Comprehensive due diligence services are Investment Analytic Group’s specialty. The IAG team has performed due diligence on commercial real estate valued at over $1.2 billion including retail, office, industrial, and multi-family properties across the U.S. We guide the process, keep clients involved as much as they prefer and, most importantly, communicate with you every step of the way. Due diligence is a way of preventing unnecessary harm to either party involved in a transaction and quality due diligence contributes to superior returns. Whether analyzing office, retail, flex, industrial or multi-family properties, a thorough evaluation in the beginning helps the investor realize projected returns.

Due Diligence Checklist

Tenants – Review and confirm the terms of all leases, paying particular attention to co-tenancy clauses, which are common in retail properties. These allow retailers to reduce the base rent, eliminate base rent and pay percentage rent based on sales, or terminate a lease when an anchor tenant or another identified tenant exits the property. Other items to take note of include “early outs,” which permit tenants to terminate leases in advance of normal termination dates, downsizing rights that allow tenants to reduce the size of the leased premises, tenant bankruptcies, and claims by a tenant against the landlord.

Require estoppel certificates from each tenant. This item usually is subject to negotiation between the seller and buyer as to the number of estoppel certificates required and, if less than all, from which tenants (anchors, occupants of more than a certain number of square feet). It also will indicate whether the seller is in default.

Existing Indebtedness – Buyers may be able to assume an existing mortgage or other debt, but they should expect lenders to re-underwrite the terms, which may result in higher debt service, a shortened maturity, and increases in the real estate taxes, insurance, or tenant improvements impound or escrow accounts. In addition buyers must pay an assumption fee and the debt holder’s counsel fees and costs. As a condition to assumption, lenders may insist on a guarantee of all or a portion of the indebtedness.

At the same time, buyers can negotiate deferring interest payments, principal or both; reduction in the principal amount of the debt based upon the value of the property; a change in the interest rate; and reductions in the real estate tax, insurance and/or tenant improvement impound or escrow accounts.

Appraisal – A current property appraisal should be obtained. The appraiser will value the property using comparable recent sales, replacement costs, and capitalization of income methods. In the current economy, the first and last of the three methods may not be completely reliable as to value. With few recent sales of commercial properties other than foreclosures, relying on comparable sales is questionable, while the lack of activity has resulted in uncertainty as to the interest rate to be used in the capitalization of income method.

Physical Condition – A licensed engineer’s inspection should confirm the property’s repair and maintenance needs, both long term and near term, as well as estimates of these costs. There may be a difference between what the seller thinks is necessary and the associated costs and what the engineer thinks is necessary.

Violations of Laws – To obtain proper assurances that the property is fully compliant with applicable laws, codes, and regulations, including zoning and subdivision ordinances, contact the local governing bodies with jurisdiction over the property. If the property is not compliant, find out from local officials if the violation must be fixed in advance of closing and ask the engineer what it will cost.

Environmental – A current phase 1 environmental site assessment is a requisite to a commercial real estate acquisition. If the inspection reveals environmental problems, a phase 2 assessment may be required. Existing and prospective environmental remediation plans must be taken into account, in terms of time frame and costs. An environmental expert can assist on both of these items.

Title and Survey – Does the seller have the financial ability to satisfy all of the liens and judgments that the buyer does not intend to assume? In addition, covenants and operating agreements with third parties regarding access and maintenance of common areas must be carefully reviewed and the terms confirmed, particularly regarding who bears the cost of maintenance and repairs. Also, obtain estoppel certificates from third parties indicating that there is no default on the seller’s part.

Litigation – Does the seller have the ability to settle existing litigation that could delay the closing or result in a new judgment lien filed prior to closing?

Service Contracts – Is the seller current in payment and is each contractor willing to continue providing the agreed to services on the same terms and conditions following closing?

Management – Will the buyer manage the property or hire a third-party management company? Consider engaging the management company currently handling the property to continue, even if the company is owned by the seller. Determine general management and lease-up fees, owner termination rights, and controls over rent receipts and the use thereof by the manager.

Once the due diligence is completed, the buyer should re-examine the financial model used in deciding on the purchase price. Make sure clients have a due diligence or other out in the purchase agreement that allows them to re-negotiate the purchase price in light of the findings.

About Investment Analytics Group
Established in 2007, Investment Analytics Group (IAG) provides integrated commercial real estate advisory services to investors. Our core services include asset level due diligence, asset management, financial modeling, feasibility studies and other related advisory services.
For more information visit us at www.iagroupllc.com or contact us at 208.846.8476 or info@iagroupllc.com.

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Investment Analytics Group is a full-service commercial real estate advisroy firm, that specializes in helping you negotiate all the potential pitfalls that face commercial transactions. We put together a team of top notch professionals to support clients in all areas such as legal, appraising, engineering, architecture and accounting to make sure your commercial real estate transaction is hassle-free. We offer our own proven methods to diagnose each property or client’s needs in order to maximize their opportunity.

Established in 2007, Investment Analytics Group’s (IAG) core services include asset level due diligence, asset management, financial modeling, feasibility studies and other related advisory services. Our business model and services are not reactionary to what many other firms consider “opportunity” in this current distressed environment.

IAG is not new to this business. With a combined experience in managing and operating commercial real estate exceeding 65 years, the Investment Analytics Group (IAG) team comprises decades of relevant experience including the management of Tenant-In-Common Investments.

The IAG team includes personnel with a 25 year history in banking and finance with specific, relevant lender workout experience both on behalf of lenders and borrowers.

As Asset Managers (not property managers), Investment Analytics Group (IAG) can effectively manage assets in any geographic location across the country, and does so for its clients today.

IAG is committed to providing TIC owners consistent communication, transparency in all of the services and functions we perform, and access to all asset level information, providing round the clock access to all members of our team including IAG’s Principals.

Investment Analytics Group (IAG) will accept standard “carve-out” indemnification/guarantees as may be required by lenders and carries professional liability insurance.

IAG will work side-by-side with legal counsel in this current state of turmoil to determine where property revenues have gone and ensure property tax, insurance and leasing escrows are protected; provide workout strategies and options in addressing the bankrupt entities; maintain your investment’s 1031 Exchange status; ensure your loan maintains a “performing” status.

Services include:

Investment Analytics Group (IAG) is available to provide interim transition services
prior to contractual engagement of asset management . These services will provide the TIC owners with immediate assistance to address urgent pending property issues including the complete assessment of the property with a possible site inspection and review of property documents to assess the tenants, condition of the market, assessment of the operations, determining existing reserve balances and immediate cash needs for operations, taxes and insurance and leasing reserves. IAG will provide a written report of its findings and recommendations within 15 days from receipt of the necessary documents. For some properties that are suffering from excessive vacancy or immediate capital improvements, a feasibility study to determine whether additional investment by the TIC owners is sensible, may be of significant importance and has far reaching impact on the best course of action.

IAG Asset Management services include:
• The strategic planning and oversight of your investment.
• The IAG strategic plan includes all market research and statistics which are customized for the specific property and the resulting 10-year financial pro-forma for your property. This research and financial results are provided to investors and paramount to the sound strategic planning for the property.
• Manage loan covenants to ensure compliance.
• Coordinating TIC Group communication and decision making including annual budget, leasing, loan modification and re-financing decisions, potential sale of assets.
• Disseminating organizational and mortgage documents to understand the rights, obligations and options of the TICs.
• Assistance with tax filings, preparing tax related income and expense reports for the owners, and assistance in maintenance of individual TIC ownership structures (e.g., SPEs).
• Providing convenient and consistent access to property status communications, monthly, quarterly, and annual operating reports and financials, annual budgets, reporting for taxes, the annual strategic plan and approved budget.
• Facilitation of approvals for new leases, loans, sales of assets (h) other services as mutually agreed.
• Hiring and supervising local leasing specialists.
• Hiring , supervising and auditing the local property manager who shall:
- Manage, operate, and maintain the property
- Initially propose budgets and operating plans
- Collection of rents, other income, expense reimbursements
- Repairs and maintenance
- Capital expenditures
- Service contracts, supplies, and equipment
- Taxes and mortgages
- Tenant relations
- Other miscellaneous duties

For more information visit us at www.iagroupllc.com or contact us at 208.846.8476 or info@iagroupllc.com.

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