Due Diligence, the cost of overlooking things

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In every real estate investment, be it the pruchase of a skyscraper, strip mall, or residence, or a leasing of space in a building, it is critical that the investor conducts some level of due diligence. Due diligence is the investigation of the physical and intangible aspects of a property to determine if it will be a worthwhile and profitable transaction, adding, and not detracting, to your portfolio. There are many parts that make up a complete due diligence report. On the physical side there is the property condition assessment. An experienced building inspector or engineer will do a walk through of the property identifying a listing of immediate repairs that are needed, systems that are past their useful life, and status of existing systems such as HVAC, elevators, plumbing, etc... Regarding the intangible aspects there are tenants and building staff to be interviewed, tax records to go over, operating expenses to reviewied, etc.. However one item that is often over looked is the most basic and critical. Is the property really X square feet or not?

Here are two examples of what can happen when American Building Calculations are not part of your due diligence team. Client A purchased a three story office building that was 182,000 rentable square feet. Six months later, at the advice of the property management team, they decided to have as-built floor plans created to determine the actual rentable area. After we had completed our investigation we found that the true rentable square footage of the building was 243,666 square feet. That is a 34% growth in the revenue generating quare footage of the building! In another instance client B closed on a property that was represented to be 213,000 rentable square feet, again with out verifying that number. We were brought in post sale when they realized that there were no CAD drawings of the site. The results of our survey of the property showed that in fact the property was in reality only 207,461 rentable square feet, a loss of almost 3%. In both cases, by not having accurate numbers, each clients budgets were disrupted and their ROI projections had to be revised. 

Making American Building Calculations a part of your due diligence team will answer the questions of how big the building is, and if you are paying too much. At signing you will have the peace of mind knowing that your Return On Investment is secure. 


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