Benefits of Property Management Due Diligence for Investors
At Bannon we manage over 75 individual commercial assets including Shopping Centres, Retail Parks, Neighbourhood Schemes, Multi Let and Single Let Offices. This represents over 7 million sq.ft of commercial real estate in Ireland, with an estimated value of €2 billion.
Given our involvement and exposure within this industry, we are regularly engaged to assist purchasers with the property management due diligence process associated with large scale property transactions. This process is particularly complex when it comes to the purchase of multi let retail assets.
When concerns are presented, an investor can only then appreciate the importance and benefits of a pre – sale due diligence. It highlights the perils associated with buying an asset and ultimately determines the price they will pay for the asset on closing.
A typical due diligence process will involve several specific fields of expertise, namely: Legal, Tax, Building Surveying, Planning, Sustainability, Property Investment and Management.
Once engaged, Bannon will work closely with the relevant advisors to ensure a thorough review of all property management related topics are analysed. As part of a due diligence process for a commercial property we would typically provide advice concerning the following items;
- Lease review & creation of a bespoke tenancy schedule suited to our clients’ requirements
- Rent arrears
- Service charge arrears
- Service charge budget & apportionment
- Benchmarking of service charge budget line items Vs Bannon portfolio
- Floor area measurement comparison
- Sinking fund
- Insurance programme review (Incl. reinstatement cost assessment)
- Benchmarking of footfall Vs Bannon portfolio (if applicable)
- Facilities management contract review i.e., cleaning, security, landscaping, PPM (Preventative Property Maintenance) etc.
The list above is dependent on the complexity of the asset in question and can be amended to take account of asset specific variables.
Ordinarily the above information would be readily available from a data room which would be set up by the vendors agent. Once the information is received it takes some time to comprehend and consolidate such a vast quantity of information into a format which is easily understood by both our client and legal representative when negotiating the finer detail on closing of a sale.
In advance of such negotiations, we will equip our client with the findings from the due diligence process, paying particular attention to areas of concern. Common concerns which can arise from a due diligence process include;
- Apportionment of arrears on closing (both rent & service Charge)
- Underfunding of the sinking fund
- Outlining the existing landlord voids – specifically relating to service charge
- Summarizing concessions given to tenants but not properly documented – This has been common throughout the recent Covid period
- Outlining agreements with tenants that do not have an executed deed of renunciation
- Maintenance issues which need to be addressed as a priority
If you are considering an investment in a commercial property, please do not hesitate to reach out to a member of the Bannon Property Management team.
Author: Eugene Burns, Associate Director, Bannon
Date: 27th April 2022
