When building owners, asset managers and property managers are estimating future major repair or replacement costs, the present condition of the building systems must be known. Reasonable life expectancies must be established, and replacement costs must be identified, based upon on-site conditions. A review of maintenance practices must also be undertaken to ensure optimum life expectancies of building systems can be achieved.

A Capital Replacement Study includes a long-term review of the asset and provides a schedule for when major system replacements will be necessary. Included in the study are cost estimates for the replacements.

In order to prepare the Capital Replacement Study, the following scope of work is typically carried out:

1. Review of construction documentation including drawings survey plans and specifications.
2. Review of component warranties, maintenance records and previous repairs and/or maintenance work through discussions with building management staff.
3. Compilation of an itemized list of main building components.
4. Visual survey of the main building components. The survey will establish the estimated remaining life of the building components as well as on site conditions that may influence the estimated replacement cost.
5. Prepare a detailed quantity “take-off” of each item
6. Calculate replacement or major repair cost estimates for each component.
7. Prepare an itemized listing of the replacement or major repair costs and estimated remaining life expectancy.

Although a 20-year time frame is typically used for forecasting, shorter or longer periods can be employed to suit a client’s specific needs. The schedule of component replacements will show a total cost for each year in present value dollars, as well as future value dollars, based on an anticipated inflation rate.

In order to maximize the benefit of a Capital Replacement Study, the study should be updated every three years.

Financial Analysis

A financial analysis, incorporating the results of the Capital Replacement Study physical analysis, can also be prepared. This would involve preparing a cash flow schedule that depicts the required level of capital savings and the required level of annual contributions necessary to a Capital Reserve Fund, for adequate funding of the necessary replacements.

Report Format

The report format for a Capital Replacement Study could be a simple series of spreadsheets showing the necessary information or a more detailed review of the systems can be integrated with the Study. Again, the needs of the client will dictate the level of information provided in the report.

For more information on Capital Replacement Studies, please contact our office.