3 Areas Buyers Often Overlook During the Facility Transfer Process
4 MIN. READ
When the opportunity to acquire a new property presents itself, there are many items to consider in regards to the purchase and ownership transfer. Savvy buyers immediately begin the due diligence process to identify whether the investment will be valuable.
However, there is more to the process than you may think. Areas like procurement and supplier networks often go overlooked, leading to both hidden risks and missed opportunities. Explore these issues and discover how procurement planning can help make the decision process clearer.
Routine tasks during due diligence
When you decide to pursue a new property, the standard due diligence process allows you to assess the physical and financial condition of the property in detail:
The physical condition of the site - Walkthroughs will be crucial to discover potential deficiencies of the building. Inspect the HVAC systems and other mechanical units, as well as fire suppression systems, windows, the facade and the roof condition (to name a few).
Rent roll - Understanding the rent roll and how much money comes in each month is a mandatory step during due diligence and can be a deal-breaker.
Lease audits - Knowing how many leases are in place and how many are set to renew as well as documenting any special preclusions that may exist will help shape your decision.
Environmental survey - Conducting a phase-one site assessment is critical to understand the conditions for the land that the property sits on and any physical improvements to the property
In most cases, the above steps are requirements, and banks will expect you to document them before an acquisition can be made. But these are not the only items to look out for.
Hidden risks and opportunities when buying new buildings
There are always unknowns when purchasing physical assets. Buildings have surprises, but part of the due diligence process is to discover most of the big ones so they do not come back to bite you. Here are a few oft-missed concerns to add to your checklist when buying a new property:
1. Supplier agreements with overriding purchase minimums
When buying a property, it is important to get information on the supplier agreements that are in place.
How many supplier agreements are current or set to renew? Are there any cancellation clauses? How much notice needs to be given? Are there minimum purchase requirements established?
Knowing the answers to these questions will help you get a clearer picture of the historical performance of the property and the potential areas of improvement. As you get a feel for the situation, it is important to identify problematic vendor relationships and try to renegotiate or cancel the agreements.
When you purchase a new property, it is a great opportunity to start fresh and put your preferred vendors and suppliers in place with favorable terms (like no purchase minimums and lower pricing).
2. Erratic procurement history
When evaluating your purchase, identify purchasing patterns from the past and establish a procurement planning process that can get you back on the right track.
Did you notice a lack of consistency with purchases? Perhaps there were several vendors supplying the same or similar items. What pricing was recorded?
This data should be vetted before making an offer on the property.
3. Non-centralized procurement
Centralized procurement is when one department or individual controls all the purchasing decisions of the organization. It is typically part of a greater procurement planning concept that is designed to streamline and save money for the company. When there is no centralized procurement established for a property, you can pretty much guarantee waste, inefficiency and loss of productivity.
Do not ignore decentralized procurement within the property under consideration. This is a potential red flag that could cause major problems down the road. It is also an untapped area that can add revenue when a building is under evaluation.
These three items above may seem like small concerns when compared to the usual risks associated with purchasing a property, but they can and will make a difference in your bottom line. If you spend sufficient time reviewing them, that difference to your bottom line can be positive, not negative.
Make the smart decision
Smart building owners and managers understand that buying a property is not a proposition to take lightly. You must overturn all stones to understand the inherent opportunities that the building possesses, identify the risks and challenges that may emerge, and ultimately, get the best deal. Procurement planning must play a big part in the overall process of evaluating and purchasing a property.
Centralized purchasing can help reduce expenses, consolidate orders, keep suppliers in compliance and ensure the best pricing possible. The great thing is that Raiven (formerly Qmerit) has an optimized technology solution that you can incorporate into your business. It is easy for employees to adopt and will eliminate rogue spending.
Do not waste any more time and money on a due diligence process that does not cover all the bases. Reach out to discover how Raiven can help you improve your NOI today.