5 Tips to Help You ‘Due Diligence’ Right

While some sectors continue to struggle, the multifamily market is thriving
How investors can execute deals quickly and efficiently despite the pandemic
 
The COVID recession has had a unique impact on real estate—especially the commercial sector. In particular, multifamily properties are seeing a wave of activity in recent months. The surge is partially due to today’s record low interest rates. After months of ‘riding out’ the first torrent of the 2020 coronavirus, investors are finally ready to spring back into action.
 
Not to mention, pandemic restrictions have prompted many families to relocate. Many are looking for move-in-ready apartments and condos as they settle into new neighborhoods—or completely different states. Depending on your prospective asset’s location and design, COVID circumstances may make it even more desirable.
 
For instance, families living in big cities may not be ready for home ownership in the suburbs. Many are simply looking for more space, onsite amenities, outdoor access, proximity to shopping, and other perks. If your property fits the bill, you’ll have no trouble finding tenants—even in the midst of a worldwide pandemic.
 
 
Closing strategy in COVID
 
Today’s sizzling multifamily market is a win-win for everyone. Sellers have been able to move their assets faster than ever, while buyers are excited to cash in on the opportunity of a lifetime. Still, there are certain challenges posed by the pandemic.
 
The market may be heating up, but with today’s uncertain economy, investors still expect a high level of scrutiny when considering a potential asset.
 
“This can be tricky given potential access and timing challenges,” writes Ronnie Harrell of GlobeSt.com. “Yet despite these hurdles, we as an industry are adapting and finding ways to get deals done – buyers are getting creative in their search for value, and everyone is bringing a problem-solving mindset to the process.”
 
According to Harrell, the due diligence stage is particularly important. “I’ve found that the winning formula is a higher level of coordination, communication, and creativity to make it work.”
 
Whether you’re seeking to invest for the first time, expand your portfolio, or unload an existing asset, Everest has today’s best practices to guarantee a seamless due diligence experience.
 
 
5 Ways to ‘Due Diligence’ Right in a Pandemic
 
1. Consolidate your walk-throughs

When done thoroughly, due diligence involves complex coordination. The process usually takes multiple site visits with buyers, lenders, appraisers, and other key players. It’s important for everyone to be on the same page.
 
To your best ability, limit physical walk-throughs. When that’s not possible, coordinate strategically so that multiple people can investigate the property at the same time. Today’s tenants (and workers) are still weary of COVID and do not want to be inconvenienced—let alone put their lives at risk.
 
2. Take advantage of virtual visits
 
While limiting walk-throughs provides pandemic peace of mind, it’s not exactly helpful for buyers. In fact, today’s prospective investors are even more discerning. They should and will be thorough in their assessment of the property. And on the seller’s side, it’s important to be upfront regarding the totality of the site—not just a small fraction of its units.
 
Zoom and other video conferencing platforms have been a lifesaver during COVID. Property managers and employees can provide buyers an up-close-and-personal tour of the property and its various selling points. They can even pre-record footage for future sharing. This ensures no stone goes unturned and eliminates stress for everyone involved.
 
3. Communicate transparently
  
Due diligence can be a tricky process when dealing with a fully leased building. In today’s stressful climate, you want all parties to feel safe, comfortable, and informed. But you still want to protect the integrity of the potential deal. For instance, it’s common practice to avoid telling tenants and management that you’re selling until later in the process. Since tensions are high, you need to walk a fine line.
 
Harrell says that effective communication is important: “It is prudent to convey that all site inspections are being conducted with their safety in mind and any inspecting personnel including third-party consultants and engineers are adhering to all mandated health and safety precautions including the use of PPE.”
 
4. Allow for extra time
 
Multifamily deals may be on fire, but the process is more of a slow burn. Reality is, the majority of residents are home right now. They are fearful of catching COVID and are juggling work and family duties in small, confined spaces. Throw a wrench into their week, and prepare for trouble…
 
Sellers and buyers must both be patient working around tenants as they perform assessments. Some individuals will be nervous about letting people inside their apartments. Others will be busy with work, or may be quarantining with a COVID diagnosis. Expect for due diligence to take additional time—and be as flexible as possible.
 
5. Know your lender
  
Throughout the pandemic, most industries have embraced a spirit of flexibility. But if you’re looking to secure financing, not all banks will accommodate so easily. Harrell notes, “Some lenders may be flexible on their financing requirements including amending or modifying the required number of units to be seen or whether they’ll accept virtual site assessments, but others will not be so willing.”
 
Now more than ever, lean on your Everest team throughout the journey. We are here to help you navigate the ever-changing regulations and expectations affecting multifamily acquisitions during the pandemic.
 
 
Everest says: make it a smooth climb