Posted by ray@lcorn on October 14, 2005 at 10:48:40:
Arlene,
When investing in someone else’s deal you have two levels of due diligence; the property and the investment structure.
Understand that you are not really buying real estate. You’re buying what amounts to an unsecured interest in an income stream, subject to the conditions of the partnership agreement.
That means the track record, financial strength and overall credibility of the sponsor is of paramount importance. Thorough background and credit checks are in order, as is an anlysis of the partnership operating agreement by an attorney. Assume nothing. There are many hidden land mines in these agreements, so every line is important.
If you find a level of comfort with the sponsor and structure, then standard due diligence for the property should be performed. Much of the physical info (e.g. environmental, engineering, title, etc.) should be readily available from the sponsor. However, the intangibles are equally important. Tenant financial strength; market occupancy and rates for comparable projects; and overall market conditions will have a significant bearing on the future prospects for income and value.
You don’t say if these are existing buildings. If this is a development project things get infinitely more complicated.
ray