Due Diligence
The most important part of the process.
Due Diligence
The biggest hurdle for passive investors is that most can’t tell the difference between a good deal and a bad deal.
Due Diligence Overview
Below is a partial view into our comprehensive due diligence process.
Deal
Equity Leap performs a comprehensive review of documentation from both the Sponsor and external sources. This is a crucial process that allows for a detailed understanding of the transaction and property, aiming to ensure the Sponsor can execute the business plan.
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Offering memorandum review
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Review of overall business plan and sponsor’s team
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Review of underwriting model to ensure inputs are within reason and outputs justify the investment risk
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Trailing-12 income statement and rent roll
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Review crime ratings for the area
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Google reviews of the property
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Review of Area Median Income (AMI)
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Insurance coverage review
Sponsor
The sponsor may be the most important part of the investment. Equity Leap only does business with sponsors that we know personally. We conduct a screening process that includes background checks on the firm’s principals, reference checks, track record verification, and a site visit. It’s important to know that the sponsor can execute on the business plan that it outlined in the Offering Memorandum.
Some of the items we review include the following:
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Review of full track record with the sponsor
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Explanations for any realized or potential capital loss events
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Reference checks (at least 3)
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Public record search
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AML/KYC check of any beneficial owners in the company
Structure
Maybe we like the deal and the sponsor. But now we need to ensure that the terms being offered to investors are fair. The GP/LP splits, fee structure, investor onboarding experience, and investor reporting need to be top notch for us to move forward. Even if a strong sponsor brings a great property to market, if the structure doesn’t properly compensate investors for their risk, we shouldn’t invest in the deal.
Some of the items we review include the following:
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Review of the cash flow waterfall in the PPM and OM. Is it fair to investors?
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Fee review. Sponsors can charge fees of all sorts. Are they fair and at “market prices”?
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PPM review
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Capital call provisions
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Understand return of/on capital
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Liquidity options for investors during the hold period
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Understand potential uses for investor capital
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Obtain previous examples of investor reports for other sponsor’s investments
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Investor portal review / subscription process
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Review of special terms / side letters for other investors. (Terms and investment allocation).
Our Mission: To provide investors with peace of mind and financial security by investing in high-quality commercial real estate. Capital preservation is our primary objective, followed by strong growth.
Securities are offered through Finalis Securities LLC Member FINRA / SIPC. Leap Multifamily, LLC (DBA as Equity Leap) is not a registered broker-dealer, and Finalis Securities LLC and Leap Multifamily, LLC are separate, unaffiliated entities.
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