4 Strategies for Successful Portfolio Acquisitions

Any real estate transaction can be stressful. When a commercial real estate portfolio changes hands—involving myriad stakeholders, site visits, reports, documentation, and funding sources—the complexity can be daunting. Add the high stakes of a portfolio-sized price tag, and portfolio transactions become pressure cookers for transaction teams struggling to pull all the pieces together for a successful closing. Here are four due-diligence strategies to help keep those really big deals on track.

1. Single-source solution. Imagine buying a portfolio with 100 sites. Generally, there will be a minimum of four reports required for each site: property condition assessment (PCA), environmental site assessment (ESA), zoning report, and ALTA survey. With 400+ reports in the works, using a single due-diligence provider is essential for ensuring consistency between reports and to save time coordinating between multiple vendors. In the case of ALTA and zoning, using a single provider is also a significant time saver, eliminating multiple rounds of data exchange and review.
2. Geography matters. Whether the portfolio is concentrated in a particular region or spread across multiple continents, select a due diligence consultant with resources near portfolio sites. Not only will this reduce travel costs and time, but local staff will be familiar with unique local requirements and/or agencies. Zoning codes vary widely by jurisdiction, for example, so local expertise is valuable in zoning compliance reports. Even for reports such as a Phase I ESA, for which standards are the same throughout the United States, familiarity with local agencies gives assessors an edge in completing the assessment quickly.
3.  Designated, experienced portfolio team. For effective execution and consistent results, a qualified due diligence consultant should assign a designated team that includes senior staff with experience in portfolio transactions. An experienced portfolio team will conduct a preliminary review of scope, location, and site details to strategize effective deployment. They will combine site visits where possible, ensure proper staffing, and identify/address any potentially challenging sites early in the process. For example, in a recent portfolio of auto service centers, preliminary review flagged certain sites at which prior reports identified environmental concerns with no record of follow-up. These sites were assessed first so any issues could be addressed without impacting the transaction timeline.
4. Proactive Problem-Solving. Not only should your consultant anticipate problems through the preliminary review; they must also immediately communicate and address any issues that become apparent during site visits. If a significant deficiency is noted during a site visit, the project lead should not wait to convey that information via the finalized report but notify their client immediately. During one recent PCA, a roof assessor observed signs of potential structural stress. With a quick phone call for authorization from the client, the roof specialist called in a structural engineer. The structural engineer identified $400,000 in necessary repairs. Because the client received this information promptly, he was able to negotiate a discounted sale price without delaying the close. In the case of environmental assessments, if a preliminary review indicates a high likelihood of RECs (recognized environmental conditions), the Phase I and Phase II assessments can be performed concurrently to save time.

The complexity of portfolio transactions demands a sophisticated due diligence consultant with the expertise and resources to quickly meet whatever challenges arise. Look for a consultant with a deep bench of multidisciplinary experts and experience in large portfolios to ensure quality, consistent reporting and a timely close.