Due Diligence...it's more than you think
Due Diligence is an oft utilised term and seems to be a prudent and standard process to complete when purchasing or developing property. However when you drill down to the core of what is required for a Due Diligence you more often than not get the generalised responses of, do all the searches, get the lawyer to have a look at it, and see if the numbers stack up. Great, but how do you get there and what is the detail?
Due Diligence is a complex bespoke process that needs to be built for each project or property investment decision individually because each property has its own unique risk elements.
No one person has all the expertise to complete a comprehensive due diligence on their own. The ROSEL SHERWOOD Due Diligence Tool is a checklist that alerts potential investors and developers to the numerous issues that encompass a comprehensive due diligence process, and highlight the necessity of engaging a team of qualified professionals to undertake their various specialist investigations. This team may include but is not limited to, Valuers, land economists, structural engineers, civil engineers, geo technical specialists, solicitors, architects, financial and taxation consultants, quantity surveyors, urban consultants, own planners, etc.
What is critical though is to have one ‘Captain of the ship’. That is a Project Manager who co-ordinates the whole team and delivers on all the required outcomes of the Due Diligence process. With an experienced professional driving the Due Diligence process, educated and informed investment decisions can be made that reduce risk and improve financial returns and value management.
One Size Does Not Fit All - Types of Due Diligence
1. New Property Development
Primarily involves the assessment of a ‘green-field’ site for development. A vacant parcel of land or land with improvements that are of little future value and will be mainly demolished. There are no existing tenancies and the site is either newly developed land, or existing improvements have reached the stage if their life cycle or gentrification, where demolition and redevelopment is the highest and best use.
2. Existing Asset Investment
Where an existing improved asset is being assessed for investment purposes. This includes existing residential, retail, offices and shopping centres. The property has existing improvements that have existing income streams that require assessment against required rates of investor return.
An existing income producing asset may also have available land for further development, or an opportunity to reposition the existing asset to improve the return and overall asset value.
3. Tenant Site Selection
Commercial and retail businesses often have specific location criteria that dictates where they establish new outlets. This is referred to as a ‘Tenant Driven’ opportunity and requires an alternate and different set of due diligence and selection criteria. Satisfying location, sight lines, access, demographics, financial capacity, competitors and generators and some of the specific criteria that are required to be addressed in the Due Diligence for Tenant Site Selection.
4. Other
Due Diligence is a broad term that covers any investment decision. The focus of this Tool is on Property Development and Investment but understand that DD also covers terms such as Cost Benefit Analysis and can be applied to refurbishment decisions, redevelopment decision, capital expenditure and maintenance budgets.
The key is to have a clear methodology and a comprehensive understanding of what knowledge is required to make the best financial decision possible.