The Lost Art of Due Diligence

Contributing Author: Jay Verro, CCIM

Today’s CRE investment transactions involve investors from around the globe, which can lead to pertinent due diligence items being over-looked. A significant percentage of larger property sellers and buyers rely on 3rd party vendors to provide items such as building size, acreage, ceiling height, etc. As an example, Leases that have missing Exhibits, such as site plans, building / space drawings should be a red flag that further “boots on the ground” verification is warranted. It is not uncommon for buyers to submit offers and even purchase properties sight unseen.

Engaging local experts is an excellent way for a buyer to hedge their bets for the future vs. simply buying for an acceptable return now. The absence of knowing what is going on in that market from an economic development standpoint, similar projects in the pipeline could significantly affect the future absorption of vacancy in the property being purchased, etc. Searching comparable properties for lease and comparable properties for sale in the asset’s market can inform buyers on how the subject property compares to on-market comps.

Investors who buy based on a cap rate that is acceptable to them could better their decision making process by learning more about the potential disposition value of that investment property should it go dark. Internal Rate of Return (IRR) is often overlooked by buyers, even though it should be an important piece of their pre-purchase due diligence. The old adage “the best defense is a good offense” applies to an informed CRE decision. Align yourself with a CRE Market Expert in the locale of the identified property to purchase for an advantageous decision process.

 

Jay Verro, CCIM

NAI Platform

14 Corporate Woods Blvd.

Albany, NY 12211

[email protected]

Direct: 518-465-1400 ext:214

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http://www.naiplatform.com/