The Changing Landscape for Technical Due Diligence

Mike Richardson
Technical Due Diligence is a key component of the built asset acquisition process, enabling clients to minimise their risk profile and future-proof their investment strategy.

Following the 2017 Grenfell Tower fire and the shortcomings highlighted in the ensuing Hackitt Review interim report, fire safety measures are high on the due diligence agenda. Dame Judith Hackitt criticised the industry for working in a “culture of doing the minimum required for compliance”, and the review called for “robust change” by those involved in the design, build, inspection and maintenance of residential buildings. The lessons learned are expected to permeate all sectors of the built environment.

The Technical Due Diligence (TDD) process cannot rely on the existing documentation for the asset. A document review does not sufficiently demonstrate that Fire Risk Assessments, for example, are sufficient, or appropriate to the building’s current and planned usage. Faithful+Gould’s team regularly finds outdated and inadequate Fire Risk Assessments – it’s essential to interrogate the documentation and undertake a physical site inspection.

Fire safety is not the only area where documentation could be lacking. Incomplete paper trails often include outdated Operations and Maintenance Manuals, and incomplete Health & Safety Files. Uncovering these issues leads to more informed negotiations and better, safer outcomes for our clients—vendors can be contractually required to resolve any unsatisfactory issues.

Gone are the days when clients commissioned a simple building condition survey prior to asset acquisition. Today’s more rigorous and complex commercial environment relies on stringent TDD principles. These combine to provide a key risk management tool to help clients assess their proposed investment and make informed decisions.

Where once the TDD survey was an afterthought, too often squeezed in at the last minute, today’s clients are aware that an earlier start will bring greater benefits. TDD success hinges on the nuanced interpretation of the client’s brief. Developers, funders, institutions, investors and occupiers will have different needs and it may be necessary to consider these multi-stakeholder perspectives.

A clear understanding of the intentions for the building are needed: how long it will be retained, and how the client’s undertaking or operations will affect the premises and surroundings. This begins the process of thorough commercial overview, driven by the client’s investment strategy. It’s an extremely detailed process and may necessitate sifting through many years’ historic documentation, as well as physically inspecting the asset.

At Faithful+Gould, we habitually lead a multidisciplinary team on these commissions, comprising building surveyors, M&E engineers, environmental engineers, solicitors, and purchasing/managing agents. All these individuals may contribute to the final report, but it’s our job to assemble the team, programme the resource base, undertake the inspections, and coordinate a cohesive and comprehensive final report.

Typically, the report covers all aspects of the building, the M&E services, the environmental factors, statutory compliance and relevant legal and management related matters. We offer our clients a single point of contact, if this is their preference. However, a skilful TDD process can give clients so much more. For example, our team adds value by considering the wider context of the transaction. What’s happening beyond the site boundary? Is there an adjoining site that represents a threat/opportunity? Are there any asset management opportunities?

Faithful+Gould’s national team of TDD specialists supports investors and owner-occupiers on transactions across all property sectors, for stand-alone or multiple building acquisitions or disposals. Our most recent project was for Arlington Advisors on their £135m purchase of the Study Inn student accommodation portfolio. Our TDD role included surveys of seven sites, identifying key issues on each, as well as highlighting common themes across the portfolio. Our master executive summary document was subsequently used by our client during their acquisition’s negotiation phase, and was followed by our final reports.

“The TDD advice provided by F+G, enabled us to complete this transaction with a thorough understanding of the assets and the matters requiring our attention, and where the asset management opportunities were across the portfolio. I look forward to working with F+G again and would recommend their services to others” 

Sean McKeown | Managing Director - Arlington Advisors Limited

 

 

 

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