By Lisa Stanley
Is your data “due diligence ready”? With merger and acquisition activity in corporate real estate (CRE) showing no signs of slowing down, this is a question you may have to address sooner rather than later.
To effectively provide information on property valuations in the due diligence process, CRE professionals are charged with evaluating the expected income stream that will maximize return on the investment and enhance value. The evaluation of that investment includes a risk assessment — Is the income stream stable, increasing or decreasing and what level of risk is anticipated? How strong are the tenants?
When information is collected on multiple platforms that don’t communicate with each other using a variety of terms and definitions, this process becomes an exercise in frustration. The stakes are high: providing inaccurate information on a major line item can translate to a lower purchase price, an adjustment after due diligence is completed, or a failed transaction.
Areas Of Focus
— Examination of leases, modifications and extensions can be quite time consuming but is critical to support the offer. Chances are rent rolls, payment histories and deposits, maintenance, and other pertinent information are kept on a variety of platforms that require recurring manual entries. In this type of spreadsheet-focused environment, due diligence can become an endurance test for both parties.
— A standardized approach to collecting information on repairs and maintenance, property condition assessments and budgets for capital improvements can help you determine the overall health of the property.
What To Do Now
Implementation of data standards are an effective way to ensure this information is readily accessible and can be exchanged with business partners providing services that are integral to the property. Standards can address space classifications, lease abstracts and lease management, occupancy costs, and portfolio information exchange and management, energy efficiency, and more. It is a single source of truth approach that collects information consistently across the property, the portfolio, and beyond. This approach can also improve forecast modeling to anticipate future income and expenses, and how well the property will fit into the portfolio.
Consistency, accuracy, and availability of the information maintained by the seller can move the process forward with a higher confidence level that the records reflect the owner’s focus on data integrity, transparency, and data quality — key features to support the valuation of the property.
Increasingly, it’s not just a “nice-to-have”. Financial service companies and other parties in deals are recognizing the value of standardized information to evaluate risk, and are exerting pressure on both sellers and buyers to provide better quality information in a consistent format.
To learn more about how your organization can be “due diligence ready,” contact Lisa Stanley, CEO of Open Standards Consortium for Real Estate (OSCRE International), a membership-based, not-for-profit organization committed to the collaborative development and implementation of global real estate information standards.
This is the last installment in a series by Stanley for Real Street Tech. Other topics she has recently addressed include: information management in a consolidating CRE market, proposed FASB/IASB changes, and risk management.