Due Diligence

At the peak of the real estate market several years ago, I watched in disbelief as a subprime mortgage lender leased hundreds of square feet of office space in suburban New York City. The property owners seemed thrilled with the deals. So were the real estate brokers. And everyone judiciously avoided the one obvious question: Why does this company need so much space?

The answer, as it turned out, was that it didn’t. And as the housing market devolved from boom to bust, the company rapidly shed space. Then it went out of business.

It retrospect, it was obvious that it leased too much too quickly, with little regard to its real or projected needs. Odds are that everyone involved in the deals understood that before the leases were ever signed. The technology exists to calculate space needs, analyze a firm’s projected growth and weigh a myriad of risk factors. So why isn’t it used consistently?

Is there a point where technology meets common sense–and, if so, how much weight do professionals put on the answer?

Just recently, I spoke to a man who obtained an $8,000 loan from a major bank to attend an unaccredited, online college. The school referred students directly to the bank from a link on its website. The relationship seemed clear…until the school closed. Now the bank is distancing itself from the school, and holding former students responsible for the full lump sum payments  it made for educations they never received.

Whether it’s a questionable school or dubious real estate deal, is anyone doing due diligence?  Thomas A. Rizk, chairman and CEO of TractManager, an Internet-based  firm specializing in  customized and centralized contract and document database systems, notes,  “It is a major advantage to have technology that can help significantly reduce operating costs of a building as well as put the owner in the position to quickly complete a sale or financial transaction.”

The question is: Are we using those technologies to make better decisions?

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7 Comments

Filed under Real Estate, realtybytes, Technology

7 responses to “Due Diligence

  1. Pingback: Due Diligence · Invest-In-Real-Estate.ExplainedOnline.Net

  2. Pingback: Due Diligence · Real-Estate.ExplainedOnline.Net

  3. I just stopped by your blog and thought I would say hello. I like your site design. Looking forward to reading more down the road.

  4. Pingback: Real Estate news and topics for brokers » Archive » Due Diligence « Realty Bytes

  5. bill

    As a real estate consultant serving technology companies, i can say that most participants to a transaction rely on a variety of due diligence tools, one of which is software designed to assess need, risk, finanacial performance, etc. Most participants rely to a large degree on personal relationships to make the decision(s) for which arms length due diligence is usually needed. Put another way, few of them have much faith in a “crystal ball”. Instead they rely mostly on the ability of the participants, whether that’s a management team or broker or a banker. And therein is the problem (or not for those who have learned how to successfully walk this mine field). Personal agenda’s and politics have a significant (and sometimes disproportionate) impact in a transaction. You need only look at our collective recent experience in credit markets to appreciate just how hard it is (to say nothing of how risky) to be the lone ranger saying no, when everyone around you is diving in with both feet. It wasn’t so long ago that Warren Buffet (arguably one of the most succeccful investors ever) was considered past his prime (out of touch) because he didn’t buy in to the Dotcom boom (which went spectacularly bust in 2000). The decision maker will usually make a decision based on any number of factors, which are acceptable in the context of their cohort. If the anaylsis supports that decision, so much the better.

  6. Herman Miller has just introduced a new technology to accurately assess and predict space utilization needs and HP as the first test was shown a 50% potential saving in space or approx. $500M. It also recently received the Corenet Innovator’s Award. Check out the article in the Jan/Feb issue of The Leader..

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