Structural and seismic engineering reviews.

More and more, lenders, insurance companies, and prudent prospective buyers consider Structural/Seismic Engineering Reviews (SSER) to be an essential component of an overall "due diligence" property assessment report. The need for other elements of such a "due diligence" report (e.g. environmental, asbestos) have been widely discussed and are well known to most in the real estate industry. However, the nature of, and the reasons for, a structural/seismic review are less well understood.

Buildings in regions of high seismic risk, such as California, may be subject to moderate or even great earthquakes during their lifetimes. Although seismic requirements of building codes have undergone major revisions over the last several years, many buildings remain vulnerable to earthquake damage. What most lay people do not realize is that building codes are intended to be minimum standards with protection of life being the primary criterion. The code requirements tacitly accept some non-structural and structural damage for moderate to large earthquakes. Moreover, the seismic risk to facilities constructed to older building codes may be substantially greater. A false sense of security may develop by observing that a particular building has withstood past earthquakes without apparent damage. After all, the thinking goes, if a building has been standing and functioning for some time, it must obviously be satisfactory from a structural point of view. This common assumption that the performance will be equally satisfactory in a major earthquake is not valid.

Another common misconception is that recently designed buildings approved by municipal building departments are without significant design flaws. While this is indeed generally the case, experience has shown that there are exceptions. This is understandable given the demanding workload and schedules of the typical design engineer and plan check official. The SSER is intended to identify seismic vulnerabilities and design deficiencies that may manifest themselves in the future.

The SSER provides a structural design review by licensed professional engineers. This is in sharp contrast with a "condition report" that typically describes only the physical condition of the building and may discuss the structural design only from a very cursory point of view. Also, condition reports are often performed by architects or building inspectors while the principal investigators for the SSER should always be licensed professional engineers. The scope of work for the SSER is also quite different from the condition report. The following tasks are common elements of the SSER:

* A document review is performed to identify the general approach to the structural/seismic design of the building and evaluate the overall design based on current building code requirements. The documents reviewed would include structural drawings, structural calculations, and geotechnical reports.

* A site visit is performed to review the existing condition of the building structure and identify modifications that might change the structural performance from the original design. The general practice for seismic anchorage and bracing of major building service equipment is also noted during the survey.

* The earthquake hazards at the site, due to strong ground shaking, surface fault rupture, and soil instability due to liquefaction, would be assessed.

* Based on the findings from the tasks, above, an assessment of the potential loss is made for a given earthquake scenario. This is usually expressed in terms of percent of building replacement value. The insurance and mortgage lending industries have generally required a Probable Maximum Loss estimate, or PML, as one of the decision-making parameters for financing.

* Finally, mitigation measures may be identified, along with associated cost estimates for implementation, that could lead to reduced potential damage and loss. This could include recommendations for structural upgrading and/or equipment anchorage.

The results of such a study would allow potential lenders and buyers to recognize the level of seismic exposure of a given property. The risk can be dealt with by purchasing insurance, in which case a more educated decision regarding the amount of coverage can be made. Alternatively, a proactive approach, such as strengthening the building, can be taken. The SSER could also influence the building's functional use. For example, a "seismically vulnerable" industrial building could be used as a warehouse until such time as seismic strengthening is performed. In extreme cases, the lender may decide not to finance (or a buyer may decide not to purchase) buildings with unacceptably high levels of earthquake risk.

Finally, seismic considerations will be much more prominent in the future for existing buildings for several reasons:

The State of California has recently enacted "commercial property earthquake weakness disclosure" legislation that affects commercial properties constructed prior to 1975; moreover, several municipalities in California have drafted or enacted legislation that will require eventual seismic upgrading of certain types of buildings;

Portions of the Pacific Northwest have recently been reclassified to a higher seismic zone (now Zone 3) including the western half of Oregon and the coastal region of Washington. This has a very significant impact on new design due to stringent Building Code requirements that are triggered for zones higher than 2. Of course this new zone classification has a marked impact on the perceived value of older buildings. In the Central and Eastern United States, earthquake awareness also continues to increase.

A structural/seismic engineering review could alert a potential buyer to issues that may eventually need to be addressed. Potential buyers are becoming more sophisticated and today's buyer who decides to forego the type of study discussed above may be in for unpleasant surprises when he becomes the seller and the next buyer does have a structural/seismic engineering review. Douglas Silver is a California-licensed Civil and Structural Engineer and is chief financial officer with Seismic Design Consultants based in Sherman Oaks.