Financial Due Diligence

Abstract

This chapter describes the process of conducting financial due diligence for real estate companies, portfolios and assets. It will provide practitioners with an overview of potential issues to be investigated and provides an approach to analysing these issues. Starting with a description of goals and an approach to financial due diligence, these will be compared with commercial and property due diligence to establish an understanding of the differences and similarities with these neighbouring forms of due diligence. Subsequently, the scope of financial due diligence will be discussed. This discussion encompasses the common scope sections of a financial due diligence engagement: the quality of financials, the quality of earnings, the quality of net assets as well as the quality of cash flows. For each scope area, items of these broader scope sections, issues, analytics as well as practical challenges will be described. As a result, common issues and analytical approaches to financial due diligence in the real estate sector will be illustrated.