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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   November 2013

Putting Your Old Due Diligence Out to Pasture

New technology is shaping how field information is filed and shared

Putting Your Old Due Diligence Out to Pasture

Introducing change isn’t easy, but in many cases there is no way around it. The traditional real estate due-diligence process has been delivering for decades, but the demands of the modern real estate finance market have exposed its limitations and inefficiencies. With the arrival of cutting-edge mobile and cloud technologies, the time for change has arrived.

The demands placed on real estate professionals — including due-diligence and credit-risk-management professionals — have never been greater. Originators demand faster transaction times with lower costs, regulators require greater transparency and data security, and credit-risk managers desire more comprehensive and accurate data. Due-diligence professionals often aren’t equipped properly to meet these market demands, and instead rely on the antiquated, but tried-and-true process of conducting field reconnaissance to take notes and photographs, then return to the office to write up the final report in long-paragraph form whenever an opportunity to do so finally presents itself.

With the exception of digital photographs and PDF reports, the process hasn’t changed much over the past three decades. Networks and file-storage boxes are filled with countless hard-copy and PDF appraisals, environmental and property-condition reports, with data that is not readily accessible.

Change now

The reason that the due-diligence process has remained largely unchanged for decades is that the technology enabling a significant shift has been made available only recently. Access to affordable tablet devices, flexible software, mobile-software platforms, cheaper data storage, cloud technology, inexpensive data encryption and faster wireless data connection speeds have combined to create an environment ripe for change.

For the first time, due-diligence professionals can gather ground-verified formatted granular data and images in the field and push that data directly from the field through an encrypted private cloud interface to desktops anywhere in the world in less than 90 seconds. The impact of that capability will change the pace and value of the due-diligence process dramatically.

The new approach

Accessing the power of modern technologies requires embracing a different approach to gathering, quantifying and analyzing the characteristics and conditions of properties. The traditional approach is based on scope and report formats, instead of focusing on gathering the critical data points needed to perform the necessary back-end analysis. The currently available software platforms focus on procurement and generating consistently formatted reports. The granular level data within those reports is nearly impossible to access, however, because it is produced in textual paragraph format. Unlocking that data for analytical or alternative purposes requires an individual to review the report and manually re-enter that data into an alternate database or format.

Because paragraph-based reports require many hours to write and review, the typical turnaround time may be two weeks or longer from the time they’re ordered. For example, the average Phase I environmental site assessment on a property typically requires two to three weeks to complete. Unless environmental professionals are waiting on regulatory files or outstanding data, they can finish up a report in less than a week.

In the current process, an inspector will conduct a site reconnaissance, but may not have the six-hour to eight-hour slot of time needed to sit down and write up the final report until days or weeks later. Because report writing is mostly documenting the site’s characteristics and property condition from field notes, the ability to send that data directly from the field electronically would cut the interval between recording and analyzing the data substantially.

With this technology, standard due- diligence reports can be turned around in a week or less. In the interim, clients can get virtual access to the property data while the inspector is still in the field. Likewise, a colleague or associate will have immediate access to the data, and therefore can discuss it with the inspector before the inspector leaves the site.

Accessible data

Using cloud technology to gather the critical data points in the field makes that data easily accessible to clients once it’s uploaded into the cloud and thereafter. The data can be exported into analytical spreadsheets and pushed into a dashboard view,

Although some industry professionals are moving to higher-level algorithmic analysis products utilizing publicly available databases, the data set that typically is being utilized is inaccurate and outdated. There is a trade-off between data accuracy and transactional speed and cost. Through the use of field applications and cloud technology, that trade-off is less pronounced, especially when you factor in the money left on the table when underwriters are forced to be more conservative to account for the lack of data precision.

• • •

Real estate professionals should be aware that the traditional due-diligence process is increasingly losing ground in today’s market. The current market demands more due-diligence information to be accessed quicker, more transparently and more securely for less cost.

Although delivering for decades, traditional due diligence doesn’t meet the demands of the modern marketplace. Mobile and cloud technologies finally have advanced to a point where they can fulfill that market demand. It’s time to embrace the powerful benefits of modern technology and move toward a future that is more efficient, cost-effective and better organized. 


 


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