Browse Tag: due diligence

Due Diligence In A Hot Commercial Market

The character of commercial real estate markets all over the US has changed for the better in the past few quarters. Heightened volume means more deals and more competition, which adds up to extra time pressure on buyers. Particularly in the area of due diligence – also known as the research into  a property before a purchase.

Before finalizing a deal, but often after a down payment goes into escrow, a property’s financials need to be collected, closely reviewed and analyzed, all within a time limit.  That ticking clock is what takes causes pressure in a hotter market — it’s a critical set of tasks that have you running against the clock.

What’s pertinent to the property?

At the very least, buyers need to see and get comfortable with:

  • The property’s taxes
  • Reimbursable income accounting
  • Historical financials
  • Projected income
  • Operating expenses
  • Insurance history
  • Environmental history

In how much time?  Less than ever.

Time frames for due diligence are increasingly being offered at 30 days or less, where once, in a sleepier market, 45 days or even 60 days was common.  Looking at the above list is sobering; if you have at least seven projects (14 if you count the obtaining of the information and the analysis as separate) and 30 days to get them done, chances are you’re already behind the eight-ball.

Human capacity being finite, something has to give, and often enough, due diligence will be what suffers. But failing to catch problems now practically ensures big problems later.

Combat this by employing a well-made diligence/closing checklist tailored for the kind of transaction you’re undertaking. And get help – always retain qualified counsel when doing due diligence in commercial real estate transactions.  With timeframes shortening, splitting the work with a qualified professional is often the best way to make sure that you, the buyer, beware.

Redeveloping And Repurposing Buildings: Due Diligence

Picture of (formerly of ) located at 23rd and ...

Using existing building stock is a compelling property strategy often enough that specialists in redevelopment and repurpose of buildings have arisen.  Bill Robsons (Gabriel Consultants) and Steven Arthur (ECS Mid-Atlantic) are two leading consultants in the generation of due diligence on redeveloping and repurposing buildings.

In a fascinating NAR Conference & Expo session covering the history and application of principles in zoning, construction techniques, remediation techniques and economic development principles, Bill and Steven outlined the concepts of due diligence — the investigation of a business or a person or property prior to signing a contract with a certain standard of care.

Is A Property Condition Assessment Due Diligence?

As defined by ASTM (American Society For Testing And Materials) a Property Condition Assessment (PCA) is not  the same as due diligence.  DD is about maintenance and performance of a building. A PCA can be part of due diligence,  but DD is broader.

The “when” is just as important as the “what” – the time to have a due diligence report in hand is before a buyer/broker agreement is signed.

Bringing Science Into The Mix

The area called “building science” is concerned with separating the interior, controlled environment from the exterior, uncontrolled environment.  Modern construction technologies are completely different from those of a hundred years ago.  As such, a non-specialist doing analysis of a structure that went up before the era of steel construction, or even in its early stages, can overlook too much to give a reliable assessment of the building’s performance.  That’s why specialists use modern tools to survey properties and find problems in due diligence projects.  Steven Arthur showed a wide range of slides with pictures using infra-red photography to isolate moisture, air movement and cracks in walls not easily visible to the naked eye.  Other  building science tools include ground radars and spectrographic analysis of masonry samples – the field can get downright CSI-like when it wants to.

And it wants to: structural problems in structures can too easily be hidden from the visual once-over even if the property is just a couple of decades old.  When it was built a hundred years ago, due diligence and building science are inextricably intertwined.

The entire presentation on Due Diligence in Redeveloping And Repurposing Buildings can be downloaded from Playback NAR