The rise of virtual due diligence

As COVID-19 has come to restrict face-to-face meetings and international travel, this is having massive implications for how we all do business.  Sylvia Slaughter, Senior Director – Fund Management at investment manager GLP, told IQ how this environment is impacting real estate fund due diligence and what innovations it is spawning could mean in the longer term.

‘The two main areas where the pandemic is making a big difference to the way we work are asset due diligence and manager due diligence,’ she explains. ‘On the asset side, we usually give investors the chance to visit properties in the portfolio to get a feel for the assets and their location. Clearly this is extremely difficult in current circumstances, particularly for those investors based in other global regions. We’ve therefore started to provide virtual tours instead, giving investors an app that uses drone-generated imagery to view the asset and its locale. We guide them around the site, but they can effectively look wherever they want.’

The two main areas where the pandemic is making a big difference to the way we work are asset due diligence and manager due diligence

‘Since March GLP has given investors about 30 different virtual tours globally,’ continues Slaughter, ‘and we’ve found it to be a highly effective way of showing the assets.  A point of view from the air provides a more complete perspective on an asset’s location than is possible on the ground. This has helped us continue to raise equity in a similar way to before the pandemic and has effectively widened the scope of the due diligence process. I’m sure that we will continue to use the technology going forward, effectively making it the new normal even when the effects of COVID-19 have started to recede. COVID19 lockdowns have proved to be the catalyst for taking property tours to their next stage of evolution.’

I’m sure that we will continue to use the technology going forward, effectively making it the new normal even when the effects of COVID-19 have started to recede

For manager due diligence, where the investor seeks to understand their capabilities, experience and trustworthiness, as well as specific operational issues for the vehicle, the virtual meeting has replaced face-to-face contact in nearly all circumstances.  ‘The pandemic has forced everyone to become very proficient at using Zoom, Teams or equivalent software,’ she says, ‘and communicating this way has proved less of a problem than one might have expected.  It certainly means planning who is going to say what even more closely than in the past, as colleagues can’t rely on eye contact to direct the conversation, but that may not be such a bad discipline.  I admit that it’s more difficult to build rapport with new clients using this kind of technology, but where a relationship already exists, you don’t lose too much.  It’s certainly possible to convey all the information that was available through personal contact.’

I admit that it’s more difficult to build rapport with new clients using this kind of technology, but where a relationship already exists, you don’t lose too much

‘Looking to the future, it’s hard to imagine all due diligence taking place via video conferences and virtual meetings, but I can see it forming a bigger part of the various ways we communicate. If I think back to 10 years ago, we did audio conference calls, emails and face to face meetings.  Thinking now and into the future, video conferencing has replaced the majority of audio conference calls and can replace some face to face meetings – but definitely not all.  In essence it’s another piece in our toolbox of communication options.’

COVID-19 has clearly spurred innovation in fund due diligence, and this is something that INREV wants to look further into

COVID-19 has clearly spurred innovation in fund due diligence, and this is something that INREV wants to look further into.  ‘As a member of the INREV due diligence committee, I am raising awareness of the benefits that the adoption of virtual forms of due diligence can bring to the whole industry,’ says Slaughter. ‘Using these technologies can help make the process more focused on what the investor really needs to know as well as being more cost-effective.’

For more information, please contact Constantin.Sorlescu@inrev.org