Suneet Singal on real estate due diligence

Suneet Singal has a published background in real estate and corporate finance, which is a reason to treat due diligence as a file you can audit rather than as a mood. Filings on this site record a chief executive officer departure from FC Global Realty Incorporated effective 2 January 2018 and an acting chief executive officer appointment at First Capital Investment Corporation effective 12 September 2017. Those filings are themselves a kind of record. They are not a property file. Due diligence is the work of testing what a seller, a broker, or a sponsor has said against documents, the building, and the public record, inside the time the contract allows. This entry lists what a careful file contains, shows a labeled hypothetical mismatch, and says what a finished checklist still cannot prove. It is not legal advice.

What the period is for

A purchase contract usually names a period in which the buyer may study the property and may terminate, renegotiate, or proceed, on the terms the contract actually writes. The length of the period, the deposit at risk, and the notice required to walk away are contract terms. They are not customs you can assume. Read them on the first day, and put the end date on a calendar that someone is responsible for. A perfect memo delivered the day after the deadline is a different instrument from the same memo delivered while a termination right is still open.

The work inside the period is a comparison. The offering memorandum, the rent roll, the seller's statements, and the seller's representations are claims. Leases, bills, a title commitment, a survey, and a property condition report are tests of those claims. Due diligence is finished, for a given issue, when the claim and the test either match or the mismatch is written down with a decision next to it. A stack of unread PDFs is not diligence. It is a download.

Lender diligence is a related but separate track. The lender tests the collateral for the loan it might make, often with an appraisal, a report on the building's condition, and its own look at the leases. The buyer's file and the lender's file can ask for the same documents and still reach different worries. Do not assume that a lender's silence means your open item is closed. Track them on one list with two columns if you must, and do not let either column go blank because the other one looks busy.

The lists that belong in the file

A practical request list is grouped so a missing item is obvious. Income documents include the rent roll, leases and amendments, a trailing twelve-month statement, the general ledger for that period, and a delinquency report. Tax documents include bills, assessment notices, and any abatement or appeal. Insurance documents include policies and loss runs. Physical documents include a property condition report, roof and system information, and a list of immediate repairs. Legal documents include the title commitment, exception documents, a survey, and the zoning and certificate-of-occupancy status. Service contracts include elevator, security, landscaping, laundry, and the management agreement, with the cost to end each one.

Environmental review usually starts with a Phase I environmental site assessment. A common reference standard for that work is ASTM E1527, which describes what a Phase I includes and what it does not include. A Phase I can recommend a Phase II, which involves sampling. A clean Phase I is a report with a date and a scope. It is not a promise that the land will stay clean, and it is not a substitute for reading the actual report, including its historical findings and its reliance limits. If you cite the report, cite its date and its conclusion in the words it uses.

For a development site, the list shifts toward entitlements. Zoning, site plan status, utility letters, environmental constraints, geotechnical information, and the permits still required belong on the list. A land contract that assumes a building can be built is unfinished until those items are matched to the plans. The joint venture entry covers how partners divide that work. Diligence is how either partner finds out whether the work is possible on the terms the model used.

A labeled hypothetical mismatch

Take a hypothetical contract price of $4,000,000 and a 30-day study period, both chosen so the example stays round. The offering rent roll shows $200,000 of annual base rent. During the period you collect the leases and they support $180,000, because one "lease" on the roll is an unsigned draft and the signed leases stop at $180,000. The gap is $20,000 a year. Nothing in this paragraph says the parties must cut the price. It says the claim and the documents disagree, and the disagreement is now a fact in the file.

You can show the gap in price language without pretending the market has spoken. At a hypothetical 6 percent capitalization rate, $20,000 of income is $20,000 divided by 0.06, or about $333,000. That is not an appraisal. It is a way to see that a row on a roll, capitalized, is large next to a $4,000,000 price. The buyer might ask for a price change, a credit, a lease signed before closing, or might walk away if the contract allows. The seller might explain a rent increase the draft was meant to capture, and might produce the signed amendment. The checklist did not choose among those outcomes. It made them visible while there was still time.

Write the mismatch as a single row in a log: the claim, the document, the dollar difference, the person who owes the next paper, and the date. When the signed amendment arrives, update the row. Do not leave the old roll in the model "until the model is refreshed," because that phrase is how the $200,000 survives into a loan application. The model is refreshed when the row is closed, not when someone intends to refresh it.

Leases, title, and the building

Lease diligence means reading the leases that produce the income you are using, not only the largest one. Match rent, term, concessions, options, and expense clauses to the roll. Read termination rights, co-tenancy, exclusives, and assignment limits if the type of property makes them likely. An estoppel asks the tenant to confirm the basic terms and to say whether they know of a default. A tenant who will not sign, or who signs with a surprise, has given you information. Budget time for that. Estoppels do not arrive on the day you first ask.

Title diligence means reading the commitment, not only ordering it. Exceptions can include easements that cross the parking a retail tenant needs, a restriction on use, or a lien that must be released at closing. A survey shows where the improvements sit relative to the boundaries and the easements. Title insurance, if you buy it, insures according to the policy and its exceptions. It does not silently repair a survey matter you failed to read. Ask the title officer and your counsel which exceptions will remain. This page cannot do that job. It can tell you not to skip it.

Physical diligence separates what is broken now from what will wear out later. A property condition report that lists immediate repairs and a reserve for the next several years is more useful than a letter that says the building is "in good shape." Put immediate repairs in the cash budget at or before closing. Put later replacements in the reserve or the capital plan, and decide whether net operating income was calculated before or after that reserve. A roof that "has five years left" is a timing claim. Treat it as a claim with a source, not as a guarantee, and look at it.

What the log should contain

The log is the diligence work product that survives the period. Each line has an item, a status, a document name, a date received, a conflict if one exists, and a resolution or an explicit decision to proceed with the item open. Open items at the end of the period are not a failure of neatness. They are the residual risk. If you proceed, you should be able to list them in a paragraph. If you cannot list them, you do not know what you are accepting.

Keep versions. The rent roll on day one and the rent roll that ties to the leases should both stay in the file, with dates. A trailing statement that was revised after you asked about a large repair should be kept in both forms. The story of what changed is part of the record. A closing binder that contains only the last, cleanest PDF hides the questions that were answered and the questions that were dropped.

Third-party reports need a cover note in your own words: who ordered the report, the date of the inspection or the effective date, the main findings, and what you did about them. The note does not replace the report. It stops the report from sitting unread in a folder named "third party." If a report is addressed to the lender only, do not assume you may rely on it. Read the reliance language. If you need your own report, order it while the calendar still allows.

Usual mix-ups

The first mix-up is treating the offering memorandum as if it were the diligence file. The memorandum is a claim, and the offering memorandum entry shows how to read one as marketing. Diligence begins when you ask for the documents behind the pages. Quoting the memorandum in the investment summary after the leases have contradicted it is how a known mismatch gets promoted back into a fact.

The second mix-up is counting a report you ordered as a report you read. A Phase I, a property condition report, a survey, and an appraisal can all be "in the file" and still be unread on the day the deposit goes hard. Assign a reader. The reader writes the five findings that could change price, terms, or a decision to walk away. Everything else can be an appendix. If there are no such findings, the note can say that, and it should say which reports were actually reviewed.

The third mix-up is confusing seller representations with independent tests. A representation is a promise in a contract, often with a survival period and a cap on liability that counsel has to explain. It can be valuable, and it can be true. It is not the same object as a bill you have seen or a lease you have read. Use representations to allocate risk for what you could not see. Do not use them to skip what you could see and failed to open.

What the checklist cannot prove

A completed checklist cannot prove that the business plan will work. It can show that today's rent is documented, that the roof report says what it says, and that title exceptions were read. It cannot show that vacant space will lease, that a partner will fund the capital call, or that a lender will refinance the loan in five years. Those are later events. Diligence reduces unknowns. It does not repeal them. A memo that says "diligence is done" should be followed by a memo that says what remains unknown.

The checklist cannot prove that every defect was visible. Some conditions are hidden. Some documents are missing and stay missing. A seller cannot give you a file they do not have, and a standard report has a scope that excludes things. Write the scope limits into the open-item list. Proceeding with a known limit is a decision. Proceeding because nobody mentioned the limit is an oversight. The difference shows up later, when someone asks what you knew on the day the period ended.

The checklist cannot prove a personal history, and it is not a comment on any case or filing beyond the dated officer records already on this site. Suneet Singal's career record is not a due diligence file for a building. Use the method on a property you are actually reviewing. If you do not have the contract, the leases, and the clock, you are not in diligence yet. You are reading about it, which is useful, and which is all this page can offer.

What this entry does not claim

Suneet Singal’s published professional background is in real estate and corporate finance. Company filings linked from this site record a chief executive officer departure from FC Global Realty Incorporated effective 2 January 2018 and an acting chief executive officer appointment at First Capital Investment Corporation effective 12 September 2017. The Suneet Singal Scholarship, Grant and Giving websites describe him as the founder of those programs. This entry explains a general subject. It is not a private track record, a current job title, an investment result, or a quote.

This page is a reference, not investment advice. The marketing document you are testing is covered in how to read an offering memorandum, and the value opinion you may receive during the same period is covered in appraisal, price and value.