Gran Via, main shopping street in Madrid, Spain
In recent years, building surveyors in Spain have experienced increasing demand for technical due diligence (TDD), to support investment and asset manager clients in a variety of operational purposes.
Such purposes can include refinancing or using the assets as collateral. Sometimes TDD is commissioned so managers can better understand their portfolios and make strategic decisions. More and more, though, it is carried out for occupational purposes, mainly at the request of commercial real-estate departments in multinational companies.
Another clear trend is the increasing number of transactions involving portfolios rather than single assets. In this case, the screening that TDD offers will vary depending on the size of the portfolio.
On the technical side, foreign investors are requesting that special attention be paid to building facades, even if there are no local requirements for external wall system assessment. Similarly, there is no legal need to modify code-compliant facades, even if codes have been updated subsequent to construction.
TDD services in Spain are offered both by international companies with specialised departments and by local companies. The latter can have links to RICS, or employ staff who have previously performed TDD in international companies.
In either case, the common approach to the process is to put together a team that covers several disciplines, including architectural, urban planning, mechanical and electrical services and the various environmental services. This team can provide the client with the full picture in a single report, rather than annexing specialists' reports to the one prepared by the building surveyor.
This means that the building surveyor has a coordinating role, ensuring that all aspects analysed by the team are considered in context and that together they meet the client's objectives for the TDD.
As building surveying is not an accredited degree subject in Spain, work on the technical side of due diligence is performed either by architects or by technical architects, both of whom are competent to perform such tasks. Some of these professionals have become chartered building surveyors, because RICS membership reassures clients that professionals are working to a reputable, internationally recognised standard. There are also, of course, some expatriate building surveyors working locally. But not all companies have chartered surveyors on their staff.
The systems by which the UK and Spain mutually recognise educational qualifications are complex. As a result, professionals educated in the Spanish system can only become chartered through the senior professional route – which entails either that they have ten years of technical and managerial experience, or take an RICS-accredited degree on top of their original qualification. This is the reason why there are few chartered building surveyors in the market.
Given that a large proportion of investment comes from international clients, reporting is conducted mainly in English. This means that language can also be a barrier to performing TDD on a regular basis.
There are some particular factors about the Spanish market to understand when commissioning or completing TDD, which make the process slightly different to the way it is conducted in other countries.
For instance, there are myriad technical and urban planning regulations to understand and follow. Some aspects vary regionally or even locally, while others depend on the date the asset obtained its construction and operating licences.
Identifying defects and regulatory compliance is difficult given the impact of new regulations. These change constantly to address local and international environmental agendas, inclusivity, fire safety concerns and issues with backlog maintenance or end-of-life equipment.
Furthermore, there is no harmonised standard for building measurement. It will take years for the market to adopt the International Property Measurement Standards (IPMS), or approve an alternative national standard.
The asset and its construction also need to be analysed, not only from a technical perspective but also in terms of sustainability to comply with the EU's 2030 and 2050 carbon targets and energy efficiency agenda. This means TDD teams need to acquire more and more skills.
There are 17 autonomous regions in Spain, each with distinctive land planning laws. Every city then develops its own urban planning regulations from the respective region's land legislation, and these define the parameters under which assets can be built.
There is a national framework summarising the types of licence that each asset requires, according to its use. However, there are always differences between the way each city hall works. In some, activity and operating licences can be obtained by submitting a responsible statement to the city hall signed by the owner, developer or a tenant. This is in effect a declaration of honour on their part that the building or the project complies with regulations.
Madrid has, for instance, updated its licensing process to make responsible statements the norm, using the full process only in specific cases. Commercial building permits can mostly be obtained by submission of responsible statements.
However, other cities require the full licensing process to be followed. Local authorities may or may not verify responsible statements at completion of the works or during the building's operation. The licence requirements change not only between different cities but also depending on the type of asset to be built.
Building control responsibilities lie with the local authorities, although some major cities have now delegated this process to external entities that act on behalf of city hall technical departments, which speeds up approval. Projects approved or verified by these entities are treated as if the local authorities had done so themselves.
To carry out TDD effectively, the surveyor therefore needs to investigate the history of the building's licences, understanding the requirements at the time they were obtained and whether these were fully met. Most of the time this exercise is completed in conjunction with the client's legal team, but the surveyor will be responsible for verifying that the parameters and the conditions of the licences are fulfilled.
If the planning laws have changed since construction, it is also necessary to verify whether the building fails to meet the newer requirements in part, or in full, to determine the impact and investment requirements that may arise if refurbishments are required.
Construction regulations in Spain previously comprised several standards that were not often updated, save perhaps for the fire regulations. In 2006, however, Código Técnico de la Edificación – the Spanish Technical Building Code – grouped and updated all these regulations. Since then, the code has had three major updates and regular minor changes.
Except for specific aspects, such as building accessibility or energy efficiency, updates in regulations do not apply retrospectively unless the building is refurbished. Building surveyors and mechanical and electrical engineers thus need to consider when a licence was obtained for a building, so they can assess whether the new regulations may have an impact when the building or any of its systems needs refurbishing or replacing.
This exercise is becoming more and more complex when considering all the modifications or upgrades required to meet the 2030 and 2050 carbon targets and comply with environmental, social or governance (ESG) requirements.
Perhaps due to the complexity of the licensing processes and the absence of compulsory third-party oversight – such as the building control approval process in the UK – analysis of buildings could find many defects arising from poor compliance with regulations, even those that were applicable when they were originally built. This has become more challenging with the responsible statement licence processes being used as projects are not necessarily approved by an external entity, and designers' interpretation of the regulations may not in fact be compliant.
A study by specialist insurer Asefa shows that 75% of the defects found in buildings result from poor design and execution, with the damage arising in waterproofing and secondary elements such as facades, partitions and finishes.
Spain does not have a harmonised set of measurement standards for buildings. Each type of asset is measured differently and subject to interpretation and third-party interests. The Spanish government has not adopted IPMS, so the standard is of limited use to clients in this market.
Rather than a single, national standard, there are instead specific measuring practices according to asset type. Offices are, for instance, measured generally using the standard created by the Association of Spanish Offices in 2014.
Measurements carried out under this standard are normally around 20% greater than IPMS 3. As a result, 20% of the value could be lost if these are not considered when applying the international standard, on which estimated rental values (ERVs) and rents are based. To overcome this, ERVs will need to be adapted and aligned with IPMS 3 measurements.
In contrast, the price of residential assets is set per square metre of gross constructed area, normally including common areas and amenities. This means it is impossible to make constructive comparisons. However, measurements for industrial and retail assets are quite close to one of the IPMS 3 options, so reporting based on the standard with minor deviations is simpler to explain to clients in these sectors.
For the chartered building surveyor, the lack of a harmonised measuring standard and Spain's failure to adopt international standards presents a significant challenge when reporting in compliance with RICS standards and for verifying the asset dimensions. However, this presents an opportunity for RICS to influence the market and contribute to the adoption of standards such as IPMS by the Spanish government.
BUILT ENVIRONMENT JOURNAL
Adrian Tagg MRICS 25 May 2023
BUILT ENVIRONMENT JOURNAL
Elena Dyer MRICS 23 May 2023
Dr Paul Beckett 22 May 2023