Real Estate Due Diligence

In phase 1 of the transaction the buyer is required to make a strategic purchasing decision.

The starting point for the purchasing decision is the decision on

• diversification in real estate investments
  • Investment volumes
    • Geographical (Switzerland and location in Switzerland, A or B locations)
      • Type of premises (retail, logistics, office or residential property and so on)
• the goals
  • Investment period / exit point
    • Target rates of return
      • Appreciation or profit optimisation
• basic action plan
  • Project team
    • Responsibilities
      • Schedule

Whether an “early Market Due Diligence” is appropriate for the strategic purchasing decision must be assessed on a case-by-case basis.

The buyer is responsible in the run-up to the Real Estate DD for

• instructing an adviser
• analysing the market environment
• compiling a list of criteria
• specifying preferences
• creating a search profile

The investor begins his transaction process by

• identifying potential vendors
• requesting short profiles
• matching the short profiles with the search profile
• requesting an info memorandum for a non-disclosure agreement
• analysing the info memorandums and making initial inquiries of the vendor
• replying to the vendor and poss. determining the way forward

The buyer conducts the Real Estate DD as the next step:

• He compiles a list of essential information (or company data) and documents.
• He views the property with his Real Estate DD agent.
• He conducts negotiations with the management if the property for sale is a real estate company.
• The Real Estate DD agent conducts the Real Estate DD in the data room:

1. Market Due Diligence
2. Legal Due Diligence
3. Tax Due Diligence
4. Technical Due Diligence
5. Environmental Due Diligence
6. Financial Due Diligence

• The Real Estate DD agent discusses his list of questions with the vendor and compiles the Real Estate DDR.

Overview: The Real Estate Due Diligence Module

Real Estate Due Diligence
Preparatory Phase	Implementation Phase	Evaluation and Documentaiton Phase
Provision of information	Market Due Diligence Real estate market Location of the property Marketability of the property	Production of photo documentation
	Legal Due Diligence Collection / analysis Land register situation Building + planning situation Obligatory agreements to be assumed Poss. verbal agreements Warranty Development costs Statutory charges Builders’ liens Property tax liens
Provision of information	Tax Due Diligence Tax ruling Property tax Inheritance + gift tax Capital tax Profits tax Double taxation agreement Tax agreement	Evaluation of the findings
	Technical Due Diligence Structural quality of the property Space requirements of user(s) Construction costs relative to assessment of rate of return Running costs
Compilation of the checklists	Environmental Due Diligence Identification of threats to the land + building, also by geologists + asbestos technicians; costs of protective measures Refurbishment costs K.o. question Clarification of approach (refurbishment by vendor or buyer refurbishment, with price reduction?)	Real Estate DD Report Summary and documentation of the findings
	Financial Due Diligence Borrowed capital Mezzanine capital Equity capital Credit rating Market + property rating MoriX market + property rating

Unfavourable findings have a negative impact and favourable findings have a positive impact on the assessment.

The buyer:

• defines his negotiating strategy
• conducts price and contract negotiations
• makes a binding offer
• signs the purchase / closing agreement with the vendor.