Liquidity and the drivers of search, due diligence and transaction times for UK commercial real estate investments

Trading commercial real estate involves a process of exchange that is costly and which occurs over an extended and uncertain period of time. This has consequences for the performance and risk of real estate investments. Most research on transaction times has occurred for residential rather than commercial real estate. We study the time taken to transact commercial real estate assets in the UK using a sample of 578 transactions over the period 2004 to 2013. We measure average time to transact from a buyer and seller perspective, distinguishing the search and due diligence phases of the process, and we conduct econometric analysis to explain variation in due diligence times between assets. The median time for purchase of real estate from introduction to completion was 104 days and the median time for sale from marketing to completion was 135 days. There is considerable variation around these times and results suggest that some of this variation is related to market state, type and quality of asset, and type of participants involved in the transaction. Our findings shed light on the drivers of liquidity at an individual asset level and can inform models that quantify the impact of uncertain time on market on real estate investment risk.

Uso del Due Diligence para la adquisición de una empresa salvadoreña.

En el mundo de los negocios se desarrolla un proceso dinámico de intercambio que ha experimentado transformaciones importantes en las últimas décadas, sin que se pierda la esencia de las transacciones comerciales que nacieron prácticamente desde que existe la raza humana. La raíz del intercambio económico radica en las transacciones de compra y venta de bienes y servicios que se realizan para satisfacer necesidades. Estas transacciones son ejecutadas por personas naturales y jurídicas, que ofrecen bienes y servicios, que son negociados en los distintos mercados. Las empresas, como entidades económicas, también son bienes transables, en las que interviene el capital y el trabajo. Estas son poseedoras de activos, pasivos, generan ingresos y existen con el fin de generar riqueza. La adquisición de una empresa implica: la negociación entre un inversor, que juega el papel de comprador, y un oferente que es el empresario interesado en vender. Ambos buscan alcanzar el máximo beneficio de las operaciones que realizan. Los inversores, hacen uso de distintas herramientas para poder investigar, revisar y ejecutar la transacción de manera óptima y lícita. Una de las herramientas que se utilizada en el mundo moderno de los negocios es el due diligence. El due diligence es un proceso de levantamiento, revisión y análisis de información que se ocupa para varios fines. Regularmente es utilizado para cierres de negocios y se ejecuta siempre que las partes hayan concluido que es factible financieramente una posible transacción de adquisición. El proceso de levantamiento de información incluye aspectos legales, financieros, operativos, mercadológicos y estratégicos. En El Salvador, buena parte de las transacciones de compraventa en micro y pequeñas empresas, se hacen sin tomar en cuenta el due diligence. Las transacciones se realizan de manera tradicional e incluso empíricamente. Sin embargo, en entidades medianas y grandes, que están mejor organizadas y con más recurso financiero, se contratan empresas y/o consultores que se especializan en la realización de estos estudios. El due diligence es una metodología de valoración, no es una auditoría, ni una receta técnica. Es una guía para aplicar la “debida diligencia” y “revisión de negocios”; que varía de acuerdo a las condiciones particulares de cada empresa, así como a la perspicacia y visión del equipo técnico, legal y financiero nombrado por el inversionista y el vendedor.

Nonprofit Boards in Australia: A Distinctive Governance Appoach

This article reports the findings into patterns of governance on nonprofit boards in Australia. The research surveys 118 boards, upon which serve a total of 1405 directors. The findings indicate that nonprofit boards can mimic some aspects of a shareholder approach to governance. But nonprofit boards, in the main, indicate priorities and activities of a stakeholder approach to governance. The features of `isomorphism' that arise largely stem from legislative requirements in corporate governance. Generally, nonprofit directors are influenced by agenda and motivations that can be differentiated from the influences upon director activity in the corporate sector. The study indicates that nonprofit boards prize knowledge and loyalty to the sector when considering board composition. The survey suggests nonprofits ``compensate'' for the demands placed upon them about fiduciary duty and due diligence responsibilities with the diverse intellectual expertise of non-executive directors. Nonprofit boards possess greater diversity than boards in the corporate sector; they include more women as directors than corporate boards and they include a greater proportion of directors from minority groups. While strategic issues feature significantly as a task of the nonprofit board, they distinguish themselves from their corporate counterparts by engaging in operational management. The findings indicate that, in the main, directors on nonprofit boards deliberate and operate in ways distinctive from their corporate counterparts. Such findings offer a contribution to the reform of Corporations Law in other countries and the likely consequence on boards outside the corporate sector.

AITPM Email Newsletter Volume 0909, September 2009: Presidents Message

President’s Message Hello fellow AITPM members, A few weeks have now passed since our 2009 AITPM National Conference, Traffic Beyond Tomorrow, which was held at the Adelaide Convention Centre from 5 to 7 August. I personally had a most enjoyable and enriching time at the Conference and felt these same “vibes” all around me. Top marks go to the South Australia organising committee, convened by Andrew Leedham, for their dedication to this our flagship event for the year. I could go on to cite my highlights but there were too many to give due diligence here. I had a number of official functions to perform at the Conference, but one in particular worth mentioning was being interviewed by radio stations 5AA, the main news/talk commercial broadcaster in Adelaide, and 891 ABC Adelaide. All interviewers were focussed on the issue of congestion charging, which is interesting in its emergence as a public conversation piece. My main responses focussed on the importance of providing alternatives for travel to the motorist otherwise being charged by a scheme, if and when decisions were made to implement congestion charging. I found that these opportunities to present AITPM as a professional peak body were very fruitful. The Queensland organising committee is now in full swing organising the 2010 AITPM National Conference, What’s New?, so please keep a lookout for related content. You’ll also find within this edition a transcript of my President’s Report to the 2009 AITPM National Annual General Meeting, which was held during the Adelaide Conference. Best regards to all, Jon Bunker

Franchisor failure : an assessment of the adequacy of regulatory response

Franchisor failure is one of the most problematic areas of the franchise relationship. It impacts negatively on landlords and other suppliers, but the contracting parties that are currently without legal rights to respond when a franchisor fails, and thus without consumer protection, are its franchisees. In this thesis I explore the current contractual, regulatory and commercial environment that franchisees inhabit, within the context of franchisor failure. I conclude that ex ante there are opportunities to level the playing field through consumer protection legislation. I also conclude that the task is not one solely for the consumer protection legislation; the problem should also be addressed ex post through the Corporations Act.

Can compensation be claimed under the standard commercial land and building contract where the property sold has no legally enforceable vehicular access?

This was the question that confronted Wilson J in Jarema Pty Ltd v Michihiko Kato [2004] QSC 451. Facts The plaintiff was the buyer of a commercial property at Bundall. The property comprised a 6 storey office building with a basement car park with 54 car parking spaces. The property was sold for $5 million with the contract being the standard REIQ/QLS form for Commercial Land and Buildings (2nd ed GST reprint). The contract provided for a “due diligence” period. During this period, the buyer’s solicitors discovered that there was no direct access from a public road to the car park entrance. Access to the car park was over a lot of which the Gold Coast City Council was the registered owner under a nomination of trustees, the Council holding the property on trust for car parking and town planning purposes. Due to the absence of a registered easement over the Council’s land, the buyer’s solicitors sought a reduction in the purchase price. The seller would not agree to this. Finally the sale was completed with the buyer reserving its rights to seek compensation.

Social water assessment protocol : a step towards connecting mining, water and human rights

The human right to water has recently been recognised by both the United Nations General Assembly and the Human Rights Council. As the mining industry interacts with water on multiple levels, it is important that these interactions respect the human right to water. Currently, a disconnect exists between mine site water management practices and the recognition of water from a human rights perspective. The Minerals Council of Australia (MCA) Water Accounting Framework (WAF) has previously been used to strengthen the connection between water management and human rights. This article extends this connection through the use of a Social Water Assessment Protocol (SWAP). The SWAP is scoping tool consisting of a set of questions classified into taxonomic themes under leading topics with suggested sources of data that enable mine sites to better understand the local water context in which they operate. Three of the themes contained in the SWAP – gender, Indigenous peoples and health – are discussed to demonstrate how the protocol may be useful in assisting mining companies to consider their impacts on the human right to water.

Boiler room scams destroy lives yet police blame victims

The Queensland Organised Crime Commission of Inquiry recently handed down its findings examining how organised crime has been policed in recent years. While media attention has been focused on the implications for child sexual exploitation and paedophilia, the report also made some substantial findings related to financial crimes such as investment fraud (commonly known as boiler rooms scams). Quite disturbingly, the report notes a strong victim blaming mentality that police expressed towards individuals who invested in fraudulent companies and who subsequently lost money in these boiler room scams. The attitude of the police towards boiler room victims was largely one of apathy towards the likelihood of any investigation, and of blame towards victims for not doing what was perceived to be “due diligence”. This finding illustrates several myths which are argued to exist around investment fraud victims, particularly around the concept of “due diligence”. It also feeds into the idea that victims are greedy/naïve and financially illiterate/not investment savvy. These are both problematic and largely inaccurate. Drawing on examples from my own research with fraud victims, the article will illustrate the complexity and sophistication of many boiler room schemes and demonstrate the difficulties in identifying fraudulent investment opportunities.

After the rains: Water’s impact for valuation practices

Purpose The purpose of this paper is to reduce the potential for litigation by improving valuers’ awareness of water risks. As part of a valuer’s due diligence, the paper provides guidance as to how to identify such risks by explaining the different types and examining how online search tools can be used in conjunction with more traditional methods to evaluate the probability of these risks occurring. Design/methodology/approach The paper builds on prior research, which examined the impact of water to and for valuations. By means of legal/doctrinal analysis, this paper considers relevant issues from the perspective of managing client expectations and needs. In so doing it identifies online tools available to assist in identifying at risk properties and better informing clients. Findings While the internet provides a variety of tools to gain access to relevant information, this information most commonly is only provided subject to disclaimer. Valuers need to ensure that blind reliance is not given to use of these tools but that the tools are used in conjunction with individual property inspections. Research limitations/implications Although the examples considered primarily are Australian, increasing water risks generally make the issues considered relevant for any jurisdiction. The research will be of particular interests to practitioners in coastal or riverine areas. Practical implications Valuation reports are sought for a variety of purposes from a variety of clients. These range from the experienced, knowledgeable developer looking to maximise available equity to the inexperienced, uneducated individual looking to acquire their home and thinking more often than not with their heart not their head. More informed practices by valuers will lead to valuation reports being more easily understood by clients, thus lessening the likelihood of litigation against the valuer for negligence. Originality/value The paper highlights the issue of water risks; the need for valuers to properly address potential and actual risks in their reports; and the corresponding need to undertake all appropriate searches and enquiries of the property to be valued. It reinforces the importance of access to the internet as a tool in the valuation process.