Office with 79% NBS (Seismic Grade B) - cause for concern?

[MM777]

Hello all,

I am in the DD process of purchasing a substantial high rise office building that has been assessed at 79% NBS - Seismic Grade B.

This is well above 67%, but who knows if these ratings will increase/decrease in the future.

The building has lost tenants over time. There are a number of reasons why but I believe the seismic rating to be a significant one.

Would you agree, or is 79% pretty good?

Given that it's a high rise office building, I imagine the cost of strengthening to 100% would probably wipe out the return (or worse).

Any thoughts welcome.

Cheers

[John the builder]

What area are you in ?

How high is 'high' and when was it built?

A big issue is the likelihood of actually having an EQ and how big?

[Davo36]

Yeah not enough information, need to know area, height, year built etc.

[Maccachic]

Was it an IEP or DEE/DSA assessment, increasing the NBS isn't necessarily extremely costly it depends on the building as to what options are available.

[MM777]

OK, the building is 10 storey's high.

It's the biggest building in Rotorua, in the central city; I believe it used to be the old IRD building.

It was built in the 80's.

It's an IEP report, but I have just learned that the building owner has been issued with another notice requiring further, more detailed inspection of the property, as tall office buildings from that era potentially have major structural issues.

The survey will cost $7k-$12k, money it seems the owner doesn't have, and it could be a major if the results come back negative.

This new information was not disclosed by the real estate agents, who claim to have no knowledge of the notice.

The lesson: Buyer beware! And don't trust agents. They have THEIR best interests at heart, not yours. No matter how nice they seem.

Needless to say, I am not pursuing this deal any more.

[Maccachic]

There was a recent purchase in Tauranga IEP of 22% originally syndicated for $9.7 million in 2006 (anchor tenant moved out after the low assessment) recently purchased for $1.1 mil - new owner commissioned a DEE assessment which brought it up to about 80% NBS and I have recently heard the owner is spending about $1 million and will have a 100% NBS building. This is a 6 story building.

So there are bargains to be had (or more homework to do if you own) in the earthquake area.

[John the builder]

It's an IEP report, but I have just learned that the building owner has been issued with another notice requiring further, more detailed inspection of the property, as tall office buildings from that era potentially have major structural issues.

It's an IEP report, but I have just learned that the building owner has been issued with another notice requiring further, more detailed inspection of the property, as tall office buildings from that era potentially have major structural issues.The survey will cost $7k-$12k, money it seems the owner doesn't have, and it could be a major if the results come back negative.

Council can only issue a notice is under 34% IEP something smells here?

This new information was not disclosed by the real estate agents, who claim to have no knowledge of the notice.

The lesson: Buyer beware! And don't trust agents.

The lesson is dont buy any building that you have done due diligence on including being prepared to spend 7-12k on a decent engineering report so you know what you are in for? Spend the money and then negotiate for the outcome you need? Dont blame the agent they are not engineers

[John the builder]

It was built in the 80's.

It's an IEP report, but I have just learned that the building owner has been issued with another notice requiring further, more detailed inspection of the property, as tall office buildings from that era potentially have major structural issues.

Council cant issue a 'notice' unless less than 34% and most post 1976 building should be above this. So something smells here if 79% is in doubt?

The survey will cost $7k-$12k, money it seems the owner doesn't have, and it could be a major if the results come back negative.

This new information was not disclosed by the real estate agents, who claim to have no knowledge of the notice.

The lesson: Buyer beware! And don't trust agents. They have THEIR best interests at heart, not yours. No matter how nice they seem.

the lesson is you shouldn't have been considering buying this building if you weren't prepared to invest 7-12k yourself in a decent engineering report. You should have structured your offer to allow for negotiation subject to the results.



Unless building have resilience that allow ease of repairs (and at cheap cost) it is silly to worry whether 79 or 100% as the building will likely stand up long enough to allow occupants safe exit but need demolishing after as Chch showed the issues are for insurers and cost of repairs.

Nick Smith has announced some tinkering but this only pushes out the resolution of the 'problem' in low risk areas and doesn't clarify the requirements and what they are intended to achieve. Safe occupant exist? or buildings that don't need repair/replacement?

[Davo36]

Hmm interesting thread.

Tough to spend $7k to $12k on a report when you don't if you will buy, or if someone else will whip in and beat you etc.

The value of going from 79% to 100% is a judgement call. Like can you get a really good tenant to pay a much higher rent if you spend the money? Or even, will you have a full building vs an empty building if you spend the money? All depends on the building, how much the value would go up if you spent the $1million vs not spending it etc.

Could be bargains out there, but you'd need to know what you're doing, have deep pockets etc.

[MM777]

Council can only issue a notice is under 34% IEP something smells here?

The engineer I spoke to (who did the initial IEP report on the building) would not go into detail, but he did tell me it has something to do with the CCTV building. As I understand it, certain buildings built around the same time have severe structural defects, and so the council are requesting that those buildings be thoroughly inspected.

The building I was considering was issued with one of those notices.

It may or may not have structural defects; it's impossible to say until a thorough inspection has been carried out.

The lesson is dont buy any building that you have done due diligence on including being prepared to spend 7-12k on a decent engineering report so you know what you are in for? Spend the money and then negotiate for the outcome you need? Dont blame the agent they are not engineers

I did not say that at all.

Of course issues come up in due diligence and generally you would negotiate an agreeable solution between both parties.

However, this case is different.

Based on what the engineer told me, if the report comes back negative, it would be cheaper to bulldoze the building and start again, rather than fix these defects. Obviously, this type of issue is a deal breaker.

Who in their right mind would spend $7-$12k on one of these engineering reports, without any guarantee of the outcome? If the outcome is negative, that money was essentially wasted. Well, you might have that kind of disposable income but I certainly don't.

I did not blame the agents, but this was basic due diligence which a prudent agent should have undertaken before listing the property - in my opinion. After all, I simply called the engineer who issued the IEP and asked what he thought about the building.

If I were an agent, that would be the first thing I would do before listing a property, but that's just me.

Council cant issue a 'notice' unless less than 34% and most post 1976 building should be above this. So something smells here if 79% is in doubt?

Again, apparently it has something to do with the CCTV building.

As we all know, that building had serious structural defects, and apparently it's not the only one in NZ.

So I can certainly see why councils are looking into some of these properties.

Anyway, as I understand it there is no legal requirement to get an inspection done, but if you don't, it goes on the LIM report.

the lesson is you shouldn't have been considering buying this building if you weren't prepared to invest 7-12k yourself in a decent engineering report. You should have structured your offer to allow for negotiation subject to the results.

I disagree.

If I spent $7-$12k on every building I looked at, I would be broke within a year.

I have never heard of a buyer spending that much money on an engineering report unless there was cause to do so.

In my opinion, a sensible seller should have invested in the report before listing.

Besides, the fact that he didn't disclose this pertinent fact, tells me he is blatantly dishonest, so what else is he hiding?

Unless building have resilience that allow ease of repairs (and at cheap cost) it is silly to worry whether 79 or 100% as the building will likely stand up long enough to allow occupants safe exit but need demolishing after as Chch showed the issues are for insurers and cost of repairs.

You are right, it's getting a lot tougher to get insurance and loans on buildings below 100%. 79% isn't bad but it's not 100%, and again as mentioned previously these ratings could change over time, for better or worse.

[John the builder]

You were doing due diligence? That means to me you had an offer on the table??

If they were selling with 79% then you had the right to demand that be justified or a deduction in purchase price. As Machachic has said there are bargains to be had if you are smart?