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Do post tension structures experience stigma?
Has the City of Calgary over-assessed buildings containing post tension cable construction by not allowing for additional costs in three areas: 1) annual inspection, 2) delay in due diligence for mortgage/sales, 3) demolition?
Do properties with extensive post tension construction repair suffer from an additional real or imagined loss in value, i.e. stigma? If there is a value loss, does it occur before the repairs are undertaken, after, or both. If this is so in one case, does the negative influence of the stigma extend to all properties containing post tension construction?

Rickard Realty Advisors Inc. have been involved in the fair and equitable valuation of property for municipal assessment for fifteen years, primarily in Western Canada. Presentations are regularly made by Rickard Realty to oversight committees, who in turn determine assessments which distribute the cost of operating a municipality equitably amongst property taxpayers. The following accumulated research in this field will help property owners, managers, and valuers recognize that in some circumstances found in Calgary, there is loss in real estate value due to the effects of stigma.

A phenomenon occurred in Calgary during the ten-year period from 1975 to 1985 which has given rise to measuring the impact of stigma on structures containing post tension construction. The boom in Alberta, driven by record high oil prices, put an unprecedented demand on the rapid construction of new structures. Many of these buildings used a recently developed, for the time, technique of Post Tension Construction (PTC).

A simplified review of PTC systems shows high tension cables pulled taught through hardened concrete, which then helps prevent cracking and settlement. Cable failure has unseen and unexpected harmful effects, ranging from simple monitoring or deteriorating structural capacity to building condemnation.

Calgary acquired more than average numbers of PTC structures during this period, due to a number of factors. Architects, using pre-manufactured PTC slabs could expect faster erection times because of prompt delivery from a local plant. PTC structures were known to be less expensive because fewer posts and beams are required. They also provided greater free span distances in parkades, making a designer’s job easier.
When, in hindsight, PTC installation techniques were found to be inadequate, significant numbers of buildings experienced extraordinary expenses for repair. It is understandable that property owners sought to minimize the impact of PTC related expenses by adopting various strategies. After this initial stage, most repairs were put off unless they were imperative. Monitoring became prominent. Canada Mortgage and Housing Corporation called for annual testing and maintenance programs on all high-rise condominiums.

When repair work was done, techniques varied from replacing the cables to a floor reinforcement system. Each system has its own drawbacks. Stringing new cables, ranging in cost from $400 to $1000 each, does not guarantee the integrity of the building unless it is part of a comprehensive cable replacement program. Rather than all new cables, there is the option of installing a new steel substructure at rates between $20 and $25 per square foot. This extraordinary measure is usually undertaken in conjunction with replacing some cables, but can also be used together with grease injection and cable drying techniques. A least cost solution is usually used due to the impossibility of guaranteeing the restoration results.

Since cables lay in an undulating manner and are not straight, there is no guarantee that damage at one inspection hole does or does not exist further down the length of the cable. This fundamental flaw becomes paramount once the moisture proofing has been violated. Air drying and grease injection techniques are not guaranteed to stop corrosion. Corrosion detection is therefore a hit and miss affair. At this point all that is available is the ‘best efforts’ of contractors and engineers. Contrast this with the virtually unlimited guarantee that can be offered for the structural integrity of a building constructed with typical reinforced concrete construction methods.

While the actions of owners and managers of PTC structures in minimising expense is understandable, it is inappropriate to confuse deferred maintenance with value loss. Determining the impact of any value loss is therefore squarely on the shoulders of those involved in valuing the real estate. This study, while not intended to quantify the amount of value loss in any given structure, does explore the various forms of value loss. Moreover, the study makes abundantly clear that substantial evidence does exist for the ongoing systematic reduction of value in some PTC structures.

A rule of convenience has developed regarding the treatment of ‘cost to cure’ items, sometimes called deficiencies, in valuing real estate. The rule begins with establishing the value of a property independent of any deficiencies, after which deductions are made for irregularities. Assuming that the property under review is in average condition, its value can be derived despite any imperfections. This rule works well for situations where the cost to cure is outside knowledge normally possessed by real estate market place practitioners. This type of situation may occur when valuing a contaminated property or major structural defects in a building.
Turning to the survey of Calgary property mangers, 114 companies were contacted with a thorough questionnaire. When the responses were tabulated, 87% of the 52 companies that participated in the telephone interview were found to have first hand or indirect experience with PTC structures. The completed survey results are shown in the questionnaire results.

Notice that in Chart 1 only 13% of the respondents were able to identify the magnitude of the issue in Western Canada, (only 7 of the 52 respondents knew that there were more than 300 PTC structures). In fact, the Calgary Assessment Department reports that there are 400 PTC structures in their jurisdiction. This construction system is still popular throughout North America. It has, however, worked better in dryer climates where there are fewer examples of a loss in value due to cable corrosion and breakage.

Chart 2 is where the real impact of PTC, outside the cost to cure items, comes to bear. Note that five separate costs are identified. A consistent percentage of individuals felt that both mortgage and insurance costs are higher (23% and 52% respectively) for structures containing PTC. In a similar vein, renovations were thought to be more expensive by 75% of the respondents. Fifty-six (56) % per cent of those answering said that monitoring for cable breakage added a new expense. The costs varied depending on the size and condition of the building, but ranged from $500 to $5,000 annually.

One of the surprising discoveries was that only 8% of respondents felt that it would take longer to rent space that was affected by post tension construction. Seventy-nine (79%) per cent said there would be no change in the time it took to lease out space in a PTC building.
National companies are known to specify properties which do not expose their employees to any risk. Breaking cables and the interrupted service that results from PTC deficiencies would be of concern to knowledgeable tenant’s agents. It could be that the people surveyed in ‘A’ grade buildings were not knowledgeable in this area because they are not responsible for leasing space. Further research is appropriate with leasing managers to establish the true impact of PTC on tenant preferences.
When thinking of acquiring or subsequently disposing of a PTC property, it was found that almost half of the participants agreed that this type of real estate was unique. The length of time and cost to acquire a PTC structure was considered to be greater by 65% of the respondents. Similarly, when relinquishing this type of structure (given that all else was equal), 48% of participants estimated that it would take longer to sell. Almost half (46%) said that market value would be negatively affected by the presence of PTC construction.

In the last set of questions, participants were asked about the impact of PTC on the life cycle of a structure. Twenty-five (25%) per cent said that PTC life span was shorter than conventional construction, although only a few had an opinion. Forty-six (46%) per cent said that the original construction costs were less than cast in place concrete with standard reinforcing steel bars. Demolition was thought to cost more by 42% of respondents. To date, however, there have been very few demolitions of PTC structures. The issue of de-stressing the cables has obviously not been adequately explained to property managers, as only 22 of 52 had an opinion.

This investigation asked several questions at the outset. It can be said that, yes, there is a value loss due to stigma in larger Calgary structures, built between 1975 and 1985. Since it is faulty construction that gives rise to the value loss, that portion due to stigma is dependent on the date when a restoration is discovered to be necessary, and ultimately, the magnitude of the restoration. The evidence of this extends to all structures containing PTC. The exception occurs when a structure has had its PTC tendons de-stressed by some type of alternative support system. Knowledgeable investors are aware of the technological improvements that have been made in the late 1980’s.

In summary, the reasons for a value loss due to post tension construction failures in Calgary are numerous. Mortgage and insurance costs are found to be higher than normal. Renovations are more expensive. Monitoring costs are unique to this type of construction. Getting into and out of this type of real estate ownership is identified as more expensive and time consuming. While construction costs are lower going into a project, demolition is considered to be higher. In addition, some felt that the life expectancy of PTC structures was shorter. In the final analysis, 46% of the respondents felt that the market value of a property would be negatively affected by the presence of PTC. On average, the value loss is estimated to be 10% of the property’s market value.
Archive  
The Assessment Monitor - January 2008 - Report on Calgary Property Tax & Assessment Matters
Why your hotel assessment should always be less than market value.
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Do post-tension structures experience stigma?
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