Technical Due Diligence and Documentation

Investors in German real estate are taking a more active role in managing their assets, the REFIRE 2013 conference heard.

John Atkins, head of clients at Arcadis, was arguing that technical due diligence can drive better performance and produce more sustainable returns.

Investors and tenants were more environmentally and socially aware, demanding when they renewed leases ‘more energy and workplaces which reflect their corporate social responsibility requirements’.

Research to be publish shortly would show that Hamburg and Frankfurt had emerges as places where you could increase the value of stock through a major refurbishment programme. Doing nothing, he said, risked damaging your asset values.

You could take almost any building in Germany and improve on its energy costs. Investors were looking for long-term value over, say, 10 to 15 years and the way to do this was by developing key performance indicators for the asset.

Dr Thomas Herr, a partner at Valteq, took a differing view. ‘My impress is investors are still more focused on rent not risk when it comes to technical due diligence.’

There were six major considerations:

1. Fire protection, especially in large, empty office buildings of the 1970s and 80s. ‘It’s not only our experience that they don’t meet the future requirements, it’s that they nenver met the current requirements.’ This could make it difficult to obtain permission for re-use of a building.
2. Energy savings. From next April if you touched more than 10% of the area in a building renewal, it must comply with the new energy saving codes.
3. Water quality and sewage disposal.
4. Concrete repairs needed after damage caused by salts. As an aside he noted that many car park bays were 2.30m wide but cars were getting bigger and bigger, so no longer fitted.
5. Replacement of building managements systems. Components are often unavailable for older systems.
6. Disposal of hazardous building materials. These could be ‘a killer’ by adding 3 to 5% to refurbishment costs.

In addition, he said, the lifetime of buildings was getting shorter – down from 40-50 years to 20-30 years. Tenant turnover was more frequent. The coalition discussions to form a new government were talking about increasing from 2 to 4% the accepted rate of depreciation. This would have an impact on investors’ capital expenditure needs.