Due Diligence & Underwriting for Real Estate Development & Investment

Development projects can take years or decades to complete.  With the number of uncertainties that can occur during the course of the development, the changing variables, real estate development must be flexible and adaptive.  By its very nature, the process of real estate development is random since each site, physical orientation, location, project size, jurisdictional influences vary.  There is a large body of knowledge on market analysis, valuation, and capitalization of projects however there is little research on the entire analysis of real estate necessary to explore and expose the key components prior to executing agreements for purchase.  The best analysis of the market, project valuation and financials can be erased if a key component of title, physical characteristic, or legal issue is overlooked.

The recent free fall in valuations exposed risk of owning, developing and managing real estate.  In order to regain the confidence of the consumer, the investor, and the lenders, a more rigorous approach to exposing risk will be necessary.

The due diligence is the basis for making decisions regarding acquisition, disposition, as well as investing decisions by the investor and lenders. Due diligence is a systematic audit of the real estate typically involving numerous disciplines and consultants.  The process should provide a basis for decision making, determine purchase price and possible terms, as well as identify opportunities and risks.  The areas typically covered in a complete due diligence plan include:

  • Legal Due Diligence
  • Market Due Diligence
  • Site Due Diligence
  • Physical Due Diligence
  • Financial Due Diligence

Due Diligence 05302016