HOW TO CONDUCT TECHNICAL DUE DILIGENCE OF BUILDINGS AND INFRASTRUCTURE 

Today, the demand for investment in new construction, mergers and acquisitions, and the transfer of real estate projects (include existing building or a greenfield land) are increasing. Such transactions often carry a huge amount of financial and technical risks.

Thus, it is not uncommon to see that one of the basic reasons leading to the failure of these transfer deals is the lack of information of the parties about the targeted building or infrastructure, which leads to unsecured technical construction, wrong investments, and massive amount of losses.

What is Technical Due Diligence in the field of Buildings and Infrastructure?

An essential process during any investment transaction, “Technical Due Diligence” (TDD) is the research, analysis and discovery process which helps an aspiring buyer, user or investor collect essential information about the physical and technical conditions of the asset.

It is important to ensure that the property you are about to purchase is a reliable investment, and that it is not hiding any hidden problems. With an independent, third-party assessment, TDD allows the buyer to identify any potential risks that may arise during the course of project execution while estimating future costs for asset management, maintenance and repair.  All of these findings can be understood and be used as part of a project feasibility study (also known as Pre-feasibility study).

Why is Technical Due Diligence necessary?

The condition and the utilization of the property are major factors in ensuring its long-term profitability. If not set up to maximize its utility and operational efficiency, it may not be able to provide a good return on investment. The condition of the asset can also have a major influence on its long-term value. If not well maintained, it will lose its value over time.

TDD is an extremely important step to minimize any risks before transferring, merging, restructuring, or even acquiring the management right of any property transaction.

It enables customers to gain knowledge about the technical condition through a meticulous review of available documents and a thorough assessment of the following essential aspects:

For existing buildings:

• Suitability of the building for the intended use;
• Any non-compliance with local regulations and applicable standards;
• Any defects and deficiencies that can affect the building’s performance in the short, medium or long term;
• Insight into the need for repairs of defects resulting from insufficiently planned preventive maintenance, neglect, misuse, insufficient capacity or non-compliance with the regulations and standards.

For greenfield lands:

• Suitability of the land for the intended use;
• Any negative effects of the location, the environment and the soil condition on the development of the greenfield land project;
• Sufficiency of Infrastructure and Utilities, including power supply, water supply, storm water and sewage drainage, wastewater treatment, utility connections etc.;
• Draft Feasibility Design, if required, including preliminary master plan, structural solutions, utility infrastructure needs.

The TDD results therefore provide customers with a solid basis for price negotiation or risk sharing before entering into an agreement or contract with another party. In short, TDD can help you identify any potential issues with the property’s condition and prevent any financial losses that may occur.

How do you conduct TDD of your property?

Every customer is different. Thus, it is vital that  the scope of work for TDD be tailored to meet the customer’s needs. The desk study of relevant documents and site inspection are key parts of TDD.

TDD begins with an inspection of the asset to determine its current condition and suitability for the intended use. It is imperative that you hire a qualified team to conduct a thorough inspection to identify any deficiencies or problems that may affect the operational efficiency or structural integrity of the property. Post-inspection, a detailed report containing the observations and recommendations should be provided to give you better clarity on the next steps of actions.

In addition, one must also evaluate the property’s engineering drawings and design documents to determine its compliance with local building standards and regulations.

For existing buildings:

• Document Collection and Review;
• Evaluation design ;
• Inspection of Architectural & External work;   
• Inspection of Civil & Structure works: Inspecting and assessing the quality of the building; Checking the load bearing capacity of the building structure;
• Mechanical & Electrical Inspection: HV, MV and LV Systems, HVAC Systems, Plumbing & Sanitary Installation Systems, Fire Safety Systems);
• General Environmental Evaluation;
• CAPEX Cost Estimation. 
• Support the Client: Project Management and Construction Supervision during the renovation/ improvement/ repair phase (if required)

For greenfield lands:

• Document Collection and Review;
• Soil Investigation and Soil Laboratory Testing;
• Topographical Investigation and Project Boundary Marking;
• Flood Risk Assessment;
• Site Condition Survey including Physical Site Information, Local Environment, Utility Infrastructure (Transportation, Power Supply, Water Supply, Storm Water and Sewage Drainage, Wastewater Treatment, Utility connections etc.);
• Draft Preliminary Design: Preliminary Master Plan, Structural Solutions, Infrastructure and Utilities;
• Cost Estimation.

What things do you have to pay attention to during a TDD?

• Equipment and Systems - You should evaluate the condition of the equipment and systems at the property to determine if they are compatible with your business operations. You should also evaluate the existing systems to determine if they are adequate to meet your current needs.
• Utilities - You should examine the utilities at the property to determine if they are adequate for the intended use. You should also evaluate the property’s electrical and water systems to ensure that they meet local code requirements.
• Environmental conditions - You should evaluate the property’s amenities, landscaping, and surrounding buildings to ensure that it is well maintained and meets local standards. You should also verify that the property is located in an area that has adequate public services, such as power, water, and transportation.

It’s important to conduct a TDD before any important decisions are made in order to give you clarity on your potential project. Helping you determine the condition of property and whether they are adequate for the intended use, TDD will help you evaluate and make the right decisions while ensuring you have the best returns on investment.