Real Estate Due Diligence (REDD) is the systematic auditing of real estate by specialists using recognised methods of analysis, culminating in the presentation of results in a Real Estate Due Diligence Report (REDDR). The areas covered by the audit are:
- Market due diligence
- Legal due diligence
- Tax due diligence
- Technical due diligence
- Environmental due diligence
- Financial due diligence
When is REDD carried out and for whom?
This question must be asked at the beginning of every audit process.
The purpose and recipient of the procedures defined by the REDD and the content of the REDD are the determining factors.
Vendor Due Diligence
When the vendor orders a REDD this is then described as “Vendor Due Diligence”.
Buyer Due Diligence
A REDD ordered by the buyer is known as “Buyer Due Diligence” (also “Investor Due Diligence”).
Owner Due Diligence
It is also conceivable that the owner, though having no intention to sell, may request so-called “Owner Due Diligence”, e.g. to verify, optimise, revalue or refinance an item of real estate. The REDDR then provides the
basis for decision-making with regard to a possible sale or a project initiative in the field of corporate real estate management (crem).
- Real Estate Due Diligence in general serves to:
- Provide a basis for decision-making in a real estate transaction
- Determine the purchase price
- Identify opportunities and risks
- Establish the requirements for regulating the purchase contract
- Assess whether contract negotiations can be entered into from a position of strength or weakness
Buyer Due Dilgence
The actual Due Diligence (DD) audit can be broken down as follows:
- Establishment of a DD team
- Work preparation
- Vendor interview
- Evaluation / DD report
The emphasis is on investigating deficiencies in the object of purchase and assessing its recoverability.
Vendor Due Diligence1
The DD team undertakes the following with regard to the sale:
- All elements of the “Buyer DD”
- Documentation for the Buyer DD (data)
- Information from the vendor to the buyer
- Provision of services to the buyer during the implementation of DD
At the heart of the Vendor DD team’s activity is an investigation into the optimisation of the item of real estate prior to sale and the preparation of a fair-minded presentation on the object of sale highlighting its advantages.
The REDD should be carried out as early as possible (for information purposes) and yet as late as possible (for cost reasons).
- Collection of raw, outline information begins immediately
- The detailed investigation takes place only when the realisation of the transaction is probable
1 The DD team must not of course be acting for both buyer and seller in the same investment company or carrying on vendor and buyer due diligence at the same time.