Strategizing for Post-Crisis Due Diligence Meetings

Introduction:

Alliance Global Advisors believes that communication is critical. We’ve taken the time to interview several Limited Partners and Consultants and compiled an initial list of the key due diligence questions investors and Consultants should be asking their partners as they navigate the current market environment. If you haven’t yet strategized with your team leaders on how to address these questions, we encourage you to host a series of internal conversations before communicating a message to investors. Alliance Global Advisors is here to help lead the conversation and provide guidance on incorporating “industry best practices” during this unprecedented time.

Organizational Considerations:

  • Are any employees currently impacted by COVID-19?

  • Is the organization taking any measures to lessen the impact of COVID-19 on its workforce?

  • Have any layoffs or furloughs taken place across the organization?

  • How are you measuring employee productivity in a remote work environment?

  • Is fund accounting managed by an internal or external party? How many people are on the team?

  • While working remotely, have you experienced disruption or delay in accounting/funding obligations?

  • Are employee compensation packages or benefit packages adversely impacted by market volatility?

  • Many operations teams run lean, is there a contingency plan for fund accountants?

  • Who will step in if a key employee in operations/accounting was impacted by COVID-19?

  • Do you have an effective communication plan in place for your internal staff and LPs?

  • Have you researched the impact of the current environment on your existing exposures?

  • How are you controlling costs today?

  • How is your workforce feeling about job security today?

  • Will your investment committee and/or portfolio management team meet more frequently?

Strategy Considerations:

  • Is your product line diverse enough to allow for market volatility and Black Swan events?

  • Are you considering a new product launch to capitalize on opportunity?

  • How are you shifting your current strategy to reflect the risks and opportunities in today’s market?

Appraisals:

  • When was your last external / internal appraisal conducted?

  • Will you be taking an internal mark-to-market on March 31st or June 30th?

  • What is your estimation of appraisal adjustments based on your current tenant requests?

  • Does your firm mark debt to market regularly and if so, what will be the implication of recent Fed rate cuts?

Asset Management Activities:

  • How is COVID-19 impacting operations at the property level for each property type?

  • When do you expect site visits resume? How will site visits be conducted in an environment requiring extended quarantine and social distancing?

  • How is tenant health and wellbeing considered/monitored on property?

Transaction Markets:

  • How are you addressing property on the market for sale?

  • How are you addressing property under contract for sale?

  • Can you price property today?

  • Which underwriting assumptions can you confidently adjust in acquisitions?

  • Which underwriting assumptions are more difficult to address?

  • For an asset on the market today, what type of discount (relative to pre-COVID-19 pricing) would make you feel confident in your acquisition? How does this vary by property type?

  • Have you been approached by distressed sellers yet? What is the tenure of the conversation?

Debt Markets:

  • Are there any debt obligations that will be difficult to satisfy in your current portfolio?

  • Are you having conversations with lenders on relief measures? If so, what are the details?

  • Which provisions are lenders willing to grant today, and which conversations are more difficult?

Tenant Relief Initiatives:

  • Which industries are being most impacted by the global pandemic?

  • Which tenants have asked for the most relief to date?

  • Are you offering standard rent reductions in any property types?

  • What are standard tenant requests you’ve received?

  • Will the CARES Act or other legislation impact your portfolio?

For Active Fundraising Efforts:

  • How much capital has been raised compared to fund target?

  • What percentage of the portfolio was acquired pre-COVID 19?

  • What is the anticipated magnitude of the value decline on the pre-specified portfolio?

  • Will you consider restructuring the fund to allow for a pre-COVID or post-COVID sleeve?

  • How have flagship/lead investors responded?

  • Are you planning to issue or postpone capital calls soon?

Considerations for Established Funds:

  • Will any additional capital be held in reserves due to COVID-19 impacts?

  • What percentage of capital is in reserves today?

  • What are tenants asking for today in terms of relief?

  • Will fees be reduced if investment periods are extended?

  • Are any strategy modifications being considered that would require LP approval?

  • Do you expect to approach investors with any amendments to the Limited Partnership Agreement?

  • Under what circumstances would you consider returning uncalled capital?

Considerations for Open-End Funds:

  • Will you draw capital from investors in the entrance queue knowing valuation declines may follow?

  • Will you distribute capital to investors in the redemption queue knowing valuation declines may follow?

  • Do you agree/disagree with guidance from appraisal firms currently? If you disagree with bearish guidance, will you take internal marks and when will you take them?

  • How is the Non-Core component of a traditionally Core vehicle going to fare?

Considerations for All:

  • What is the estimate of the magnitude of property value write-down’s?

  • What is the estimated impact on previously forecasted Net Operating Income?

  • Where are you expecting to find interesting opportunities?

By: Alliance Co-Founders

Elise BarnesDue Diligence, Covid-19, Communication