Due diligence refers to the process of research and analysis carried out before an acquisition, investment, business partnership or bank loan in order to determine the value of the object/entity. It commonly applies to voluntary investigations which contribute significantly to informed decision making.
While due diligence as a concept is used extensively across industries/applications, with regard to projects, it acts as a framework to establish order and clear responsibilities for the project. Needless to say this framework is aligned to the business objectives of the firm and helps identify and manage all risks to ensure a smooth running and successful completion of the project.
What are the elements of a due diligence report?
Given the vast array of documents in a commercial real estate transaction, it is important to prepare a due diligence checklist, marking off each item of concern once it has been addressed.
Site Survey & Location Analysis:
Aids the client in understanding the location itself; offering a macro level overview of the space. It includes a detailed neighborhood analysis, presence of economic hubs, proximity to IT Hubs/ landmarks relevant to the sector, proximity to airports and other travel modes like metro stations and availability of transportation. Statutory documents, Occupancy Certificates and other regulatory compliances also come under the ambit of site survey and location analysis.
Floor Plate Analysis:
Helps consider a number of micro-level elements of a building that enhances the quality of life for the occupants. It assays concerns with regard to area zoning and efficiency, daylight analysis and availability of safety measures like; presence of fire egress, washroom analysis (as per codal provisions) apart from other design parameters.
Review of Base – Build Drawings/ Peer Review of Drawings:
Although this element is not visible, it is of great interest to any potential client. One may call it a ‘background check’ on the structure. The adequacy of the slab areas, the waterproofing measures and if required, a soil analysis of the site is conducted to ensure that the structure is not violating any environmental or safety norms. Such a detailed overview ensures that no aspect is overlooked.
reflect the functional state of all electromechanical services such as
- MEP (Mechanical, Electrical, Plumbing)
- FPS (Fire Protection System)
- Vertical Transportation (Lifts)
- BMS (Building Management System)
These elements have a direct bearing on the occupant’s safety, efficiency, and productivity.
Test Fit-outs, Shortfalls & Recommendations:
This offers an insight to design options, headcount analysis, compliance to NBC, ASHRAE, ECBC and statutory & regulatory authorities. Potential pitfalls/ areas of concern and measures to mitigate/ overcome are identified and shared with the client, in the form of recommendations.
Lease Agreement Assistance:
Provides lease related insights; an evaluation of services provided by the builder, formulating builder’s scope of work and assistance in formulating the lease agreement along with benchmarking of key transactions to validate proposed commercial terms.
The goal in a due diligence process is to ensure that the project delivered is actually the property being conveyed. Each transaction has its unique set of obstacles and considerations. The key word is “explore.”
The significance of a due diligence exercise lies in following each of the above detailed steps to ensure the three elements of time, cost and quality are not compromised upon/ impacted.