CRE Basics — Commercial Real Estate Due Diligence

This learning series on Modern Commercial Real Estate Investing first appeared on the EquityMultiple blog. Please check in there for updates and additions to this series.

A thorough underwriting process is critical to any real estate investment. “It’s got good bones” is a common phrase people use when evaluating a real estate investment; it implies that the property has a strong foundation and isn’t going to collapse or blow over. But in an age when investors can invest $5,000 or $10,000 or $200,000 in a property across the country with a few clicks and some digital paperwork, how do investors know that a property, and indeed the business plan behind the investment, truly have “good bones”?

Our belief is that platforms should engender trust through thorough diligence, detailed underwriting, conservative return modeling, and a selection process that’s both rigorous and fully transparent to investors. But as with anything, the success of the underwriting is dependent on the team conducting it. These are the measures EQUITYMULTIPLE’s Investment Team take when vetting potential real estate investment opportunities for the platform.

Leveraging Industry Experience

The EQUITYMULTIPLE senior leadership team, alongside senior directors at our partner company, Mission Capital, has overseen over $50 billion in real estate transactions, spanning over a half century of collective industry experience. This means quantitative and qualitative expertise in evaluating particular deals. But, just as important, this also means intimate knowledge of sponsor companies reputations and past histories.

Partnering Only with Selective Sponsors

We believe that the quality of any project is only as good as the Sponsor executing the business plan. Through our partner, Mission Capital, our team has access to institutional quality sponsors that have demonstrated track records in the assets that they are developing or are acting as lenders on. Despite the existing relationship that may exist the EM team re-evaluates the Sponsor’s track record, experience and determine their ability to succeed in their respective markets.

Thorough In-House Underwriting

The EQUITYMULTIPLE senior leadership team, alongside senior directors at our partner company, Mission Capital, has overseen over $50 billion in real estate transactions, spanning over a half century of collective industry experience. This means quantitative and qualitative expertise in evaluating particular deals. But, just as important, this also means intimate knowledge of sponsor companies reputations and past histories.

1. Understand — We begin every review process with a high level assessment of the Sponsor, Asset Type, Location and overall Business Plan.
2. Dissect — We take a deeper look at the Project’s financials, pro forma and assumptions to see if they add up.
3. Analyze Market — Supply and demand help dictate the success of any project. We dig into market data to understand how the Project fits in.
4. Review Documents — It’s critical to dive deep and evaluate building risks (if any) from a physical and environmental standpoint of any Project and identify any and all risk mitigants.
5. Legal/Tax — The devil is in the details and those details are often buried in the legal structuring and in any past liens or taxes due on the Property.
6. Property Visit — We visit every one of our site and projects in order to get a sense of the location, neighborhood, accessibility