« articles »
By Mark H. Fackler
AZLAND Business Solutions LLC
Putting Your Old Due Diligence Out to Pasture
New technology is shaping how field information is filed and shared
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 inef-ficiencies. 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.
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
The new approach
Accessing the power of modern tech-
nologies requires embracing a different
approach to gathering, quantifying and
analyzing the characteristics and condi-
tions of properties. The traditional ap-
proach is based on scope and report
formats, instead of focusing on gath-
ering the critical data points needed
to perform the necessary back-end
analysis. The currently available soft-
ware platforms focus on procurement
and generating consistently format-
ted reports. The granular level data
within those reports is nearly impos-
sible 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 in-
terval 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.
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, after which it can
populate management software and be
unlocked for portfolio querying.
Although some industry profession-
als are moving to higher-level algorith-
mic analysis products utilizing publicly
available databases, the data set that
typically is being utilized is inaccurate
and outdated. There is a trade-off be-
tween 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 de-
mands more due-diligence information
to be accessed quicker, more transpar-
ently and more securely for less cost.
Although delivering for decades,
traditional due diligence doesn’t meet
the demands of the modern market-
place. Mobile and cloud technologies
finally have advanced to a point where
they can fulfill that market demand.
It’s time to embrace the powerful ben-
efits of modern technology and move
toward a future that is more efficient,
cost-effective and better organized. •
Mark H. Fackler is the president of AZLAND
Business Solutions LLC, a national due-diligence
technology company that develops mobile
applications and cloud-technology solutions for
due-diligence professionals, brokers, lenders
and insurance companies. Reach him at (502)
807-3893 or firstname.lastname@example.org.