what you miss. Bring a partner, mentor, or your property manager candidate.

4. Not reading the photos

PCA photos tell the truth. The narrative often softens; the photos don't.

5. Trusting "recently renovated" claims

Recently renovated could mean cosmetic paint and carpet, not systems. Always verify what was actually done.

6. Forgetting the roof

The most expensive surprise. Always inspect the roof, always get the age, always plan for replacement timing.

7. Skipping insurance quotes

Especially in Florida. Find out what insurance will cost YOU before you go hard.

8. Ignoring tenant complaints

Talking to tenants reveals what the manager is hiding. Always do it on multi-tenant properties when possible.

What to take away

• A PCA is the foundational document of physical DD; budget $2K-$8K
• Reading the PCA means looking at photos, narrative, and capex schedule — not just the summary
• Walk the property yourself, multiple times, with your own eyes
• For multifamily, walk every vacant unit and a sample of occupied ones
• Big-ticket systems: roof, HVAC, electrical, plumbing, foundation
• Get age of all major systems and plan replacement schedule
• In Florida: 4-point, wind mitigation, termite, drainage are critical
• Get an actual insurance binder quote during DD, not an estimate
• Compare PCA capex schedule to your pro forma reserves and re-underwrite if different
• Tenant conversations reveal hidden problems — use them when possible

Next lesson: environmental due diligence — Phase I, Phase II, mold, asbestos, lead, and the contamination issues that can kill deals or be hidden in the noise.