Our due diligence process is the cornerstone of our investment approach and the primary way we protect our investors from unexpected surprises after acquisition. We never rush this critical phase because we understand that thorough investigation today prevents costly problems tomorrow.
Due diligence doesn’t begin after we get a property under contract. It starts much earlier, during our initial review of the property, the market, and the numbers. If that early research suggests the deal may have legs, the investigation becomes progressively deeper. We test assumptions, gather additional information, and bring in more experienced eyes and specialized professionals. Once the property is under contract, that work becomes even more detailed. Physical inspections, financial verification, legal review, market research, financing, contractor estimates, and other areas of the transaction are examined more closely.
Each step should either increase our confidence in the deal or uncover something that requires us to reconsider it.
Market analysis also begins early and continues throughout the process. We initially look at population, employment, rents, occupancy, competing properties, and supply. As the deal advances, that research becomes more property specific and is used to challenge the assumptions built into the underwriting.
We are continually asking: What do we know now? What still needs to be verified? What did we just learn? Does the deal still make sense?
Licensed contractors, HVAC specialists, electricians, landscapers, and other specialists may be brought in to take a much closer look at the physical property. Depending on the asset, this can include roofs, plumbing, mechanical systems, structural components, individual units, common areas, deferred maintenance and other potential capital needs. The objective is to identify what needs attention, understand the potential cost, and determine whether those findings change the numbers we originally underwrote.
This is where assumptions give way to verified information. Financial review begins with the first numbers we receive and becomes more detailed as the deal moves forward. Initial underwriting may rely on seller-provided information and preliminary assumptions. As additional records become available, rent rolls, leases, income and expense statements, bank records, tax information, and other documentation can be examined and reconciled against what we originally underwrote.
Qualified attorneys, title professionals, and others may review title, zoning, contracts, easements, environmental matters and other legal or regulatory issues affecting the property. The purchase agreement itself also establishes important rights, responsibilities, deadlines and protections during the due-diligence period. The objective is to identify legal issues or obligations that could affect ownership, operations, financing or the business plan before the transaction moves toward closing.
When an investment will involve passive investors through a syndication, experienced securities counsel is also brought in to provide guidance on the offering structure, required documents, investor communications, and compliance with applicable securities laws and regulations.
