The Hidden Facets of Due Diligence

A developer of a bank-owned distressed office property recently learned that due diligence includes not only an examination of completed work in place and analysis of costs to complete unfinished construction, but also a look at updated building codes.
Engaged by a prominent lender to provide lender oversight on a construction loan commitment, FitzGerald review architects discovered that in the years since the office development was designed and permitted, many building codes applicable to the project had changed.
Since the original building permits were issued in 2006, all of the relevant building codes had been modified including the IBC, Illinois Plumbing and Electrical Codes, and Illinois Energy Code – some as recently as 2009.
Although a new building permit was issued, reliance on the older building codes put the developer at risk of not obtaining Certificates of Occupancy due to non-compliance with the codes now in effect. Issuance of a building permit does not necessarily mean the building complies with the building codes and local building officials might have found themselves in a position of enforcing state mandated codes.
FitzGerald recommended that the developer go back to the original Architect of Record to update the construction documents to reflect changes in the building and energy code in the intervening years. This recommendation contributed to mitigating potential additional costs associated with delays and retrofitting the building recently completed to historic standards. FitzGerald’s foresight helped avoid retro-fit costs and carrying costs associated with delays which would have been catastrophic to the developer and potentially our client, the lender.
For more information about due diligence on existing buildings, contact firm principal Mike DeRouin at 312-563-9100.