The requirements for property due diligence are changing. In addition to the structural and technical condition of a property, sustainability aspects are increasingly coming into focus, particularly amongst the banks providing financing. According to DAVE, the association of leading owner-managed property consultancy firms in Germany, due diligence that considers technical, environmental and economic risks together is therefore becoming increasingly important.
“The financeability of a property today depends on far more factors than it did just a few years ago. In addition to location, use, yield and technical condition, the question of how sustainable a building actually is is becoming increasingly important. ESG factors are therefore increasingly becoming an integral part of risk assessment,” says Sven Keussen, a partner at DAVE.
Sustainability risks are becoming economic risks
For buyers and property owners, this development means that any potential weaknesses in a property must be identified and assessed as early as possible. These include, for example, energy performance and the resulting investment needs, as well as other technical and sustainability-related requirements for buildings.
This can result in a significant additional investment requirement, particularly in the case of older existing properties. It is therefore not only the condition of a property at the time of the transaction that is decisive, but also what measures may become necessary during the planned holding period and what impact these will have on investment, operation and long-term marketability.
“Due diligence today must look further ahead. It is not just a matter of identifying existing technical defects. We must also provide clarity on the requirements a property is likely to face in the future and the investments that may result from them. It is precisely this information that investors – and, increasingly, the banks providing finance – need to make sound decisions,” says Thomas Portmann, Leader of Transactional Services at DAVE partner Arcadis Germany.
As a technical adviser, Arcadis supports investors, owners and occupiers throughout the entire life cycle of a property. In addition to transactional services such as TDD, EDD and CDD, its areas of consultancy include sustainability, asset management and monitoring on behalf of banks in connection with lending.
Due diligence is becoming more interdisciplinary
From DAVE’s perspective, this development means that the traditional separation of individual areas of inspection is increasingly reaching its limits. Technical condition, energy efficiency, necessary modernisation, regulatory requirements and the resulting economic consequences all influence one another.
This applies in particular to existing buildings. For example, a property that is technically sound may nevertheless require significant future investment if energy efficiency or other sustainability requirements have not been adequately taken into account. Conversely, measures identified at an early stage can help to price in risks more accurately and develop a robust investment and financing strategy.
“ESG should not be viewed as an additional item to tick off at the end of a checklist in a property transaction,” emphasises Keussen. “The crucial question for buyers and lenders is rather: what risks are associated with the property, what do they mean in economic terms, and how can they be managed? The sooner reliable answers to these questions are available, the greater the planning certainty for all parties involved.”
Banks need a sound basis for decision-making
According to Arcadis, the growing importance of comprehensive due diligence is particularly evident in financing processes. The aim is to identify technical and sustainability-related risks, quantify potential investment requirements and make their impact on the investment transparent.
“Financiers want to be able to understand and assess risks. This requires robust facts rather than blanket ESG statements,” said Portmann. “A thorough technical and sustainability-related analysis provides clarity on where a property stands today and what measures may be necessary in the future. This provides certainty when making investment and financing decisions.”
Arcadis takes an interdisciplinary approach, combining technical expertise with strategic consultancy. According to the company, its Technical Advisory Team – comprising more than 100 staff – supports around 400 projects a year across 13 locations in Germany. The aim is to identify opportunities, minimise risks and provide investors, owners and users with a sound basis for their decisions.
DAVE: Early assessment enhances transaction security
DAVE also sees this development as an opportunity for the property market. The more transparently future investment requirements and risks are presented at the outset of a transaction, the more informed the decisions made by buyers, sellers and financiers will be. Keussen: “Particularly in a challenging market environment, transparency is a key factor for successful transactions. A property does not automatically become unattractive simply because investment is required. The real problem arises when risks are identified too late or when investment requirements cannot be reliably calculated. Comprehensive due diligence provides the necessary basis for this.”
