Archive for category Investment

One Size Does Not Fit All When It Comes To The Applicability Of Code Issues And Compliance

Whether using one of the model codes or a site-specific code, such as New York City’s Building Code, the task of analyzing and applying the applicable code requirement for a particular situation is best suited to a professional code consultant who understands the variations in codes from location to location. Owners and facility managers, primarily concerned with minimizing their risk on any scale of a project, need to understand which design professional is responsible for ensuring code compliance where the project is being built.

Domestic codes

The applicability of various domestic and international building codes reveals why owners should become aware of the assignment of responsibility for building code standards and/or oversee building code compliance for the projects they develop. A building code is a set of specifications and procedures designed to cover all aspects of construction. These codes stipulate the products or materials that can be used for a building or structure, what construction processes are permissible, and who can perform specific construction activities. Underlying all principles applicable to building codes is the protection of the public health, safety, and welfare as it relates to the following design/construction disciplines: structural, mechanical, electrical, plumbing, life safety (egress), fire safety (protection and suppression), natural light and air, accessibility standards, and energy conservation.

Since standards are at the heart of any building code, they attempt to be exact but they also allow flexibility for improvement. Building codes represent a composite of three sets of discrete information: (1) definitions of terms; (2) licensing requirements; and (3) the building standards themselves. These standards find their way into local codes either through one of the model code associations discussed below, federal law, or through direct lobbying at the local level.

There currently exists a complex web of hundreds of divergent national, regional, and local codes, which are all in a constant state of flux. This collection of building codes makes it extremely difficult for owners to provide oversight and building code expertise for the numerous projects it may undertake locally or globally.

For the reasons set forth below and because of the complexities and associated liabilities involved with assuming responsibility for the various codes, owners are encouraged to take more active roles in the preparation of their design services agreements to ensure who is responsible for code compliance for their projects. Responsibility for this area should be placed in the hands of local architectural and construction professionals retained for each project. Furthermore, owners who create a contractual framework which indemnifies owners from claims and liabilities associated with the services performed by architectural and construction professionals will be better protected should the project not pass inspection.

One project does not fit all

Despite the push towards one universal code, every community in the United States has adopted one of many building standards. Building code regulation, like construction itself, has long been considered a local activity. The prevailing pattern of regulatory use in the United States regarding building codes is one best described as being laissez faire, with each community determining its own building code requirements. Even with state codes, a pattern of local independence has evolved and efforts in achieving an all-encompassing national measure that is reciprocal among states has, for the most part, been difficult to adopt universally.

There are three model code associations in the United States which actively solicit member cities and municipalities to adopt their model code. While there is some overlap regarding the jurisdiction of these code associations, the country is generally divided into areas dominated by one of the model codes: (1) the International Conference of Building Officials (“ICBO”) predominately is adopted in the West; (2) Building Officials and Code Administrators (“BOCA”) in the Northeast; and (3) Southern Building Code Congress (“SBCC”) in the South.

There has been a push over the last several years by a fourth model code association, the International Code Council (ICC), to consolidate the three major codes into a single unified national code. Despite the ICC’s attempt to draft and seek endorsement of a single national building code, known as the International Building Code (“IBC”), many municipalities have hesitated to adopt the new code because it was merged too quickly, and as a result, lacks the specificity most local jurisdictions want in their code.

Furthermore, the possible emergence of a universal building code has given rise to the development of an alternative model code based on performance. As the ICC struggles to merge the three model codes, a subgroup of the ICC has prepared the International Code Council Performance Code for adoption by municipalities as an alternative to the IBC. The fundamental difference between the two codes is found in their structure. The IBC is a conventional prescriptive code that details exactly how a building component or system must be designed. The performance code, on the other hand, explains the intent of a code in a specific situation and lets the designer figure out how to meet that objective. This fundamental difference in the structure of these codes adds a new level of complexity for design/construction professionals charged with code compliance and interpretation.

The reality of complying with local codes

While the adoption of model codes at the municipal level has been an ongoing trend dating to the early 1960s, the elimination of locally drafted codes will most likely never take place as long as municipalities and cities choose to retain their unique identity and character owing to each location’s practice of design and construction. The existence of a wide variety of building code requirements from one city to another, even among neighboring cities, will likely remain in the construction industry. Many municipalities in the United States have retained their local codes and show no sign of adopting model codes to replace their own because of their particular unique social, political, and building environment.

A considerable measure of variation has produced divergent building codes where regions differ characteristically by way of urban planning, built environment, local climate, and geology. For example, northern cities must provide for snow loads while southern cities must contend with other environmental conditions such as solar heat gain and hurricane/tornado season. Furthermore, many of the largest cities in the United States evidence special code requirements that manifest their own special problems. For example, New York City, has a unique high-rise/high-density urban condition not found in other large cities. As a result, New York City applies its own code as separate and distinct from New York State and Federal regulations. Read the rest of this entry »

, , , , , , , , ,

No Comments

Cash on Cash Return

Cash on Cash ReturnEvery investment is only as much worth as the return it generates for you. In every business, you have to evaluate profitability if you want to have any hopes of staying afloat. More importantly, you need to calculate the cash inflow for every investment you make. When it comes to real estate investment, one way of knowing the profit generated from a venture is to calculate the cash on cash return paercentage. The aim of this article is to present the cash on cash return formula for all those of you, who are new to this concept.

Of all the investments you will make in your lifetime, one of the most important ones is real estate investments. If you have bought a property, not as a home, but as a pure financial investment, you need to evaluate the cash return that it is generating for you. Cash on cash return is a ratio that will help you understand the profitability of any of your real estate investments. Let us see what cash on cash return as a real estate investment is in the next section.

What is Cash on Cash Return?

Simply put, cash on cash return is the ratio of the profit or cash flow generated by a property and the amount of net investment made in it, multiplied by 100. The cash flow or profit generated, which is used in its calculation, does not include taxes charged on the returns. That is, the profit considered is before taxes. Thus it is the percentage of cash that is recovered from your initial investment in a property.

This calculated ratio is mostly considered only a year after the purchase of a property. That is, it is only an estimate of the fresh profit generated a year after property purchase. It is not an accurate estimate for later years as it doesn’t take the time factor into consideration. A cash on cash return vs IRR (internal rate of return) comparison would reveal that the two concepts are quite different.

Most importantly, this ratio doesn’t consider the appreciation in price of property that may happen with time. Even though a property might be generating meager cash flow, its inherent worth might have increased with time. A cash on cash return percentage does not take this fact into consideration. Read the rest of this entry »

, , , , , , , , ,

No Comments