When a company is just preparing for a commercial real estate deal, large-scale due diligence is carried out, during which all aspects of creation and activity are studied, and all risks that may affect the placement price are identified. So, what is the role of the data room in this procedure?
The purpose of the commercial real estate due diligence
From today’s point of view, real estate as a pure investment is compared to other asset classes and is viewed as an investment property. Nowadays, investors are fund companies, pension funds, and other interested and experienced circles that create real estate tailor-made for future users or deal with inventory management. Thus, the property is not sold or bought, but the company shares are transferred to the property owner. Today it is rented or leased on a long-term basis. The negotiating partners are responsible for the contractual design of the rental and lease agreements.
Due diligence for real estate is the structured analysis of the property in its entirety by experts with applied analysis methods. Careful planning is crucial for a successful procedure and, thus, ultimately, for the real estate transaction’s success and securing the investment. As a rule, money, time, and the available resources are limited on the buyer’s part. Therefore, due diligence without coordinated planning and organization runs the risk of inefficiency and not leading to the statements required for a comprehensive property assessment. The central starting point for such a procedure must be the organization of a secure collaborative workspace. In this case, an electronic data room is the most suitable alternative.
The place of data room in real estate due diligence
As a virtual data room (VDR) becomes more popular, authorized users gain access to information stored electronically on a server. Most due diligence data is sensitive and therefore requires high security. Therefore, companies focus on secure data exchange and improve their services and software during real estate business transactions. The increasing traffic in critical data management facilities such as data centers that are not implemented to run secure transactions is a significant factor driving the demand for VDRs. The data room can help to organize real estate due diligence in the following way:
- If you want certain documents to be hidden after a certain time, you can automatically set a timer to block those documents. For example, you can set a time for certain assets and documents after which this content is no longer available. The access window can range from a few minutes or hours to several days, months, or years. It is advantageous in situations where you want to edit specific content.
- With data room, you can also set up your documents so that only one user can work on a document at a time. It ensures that while one user works on the file, no one else can make changes to the document. If someone tries to do this, they’ll see a message that the file is locked and the username and timestamp of the person working on it.
- VDR secures content with strong encryption, allowing data to be transmitted with secure SSL encryption. Until now, it has been impossible for companies to transact off-property due to the apparent risks to data security and integrity. Today the entire online data room has been moved to the secure cloud. With the data room software, teams can securely access content without visiting a location physically.