According to recent JLL and CBRE research, 2019 saw transaction volume of approximately $40 Billion in commercial property across Australia (surpassing the 5 year average of $36 Billion). This was attributed to large transactions in the office sector (Approximately $22.5B).
However, 2020 volumes are expected to be lower due to the coronavirus which has created uncertainty in the market generally.
A leading Buyer’s Advocate is reporting evidence of CFO’s of all sectors looking to rationalise their operating costs with a complete rethink of the working space requirements with more cost effective options including continued working from home options
While 2020 transaction volumes are clearly reduced, Redd Zebra is seeing early signs of opportunistic foreign and local investors looking to capitalise on the current uncertainties in core and non-core markets including assets with vacant possession and property groups in receivership with on-balance sheet property assets.
With early signs of movement and the expected resurgence of transaction volume in early 2021, Redd Zebra has developed a checklist that assists investors in aligning any technical due diligence consultant with company and investment objectives as well as broader considerations post transaction.
1. Build Trust
Build a long term relationship with your professional technical consultant as opposed to the focusing on the lowest fee. This builds trust and makes sure your business and current acquisition objectives are understood. It also ensures your consultant focuses on the transaction and your objective and not delivering a service to a reduced budget. Redd Zebra’s experience with its long-term clients has resulted in more transparent, tuned and customised outcomes. The relationship has enabled Redd Zebra to add value to its consulting activities – not only answer specific questions, but identify issues and create solutions to problems that the client weren’t even aware of when formulating the questions to ask. Redd Zebra provides some long term Clients with ‘walk through’ reports. These reports are very early investment consideration reports which can act as a gateway report to proceed or abandon a transaction.
Establish very early if your consultant has any conflict of interest. Are they truly independent? This can simply be traditional conflicts, acting on behalf of the vendor on this or other projects or more broader independence issues where the consultant has an agenda behind the proposed transaction.
2. Engage Early
Early engagement of your consultant is paramount providing the Investor more time to prepare for any adverse findings including time to strategise and amend the conditions of an offer and ultimately to adjust the offer price. This should occur before there is an agreement to purchase enabling the investor to work through its processes, decision gateways, expectations, and preferred reporting. Many large transactions have 60+ days with legal and financial due diligence almost completed before engaging technical almost as an afterthought.
3. Delivery Strategy/Methodology
With the impact of coronavirus (COVID-19), understand your professional technical consultant’s delivery strategy.
- What is their COVID-19 policy and process? How does this relate to site access?
- How many personnel are going to site? What disciplines are required? What risk?
- How much time allowed for the desktop review? Site inspection?
- What redundancies has the consultant prepared for if restrictions change? If a full team is on site is there a backup to allow for a virtual inspection. Is this possible with proposed acquisition location with current communication infrastructure?
4. Timely and Relevant Information
The consultant’s report delivery is reliant on pertinent, relevant, and accurate information. It is suggested that data delivery is pushed back on the vendor to provide ‘ALL’ of the required information to enable an informed decision. Many vendors ‘drag the chain’ on providing information which eats into the due diligence period. Redd Zebra provides a comprehensive RFI document from the outset.
This should have been covered in early engagement, but ensure the critical issues are highlighted immediately. This can be from your consultant’s knowledge of the proposed acquisition, highlighted from their desktop review or the site inspection or from knowledge attained or concerns raised by the Investor’s team. Timely reporting will have a major impact on the entire transaction. Also, listen to your consultant’s advice. Investors often pre-commit to a transaction and post-acquisition the operations personnel are left with ‘unnecessary’ challenges.
Work with your technical consultant post acquisition. They understand the nuances and complexities of your recent acquisition and are often best placed to talk to your operational team. This is especially pertinent for capital expenditure and maintenance planning which invariably reduces duplication (creation of budgets) and unnecessary capital expenditure surprises.
Effective technical due diligence is a relatively straightforward procedure even in these uncertain times. Having the correct strategy in place together with an experienced professional team to act on your behalf is the key to your success. Technical due diligence should be considered a necessary component of the overall property management plan, not only during purchase but as the foundation for all future operational and maintenance services of a property.
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