Market Due Diligence

Market Due Diligence (MDD) is a buyer-side DD.

Die MDD contains an analysis of

  • real estate markets
  • real estate locations
  • the relative marketability of a property

The quality of a property is determined by location, location, location.

Real estate markets

The assessment may be based on:

  • appraisals by renowned real estate companies
  • the “Property Clock” published regularly by Jones Lang Lasalle and shows which markets are in which phase in the real estate cycle
  • a detailed market analysis to be produced by the buyer

Real estate locations

This necessitates

  • compiling an in-depth location analysis
  • giving consideration to the economic cycle
  • for the market analysis
    • considering structural aspects such as
      • demographic trends
      •  unemployment trends
      • purchasing power trends
      • for the microanalysis
        • Competitive position of the property compared to other properties
          • in the real estate market
          • at this location
  • Attractiveness of the location
  • Changes expected im the location environment

Marketability of the Property

The buyer needs to form an impression of

  • the image of the property
  • its strengths/weaknesses opportunities/threats (SWOT analysis1, portfolio analysis2).
  •  its future viability
  • its development potential (potentials analysis)
  • the possibility of third party use
  • the user market (cost benefit analysis).

Synergies in the Portfolio

As a buy-to-let property synergies are created in the following areas

  • Management
  • Letting
  • Economies of scale
  • Networking

Degree of Detail

Assessment Principles 1:

In the market and location data analysis

  • we go from the general to the particular
  • the first assessment principles are based on the main criteria, which we edit on the basis of checklists.
  • we use either the points based system (++ / 0 / –) or the grading system (1 to 10) which immediately shows us
    • the weaknesses
      • of the macro and micro location
      •  of the market situation or performance
      • uncertainties in the assessment

Assessment Principles 2:

In the second round – based on the sub-criteria 

  • weaknesses and
  • unclear criteria

are scrutinized, analysed and checked.

Use of Real Estate

The individual issues that arise depend on the type of property:

Retail (retail real estate, shopping malls and arcades)

  • Equipment of the property:
    • Architecture
    • Division / layout
    • Parking spaces
    • Route guidance in the property: are the streams of visitors evenly distributed?
    • Tenant allocation in the property: does it meet client requirements?
    • Mixed use: regular adjustment to the environment, are tenants found for empty properties?
    • Viability: are the tenants and poss. new tenants able to pay the rents?

Office real estate

Compliance with standards, empirical values and benchmarks are analysed here in the Technical Due Diligence (TDD) – because they are less problematic.

1 SWOT = Strengths, Weaknesses, Opportunities and Threats

2 In the event of a periodic inventory audit, the respective appropriate strategy: buy, sell, improve, hold is derived from the portfolio matrix.