Asset Due Diligence on Rental Properties

A former real estate asset management intern at Henderson Global Investors Ltd., Maxine Marie Hepfer currently serves as a senior in Ernst & Young’s Transaction Real Estate group. The group provides a variety of real estate advisory services, not limited to strategy and feasibility advisory, transaction advisory, and asset due diligence.

Due diligence in property transactions encompasses multiple activities, the most important of which is the business and legal review. Here, the buyer should evaluate all of the property’s essential financial and legal ingredients before finalizing the sale.

The first element to review is the tenant leases. Ensure the rent roll reconciles with the tenant leases. A review may expose glaring discrepancies such as a misstatement of base years and a difference between the recorded current income and the actual income.

Tenant interviews should follow. Here, the aim is to find out the tenants’ needs as well as their leasing expectations. This will reveal any repairs needed to be done on the asset.

Third involves obtaining tenant estoppel certificates. Tenant estoppel certificates harmonize the facts of the lease according to the buyer and the existing tenants. They state the economics of the lease such as rent and future escalations, the amount of the deposit, terms for lease renewal and termination, and a statement absolving the buyer of any amendments to the lease of which he or she was never informed.

The Fed's Interest Rate Increase - Predicting Impact on Real Estate

 

As a senior analyst at Ernst and Young (EY), Maxine Hepfer has been involved in the multi-national company’s market research since 2014. In fall 2015, EY submitted a well-received report, prepared by Maxine Hepfer’s team, predicting the consequences of an interest rate increase by the Federal Reserve. The rate increase did indeed take place on December 16, 2015. What were some of EY’s key conclusions?

EY anticipated a moderate rate increase that would result in minimal impact on commercial real estate investments. The actual rate increase was just 0.25%, proving the EY experts correct. EY also stated that commercial real estate would continue to be a worthwhile investment option because there was room for yield compression. The National Real Estate Investor organization confirms the likelihood of this prediction, in part due to U.S. market transparency and the ease with which foreign investors can input capital.

Those interested in more information like this should consider following the EY newsroom at www.ey.com/GL/en/Newsroom/.