Earthquake damageability criteria for due diligence investigations

Abstract

Earthquake vulnerability is an important financial issue in evaluating the acceptability of a property as a security for a loan or for an equity position. Such analyses are usually performed as part of the due diligence assessment of the property. Probable loss (PL) and scenario loss (SL), for both design basis and maximum capable earthquakes, were assessed to determine their utility in damageability analyses. Evaluations were made for a range of building damageabilities and for 14 sites throughout the United States that are representative of seismic hazard from very high to low. Portfolios from one to 16 buildings are considered. The analysis indicates that none of the damageability criteria is sufficient to distinguish between good and bad buildings to be securities for loans or to be good risks for equity investment for general use throughout the United States. Scenario upper loss (SUL) and probable loss (PL) values are consistently very stringent criteria for individual buildings in moderate-risk and high-risk regions, while scenario expected loss (SEL) values are too lenient in moderate risk areas. PL and SUL criteria are much too stringent at the 20% threshold level to be used generally, except for a group of well-designed buildings. They can be acceptable if threshold values for acceptance are set to be above 20%. The SEL criterion is evaluated as not adequate to discriminate between good and bad damageability buildings by itself. It can work well in combination with a stability criterion so that buildings with poor predicted earthquake performance are eliminated based on stability, not damageability. It is recommended that combined criteria be used for fiduciary evaluation that includes both an assessment of the stability of the buildings and a damageability assessment to achieve a balanced, consistent evaluation of the suitability of the buildings as securities or as investments. Four alternative acceptance criteria are recommended for due diligence assessments. It is recommended that all due diligence reports include evaluations of scenario and probable losses for each building and the group so that they can enter into the decision process for the property. Copyright © 2002 John Wiley & Sons, Ltd.