Views • 19/07/2024 • 4-min read
Unlocking assets’ full potential with due diligence
In this article, Robert Cook, MAPP’s Executive Director of London Office Buildings, explains the importance of conducting due diligence in partnership with a managing agent for overseas investors.
Imagine you’re relocating to a new home abroad. One property ticks all your boxes for size, location, and layout – so you hand over the cheque right away, sight unseen. There hasn’t been an inspection, and you have no idea if the home has functioning heating, or if pests have made their home in the walls. You’re not sure if the roof will collapse in six months, or indeed if the place is fit for human habitation at all.
It sounds like a recipe for disaster, but it’s not too far from the scenario that often plays out when investors from around the world purchase commercial property in the UK. Without enlisting a managing agent to conduct due diligence to determine whether a building is livable and operational early on, new owners either get an incomplete picture or are left in the dark. Subsequently, all they can do is hope their new asset keeps its occupiers happy and generates rental income, and that it won’t come crashing down–in extreme cases, literally.
For a new owner to get the full story of a building, they need two things: a managing agent well-versed in all aspects of operating properties safely and sustainably, and enough time to do a deep dive into their prospective asset’s DNA. This includes health & safety, mechanical & electrical (M&E) systems and compliance, as well as uncovering potential liabilities and costs down the line.
How occupiers are engaging with the building is equally critical. Are the current occupiers satisfied with their spaces? Are there any issues with arrears or service charge reconciliations? Answering all the necessary questions takes time, expertise, and a willingness to abandon sales-speak and diagnose what is working or not working.
Once a sale is made, the new owner is solely liable for the building and all of its associated headaches.
When purchasers treat management as an afterthought, a host of avoidable problems inevitably follows. Occupiers may be dissatisfied with the service, which can disrupt service charge and rent collection and negatively impact further leasing. Mechanical & electrical systems could be just months away from needing replacement. If these issues are not addressed during the sale process, their effects down the line are magnified, making them more expensive and logistically difficult to fix.
To set their new property up for success, purchasers should bring a managing agent into the process well before a sale is finalised, up to six months in advance. This provides ample time to conduct a 10-year life cycle report on all operational aspects of the building, as well as a data room audit to identify missing information. Engaging with occupiers early on can head off any problems they might have with the building’s current state. With an unvarnished picture of the asset, new owners can proceed with sales confident that they have all the facts and form a short- and long-term strategy to maximise their new building’s potential.
Written by
Robert Cook
Executive Director - Head of London Offices (London)