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Insight

Play it safe with due diligence

By Guido Ebert Business Development Manager
Investments in the form of a real estate purchase should always be thoroughly thought through and prepared. Therefore, a comprehensive risk assessment is essential for a smooth purchase transaction. Due diligence is a fundamental component here. In the expert interview, Guido Ebert answers questions on topics relating to underground garages, maintenance and redevelopment.

Due diligence - what is it actually?

Due diligence, short DD, is a compre­hen­sive risk assessment in the context of a targeted transaction such as the purchase of a company, a property or a real estate. In general, the term can be translated with "due care". This refers to a careful appraisal and evaluation of a property and the possible risks associated with a transaction. The DD can consist of individual exam­i­na­tions depending on the require­ments of the buyer or seller. This can for instance refer to financial, legal or technical DD, tax DD, social respon­si­bil­ity DD, occu­pa­tional health and safety DD or Envi­ron­men­tal DD (EDD). Within the framework of technical DD, CDM Smith also considers a frequently neglected risk due to settlement cracks in underground garages or underground floors. The EDD also assesses possible envi­ron­men­tal risks such as pollutants in the building fabric or in the soil of a property. In this case, the focus is on the envi­ron­men­tal quality of a site and, if necessary, the endan­ger­ment of protective goods such as human health or groundwater. All parts of DD have in common the consid­er­a­tion of financial risks.

Why and for whom is due diligence relevant?

Due diligence is advan­ta­geous for both potential buyers and sellers because it serves to obtain information, which in turn can be essential within the decision-making process for the purchase itself or the deter­mi­na­tion of a purchase price. If, for example, due diligence is disregarded when purchasing a property, undis­cov­ered envi­ron­men­tal damage or a maintenance backlog that is not compre­hen­sively described can conceal the de facto lower value of the building.

What should be partic­u­larly taken into account in this segment?

The focus is on the effective handling of due diligence. Trans­ac­tions are often under enormous time pressure. It is conse­quently partic­u­larly important to work with clients in order to develop and implement a timetable that meets their require­ments. We know how important teamwork is between the parties involved in a transaction (real estate advisors, lawyers, accountants, etc.) and therefore coordinate with everyone from the outset. In addition, through our holistic approach, we also offer services outside the classical due diligence spectrum and evaluate topics that are important for the overall consid­er­a­tion of the asset. These include, amongst others, geot­ech­ni­cal or static questions in the case of dismantling, conversion or new construc­tion measures (keyword: third party usability) or infra­struc­ture planning, for instance in the case of a new development or rede­vel­op­ment.

You raised the issue of underground car parks. Where are the hidden risks here?

When someone purchases an underground car park today, they often face the problem that existing objects are not geared to current vehicle sizes, as many underground car parks originated in the 1960s or 1970s. Moreover, during this period, components with low concrete density were also often used, threatening corrosion. In the worst case, it turns out that the structure is no longer load-bearing and that a subsequent stabilising coating is required. Another weak point is water damage, which can be caused, for example, by defective bituminous cardboard seals on the outer walls. The external renewal of an underground car park is usually complicated, since there is a dense neigh­bour­hood in inner cities. New concepts for water­proof­ing from the inside do exist, but in individual cases it must be evaluated which method is practicable as well as economical. Finally, a completely new, tailor-made utilisation concept for the underground car park must be developed together with the owner in order to avoid horrendous conversion costs. Preventive due diligence advice before buying a property prevents unpleasant surprises. Our experts at CDM Smith are able to detect the first signs of hidden defects - even without costly and time-consuming inves­ti­ga­tions or drilling.

 

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CDM Smith is your professional partner for due diligence.

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