DENVER — A seaworthy boat should stay afloat, handle well and ride comfortably. In commercial real estate investment, quality due diligence takes on the role of a trusty vessel, safely and smoothly getting deals to their desired destination. GlobeSt.com spoke to Andrea Karp, managing director and head of due diligence at Black Creek Group, a more than 25-year-old commercial real estate investment firm, to discuss the keys to a collaborative and holistic due diligence platform.
“To be successful, the whole team needs to buy in to how each due diligence step is going to work, who is involved at what stage and understanding that all are working toward the same goal, which is added value for the company and its investors,” she said.
A disciplined CRE due diligence approach ensures close and conducive contact between a company’s acquisition, development, finance, asset management, construction management and legal departments. Black Creek Group has purchased or developed more than $19 billion of real estate in its history using an over 400-point checklist that covers everything from internal compliance to tenant interviews to thorough property and market reviews.
As in any relationship or business, communication is key in due diligence. A real estate transaction has a limited timeframe, which demands efficiencies in interaction, knowledge and resource application. A good due diligence team knows when to play it by the book (or checklist), but also when practicality, such as tapping consultants on the ground, can save time.
“The devil is in the details for sure,” Karp added. “Having experience across different spectrums can help alleviate the heartburn involved in a complex real estate transaction.”
Practicality also comes into play with technology, which is affecting every component of CRE. New tech innovations have allowed due diligence platforms to accelerate the process, especially in regard to processing the greater amount of property data, but it can’t replace the fundamental steps. For example, drones can provide a nice visual of a property, but they can’t walk the roof for an in-depth inspection.
“I’ve been doing due diligence for 23 years, and real estate is a very hands-on business and the reality is there’s not as much that technology can replace as people might think,” Karp said. “It can work in tandem but it’s not likely to ever totally replace. Understanding the building from the ground level versus a data one is invaluable and uses practicality over the hypothetical.”
‘Let me be upfront with you,’ is the approach of a due diligence pro. If leaks in CRE deals aren’t plugged, they can lead to a tremendous waste of time and resources, as well as the possibility of scuttled industry relationships. And problems found after closing can mean an undue burden with no recourse for the buyer. Creating and following a collaborative and holistic due diligence process leads to benefits from valuation to operation and even reputation.