Back to the future?
How real estate due diligence has changed post recession
Six-plus years into an impressive real estate recovery, investor appetite is burgeoning and valuations are trending towards the extremes. The fierce competition for assets is also having critical ramifications for the due diligence process. Both buyers and sellers need to adjust accordingly.
This doesn’t mean investors should abandon their underwriting discipline. Rather, investors need to work harder (and faster) to ensure that their assumptions remain accurate and reasonable. Due diligence efficiency and thoroughness are now more important than ever.
While timelines are being compressed, the depth of analysis is reaching unprecedented levels. Today, a transaction not only digs deep into the analysis of current net operating income, but it also factors in a myriad of expense items, the underlying assumptions associated with every appraisal and every competitive market analyses, and detail-oriented property condition assessments.
Failure to adjust to this new due diligence environment can lead to unfavorable investment outcomes.
While negotiating a transaction, a financial statement audit complemented with a quality of earnings analysis may provide the most complete picture of earnings and EBITDA.
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