Recently we were engaged in a case which I’d like to share. My reasons for sharing are:
· to solicit feedback on the process we used and the result achieved; and
· because I’m really proud of our work here.
THE PROJECT
We were initially engaged to support an engineering assessment for the roofing assets at an 85-building multi-family apartment complex, subject to purchase by a national, multi-family investment real estate firm. During due-diligence, the engineer created an estimate for the roofs, which recommended full replacement due to age, wear and improper installation of various elements of the roof. The engineer, in an effort to be conservative, estimated that replacement would cost in excess of $1m and would be required immediately.
THE PROBLEM
The investors calculated that this additional >$1m would be materially detrimental to the purchase and ultimately “kill the deal.”
RE-FRAMING THE QUESTION
When we assessed the property, with a full understanding of the importance of the report, we noted and validated many of the concerns of the engineer/consultant. There were problems throughout the property, notably, the shingles were installed improperly at the gutters, hanging over too far. This over-hang of the shingles was causing them to crack/split and ultimately fail. Additionally, the roof pipes were consistently failing and most were improperly installed, causing leaks. Finally, there were many bullet holes in the roofs, also potentially causing leaks.
The vast majority of the roofing shingles were still viable, however, with appropriate granulation and many years of life to live out.
NARROWED SCOPE OF WORK
In this case, we estimated that a thorough maintenance plan would be more appropriate than the vastly more conservative full replacement. We proposed that a replacement of the first 1-2 rows of shingles leading into the gutters, properly installed, would be a better solution. Along with replacement of the pipe boots (seals) and light maintenance for bullets and small issues, the cost for ‘updating’ the roofs would be well below the cost for full replacement.
Estimated costs (retail) for these repairs was bid at +/- $150,000, allowing for the postponement of $900k in re-roofing costs and ultimately salvaging the transaction.
CONCLUSION
The moral of this story is not repair-over-replace. The engineer was entirely correct that the fool-proof solution for this property was to re-roof. But the report lacked the context that the deal couldn’t be done with the expansive costs associated with re-roofing. By asking some questions, and understanding the context of the request, we were able to determine what they really wanted and create a plan which allowed for achievement of their ultimate goal.