■Operator
1. How many years has the operator been in business?
2. What is their track record as a company?
3. How significantly did market conditions play a role in their track record, as opposed to operational proficiency?
4. Have they ever experienced a recession?
5. What does the reporting look like that you would be receiving as an investor?
6. What is their current assets under management?
7. How many investors do they currently have?
8. Are they members of any trade boards in their respective asset class?
9. Does their firm have a significant online profile?
10. Are they set up to send ACH deposits to investors?
11. What is their current bandwidth compared to their upcoming projects?
12. Do their professional referrals verify the claims that they have made about their experience, track record, and background?
13. Can they pass a background check?
14. When you pull a background check, do the properties they claim to own show up?
15. How active are they in the subject property’s asset class?
16. What does your gut tell you about the operator?
■On-site Property Management
17. Will the current property manager remain in place?
18. Is the sponsor projecting a significant increase in performance from the same management company?
19. How did the sponsor source the property management company?
20. Has the sponsor worked with the property management company before?
21. Does the property management company accept ACH payments?
22. What software does the property management company use?
23. How frequently will the property management company be providing reports to the sponsor?
24. What other assets does the property management company have in the area and how are they performing?
25. What is the corporate structure of the management company?
■Loan
26. What is the loan-to-value ratio?
27. How is the loan-to-value being established?
28. Is there additional capital expenditure budgeted in the projections?
29. Is the completion of the capital expenditure included in the loan-to-value?30. What is the loan-to-cost?
31. Is there preferred equity in the deal that would be senior to your investment?
32. What is the loan-to-value, including any senior preferred equity?
33. What is the duration of the loan term?
34. Is there any pre-payment penalty and, if so, what is it?
35. Is the interest rate fixed or flexible?
36. What is the amortization schedule?
37. How long is the interest-only portion of the loan?
38. Is the property projected to experience a refinance?
39. What is the assumed loan-to-value at the time of refinance?
40. What does the Net Operating Income (NOI) need to be in order
for the refinance to be effectuated?
41. What is the assumed interest rate in the event of a refinance?
42. What is the debt-service-coverage-ratio (DSCR) in Year 1 (Y1)?
43. Who is the lender?
44. Does the lender have significant experience with the asset class?
45. Is the lender knowledgeable about the market?
46. Has the sponsor worked with the lender before?
47. Is the loan being assumed or is it going to be a new loan?
48. Is the loan assumable?
■Property-specific Due Diligence
49. What is the age of the property?
50. Has the property been renovated and, if so, when?
51. What percentage of the units have already been renovated?
52. What is the replacement cost of the property?
53. What is the cost per square foot?
54. What is the number of units or tenants?
55. Is the property in a flood zone?
56. What is the unit-to-parking spot ratio and how does it compare
with the competitive set?
57. Is there an office on the property?
58. Will the office need to be upgraded?
59. Will the property manager live on the property?
60. What is the physical occupancy of the property?
61. Does the signage need to be upgraded?
62. Does upgrading the signage require approval by the city?
63. When was the last time the roof, plumbing, elevators, and electrical were
replaced or upgraded?
64. What is the class of the property and how does that align with the surrounding area
and tenant base?
65. Are there cameras surrounding the property?
66. What type of security will be provided at the property?
67. How does the property compare to the competitive set in terms of amenities?
■Market
68. What is the population of the market?
69. What is the market’s projected population growth?
70. What sectors of employment are present in the economy?
71. Is there a sector of the economy that is responsible for more than 25%
of the employment of the market?
72. What is the medium household income of the three-, five-, and ten-mile radius of the property?
73. What is the medium household income-to-rental rate ratio?
74. What is the property’s number of daily traveled vehicles?
75. Does the surrounding neighborhood consist of residential properties or
commercial buildings?
76. How many major competitors are within a three-, five-, and ten-mile radius
of the property?
77. What does the competitive set suggest about the ratio of supply-to-demand?
78. Are there nearby properties which are being developed that could compete
with the subject property?
79. What is the crime rate like in the market?
80. Are there any natural disasters that are common in the market?
81. Are there any specific insurance needs the market may require?
■Previous Property Performance & Projections
82. What do the trailing three-month (T3) and T12 financials tell you about
the property’s past performance?
83. What is the T3 and T12 physical occupancy?
84. What is the operating expense ratio of the T12?
85. What are the major differences between the T12 and the Y1 projections?
86. What is the cap rate at purchase?
87. What is the cap rate based on all-in costs, including all fees?
88. What is the terminal cap rate?
89. What is the stabilized occupancy rate compared to the market?
90. What is the Y1 cash-on-cash return?
91. What is the assumed increase in rental rates?
92. How long is the sponsor projecting to complete the capital expenditure?
93. Did the sponsor adjust the tax basis to match the new purchase price?
94. What are the underlying assumptions on the major determining factors
of the property’s performance and how are they justified?
■Legal Docs
95. Under what circumstances do the investors get to vote?
96. Can the investors remove the manager?
97. What percentage of the vote is required to remove the manager?
98. Is it possible that investors will be required to contribute additional capital
above their investment amount?
99. How would it be determined that the investment requires additional capital?
100. What happens in the event that additional capital is required and an investor does not contribute?
101. Is there a management fee paid to the sponsor before the waterfall?
102. What is the preferred return?
103. What is the split above the preferred return?
104. Is operational cash flow above the preferred return counted as a return of capital?
105. How is capital split in the event of a refinance?
106. Is it possible for investors to transfer shares?
107. Are the sources and uses clearly outlined?
108. Do you recognize all parties outlined in the sources and uses?
109. Is there a co-invest?
110. What percentage of the depreciation is passed through to investors?
111. What are the reporting requirements of the investment?