Emerging from the doldrums of 2023, many in the CRE industry may feel like they're treading water until the market picks up, which most predict will happen later this year. The expression "Survive til '25" seems, frankly, a little defeatist. A more optimistic approach is a mentality of "More in '24." With fewer deals in the pipeline, this means that each deal has less margin for error, and you need to get more from your due diligence spend. In that spirit, here's a list of ways to get more from your due diligence program this year and beyond.
1. Streamline. Use a single source for all your third-party reports. Do you prefer to reach out to multiple groups, coordinate site visits across different trades, track report status and delivery, and cross-reference reports to confirm property data accuracy? When a consultant provides you with your Phase I Environmental Site Assessment (ESA), Property Condition Assessment (PCA), ALTA Survey, Zoning Report, and Appraisal, along with any specialty reports you might need (such as a Seismic Risk Assessment, Roof Report, or Accessibility Survey), you have one single point of contact and fewer site visits. Using a single source will save you time and ensure consistent data between reports for a more streamlined close.
2. Begin with the end in mind. What goals do you have for this property? What concerns do you have going into the deal? Communicate with your consultant so they can recommend the most appropriate scope of work accordingly. For example, if your goal is to decarbonize your portfolio, your consultant can include an energy audit with the PCA to identify energy efficiency measures. If you're concerned about moisture intrusion into the roof or facade, but intrusive testing is not an option, you may elect to order a Roof Report or Building Envelope Assessment with Infrared (IR) Thermal Imaging. The more context you give your consultant, the better they will tailor your due diligence reports for your purposes.
3. Customize your PCA for easier onboarding of assets. Work with your asset management team to find out which data is required to onboard and effectively manage a property, then ask your consultant to scope the PCA to collect the appropriate data during the site visit. This approach can save your asset management team time and provide more accurate data, which can lead to proactive maintenance, more concise budgeting and lower operating costs. Since there is some finesse required to complete this more in-depth assessment on an acquisition timeline, a savvy consultant can ensure you get the data you need to close on time while still delivering a robust report so the asset can be seamlessly managed.
4. Take advantage of dashboard delivery. Instead of PDF reports, think digital data delivery. While you may appreciate the narrative portion of due diligence reports in PDF form, property data is infinitely more actionable in digital form for sharing, analyzing, and integration. Ask your consultant if they offers dashboard delivery or whether they can support integrating your due diligence data into your in-house property data platform.
5. Get ahead of compliance issues. Depending on the location and asset class, a myriad of local, regional, and national regulations may be in play. From energy codes to façade and structural ordinances to accessibility laws, your due diligence consultant should be familiar with recent legislative changes that may impact the value, performance, and/or use of your target acquisition. Leverage that expertise to ensure you are aware of and understand the costs associated with bringing the asset into compliance with any applicable regulations.
Regardless of market conditions, CRE owners, investors, and lenders should expect more from their due diligence process and their due diligence consultant. A quality due diligence consultant should maximize the value of the investment by offering any available time- and/or cost-saving solutions and suggesting additional assessments or custom scopes for a more complete understanding of the asset and the risks associated.
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Leo Bertolino
Leo is a National Client Manager with Partner Engineering and Science, Inc. where he advises investors, lenders, asset managers, and attorneys on commercial real estate due diligence. He is also a Data Center Infrastructure Specialist, certified by the International Data Center Authority. With a background in technical consulting and an intimate understanding of stakeholder needs, Mr. Bertolino has become a trusted advisor to clients on a wide range of engineering, environmental and construction matters.
