CRE is a certainly brave new world, thanks to technology. Lets look at some early due diligence strategies used to vet deals. We can sign contracts and other critical documents without a pen, and then send them across the country instantly. We can look at a 3D model of a building we’ve never visited, and then see what the space might look like with specific changes in design.
While technology has radically changed many aspects of CRE, it isn’t likely to eliminate the need for due diligence. That time-honored practice that can’t be neglected, due diligence covers a laundry list of checks and verifications a buyer should complete before agreeing to the purchase of any property. It’s just as important as ever, and some of the strategies we used before technology became part of the business still work as well as ever. In fact, with our digital tools, due diligence can be more thorough and faster than it’s traditionally been.
Due diligence really begins long before negotiations start. There are many steps that can be taken using publicly available information to determine whether a given property meets one’s needs and standards. This preliminary due diligence may involve visits to the property and discussions with trusted professionals, as well as reading up on the area’s growth, demographics, and other pertinent information.
Due diligence can take months to complete, and is usually written into an agreement with the seller. Once that’s been made, due diligence kicks into high gear, but there is significant work to do even earlier in the process..
Explore your options
Real estate investment is becoming more accessible to more investors, thanks to revision of the JOBS Act just this past year. This has led to the growing use of crowdfunding sites in real estate, to bring buyers and sellers together online. Investment through crowdfunding platforms is substantially more efficient and this approach provides individual investors with a much larger selection of potential properties, all over the country.
There are over 80 crowdfunding sites in the U.S. that are dedicated specifically to commercial real estate, and the best provide significant assistance with the due diligence process. This can represent considerable cost savings for the investor, in terms of fees, and make due diligence a bit less onerous as well.
Review critical documents
A big part of due diligence has always been collecting documents that give an accurate picture of the property’s history and status. This is still the case, but again, technology makes the process a bit less painful in many cases.
Finding out about the current use of the property is a good start. Better crowdfunding sites offer this information with their offerings, to help investors select deals.
Whether they’re available from an investment platform or have to be ferreted out in various offices and agencies, the documents below should be secured before a deal is finalized:
Information on current tenants and lease terms
The deed to the property
Land and improvement surveys
Copies of any property bills
Notice of any pending legal action
Any inspections or environmental assessments
Special assessments or taxes
Check the seller
In any business deal, it’s important to know whom you’re dealing with. Due diligence must include some background information on the seller or developer: What has their performance been like? What sort of properties have they handled in the past? If this is not a person you’ll like doing business with, move on. There are too many great sellers out there who will be a pleasure to work with.
All of these factors are the same ones we’ve been concerned with since well before the Internet came along, and they are still relevant today. The strategies we’ve used to vet a potential deal haven’t changed; only the approach we take to employing them.