Welcome to The McGovern Group’s Due Diligence Series where we sit down with leading professionals from various disciplines on DD trends and insight.  Today we are here with Frank Demeter of Keig Financial, a commercial real  estate finance company for his views on the market and the future!  Frank may be reached at [email protected].

 

TMG:  Frank, first off, your career in commercial real estate has had many facets.  And entrepreneurial, for the most part.  Share a bit about you, Keig Financial, and what brought you two together? 

FD: Tom Keig, founder of Keig Financial, was one of the first people I met after moving to Arizona in early 1995.  We stayed in close contact over the years as I strayed from the commercial real estate lending business.  I had recently been working up and down the capital stack with my clients, and Tom convinced me that Keig Financial was an opportunity to go full circle back to commercial real estate lending while retaining my brokerage and consulting practices.

TMG.  That’s great. Ok, we all know we’re in the year of COVID and a vaccine is on its way.  That said, how has it impacted the financial sources when it comes to placing money into deals? 

FD: Everyone talks about the amount of money on the sidelines, and it’s true that there is a lot of capital that has kept the markets fairly liquid, even though new transaction volume is running more than 50% off last year’s pace.  Lenders pulled back initially when it was tougher to tell how strong COVID’s impact on the market would be.  Over the last few months, and particularly after the vaccine announcements, I have seen life companies and banks feeling more confident that we will see a continuing and accelerating recovery.  However, most financial sources still seem concerned about a large share of people/consumers that will struggle coming out of this pandemic as well as some potentially permanent shifts in office space usage and consumer retail demand.  This is keeping underwriting more cautious than pre-pandemic.

TMG:  COVID yes, but also a wacky political season. How has that impacted the markets, if at all?    How would you characterize the momentum in the marketplace?

FD: Many expected more of an impact, but I have seen relatively little actual impact that I can trace directly to the crazy political season.  The markets currently seem most interested in what kind of stimulus packages will be possible during the current lame-duck period and once the administration changes.  Fingers crossed!

TMG:  Great.  Thanks again for this Frank.  Finally, what message would you like to share with the deal and development communities pertaining to finance options?  What opportunities are lying in wait? 

FD: Capital is out there, whether it be for a refinance, acquisition loan or JV/preferred equity requirement.  Interest and capitalization rates remain near historic lows.  That said, I think there still could be challenges recovering from the COVID disruptions, so I believe there should be some targeted opportunistic investment prospects beginning in 6-12 months for patient investors.  I’m always happy to shoot the breeze and discuss the market.

 

Interested in continuing the conversation?  Frank may be reached at [email protected]. TMG also welcomes the opportunity for a friendly conversation, so reach out at anytime.  

Stay tuned next month when we sit down with another leading Due Diligence Professional

Hello TMG Community! We are super excited to introduce a new interview series with leading Due Diligence professionals. Here you will hear from a variety of leaders from a variety of disciplines on subjects that affect your business.  

 For our first we sat down with Patrick Paul, Environmental and Land Use Partner at Snell & Wilmer, a law firm based in Phoenix with offices throughout the Mountain Region and Southwest, including Mexico!  You can learn more about his practice at https://www.swlaw.com/people/patrick_paul. 

TMG: Patrick, you lead environmental and land use at the largest firm in AZ and the Southwest.  What due diligence trends are seeing?  (Volume and type  of transactions perhaps)? 

 PP: Over the last year or so, including during this pandemic period,  I have been pleasantly surprised to witness growth in the due diligence area that for the most part seems less impacted by current economic conditions. More particularly, I see deals already in progress continue forward but also see the onset of new deals providing opportunities for those in land use and environmental due diligence such as contractors, engineers, and technical consultants. 

TMG: Can’t escape the COVID question. How has your practice been impacted? What adjustments has your team had to make? 

PP: Notwithstanding some continued strength in the overall practice and due diligence in particular, there have been ramifications, likely unavoidable, associated with the Covid-19 pandemic.  For example, I am aware of construction delays caused by positive tests in construction crews many of whom commute and/or temporarily reside together during project construction. Obviously, communications have also proved challenging in the sense that in-person meetings which used to be the order of the day are now almost nonexistent. The handshake has largely given way to the elbow bump or nod of the head. While videoconferencing has helped fill a void, it has proved to be an imperfect fix with consistent technical challenges often resulting in delays that might not present in more traditional times. 

TMG:  What are clients demanding / requiring now than they may not have maybe three years ago?  

PP: I think responsiveness continues to be the highest priority for clients. Certainly, over the last decade or so it had been trending that way with expectations that service providers be available almost around-the-clock. The pandemic and increased use of one’s personal cell phone as a work phone has accelerated that trend such that in many instances there is no start or end to a work day or work week. Don’t get me wrong, this is not a complaint, just a recognition of the reality of the times and even clients themselves who may have been reluctant in the past to make their personal cell phones available are now doing so. Additionally, I am also seeing that trend among government employees, regulators, license and permit providers and the like. As our children are increasingly educated at home, so too is much of the rest of the world conducting commerce. 

TMG:  We have always said the attorney / consultant team is advantageous for the client.  What advice would you give my (consultant) industry when coming on board the due diligence team? 

PP: This is a delicate issue and I suspect there is no “right” answer.  All service providers compete with one another within their traditional lanes, and often across those lanes, whether attorney, accountant, or consultant.  I wouldn’t presume to be able to advise on this issue but certainly can comment on where I think opportunities for success reside. Simply put, the greater adherence to one’s own area of expertise and willingness to engage, or recommend the engagement of, a service provider outside of their area, the greater the appreciation and thus perhaps trust from the provider on the receiving end of that engagement or recommendation.

Also, I’d suggest all service providers continue to work to develop and maintain relationships across lanes of expertise and be willing from time to time to accept an inquiry or call and provide a gut check without having to go through a formal engagement. In that moment, while formal engagement might not present, the further development of a relationship will and likely will lead to a more productive engagement down the line.

Develop and maintain the relationship. Be responsive. Be appreciative. If those things occur, good things will follow. 

Interested in continuing the conversation?  Patrick may be reached at 602-382-6359 and [email protected].  TMG also welcomes the opportunity for a friendly conversation, so reach out at anytime.  

Stay tuned next month when we sit down with another leading Due Diligence Professional.  

 

 

 

  

The McGovern Groups was recently asked, “Do we really need to do this due diligence? The building and the company seem perfectly clean.” And they did appear “clean”. It turns out the local municipality wanted to impose a wastewater permit with onerous conditions. Thankfully, our client performed their due diligence and were able to work it out.

It turns out that although everything may look fine from the outside, the process of due diligence is key to influencing the outcome of transactions. It’s a fine-tooth comb in environmental consulting that catches snags in the process that are otherwise missed or overlooked – until it’s too late.

This situation above made us think of other, “Glad We Did It” due diligence scenarios that we’ve experienced at The McGovern Group, like the following:

• Farmstead: Years before our consultation, tanks were pulled and a limited sampling was conducted. With our more current due diligence process, we discovered additional impacts to the soil that required extensive excavation. A potential liability down the road was averted.
• Plant Expansion: Our due diligence triggered a need for an air permit to stay compliant. In addition to time and money, air permits can limit manufacturing capacity and, in some cases, require capital expenditures.
• Industrial Land: 1955 historical aerial maps showed a one million gallon above-ground oil storage tank in the middle of wide-open fields that didn’t appear in any other historical photos. And it just so happened to be on our client’s lot. What happened 65 years ago just may come back to bite you!
• Desert Land: These jobs can be straightforward. But, with due diligence, you can discover debris all over the site.
• Steel Fabricator: We and our client expected to come across many issues. But, you know what? They had their house in order! A well-documented report made other parties comfortable.

The beauty of due diligence and these specific examples is that clients were able to work the findings and subsequent costs into their deal. Our clients were not – and ARE not – caught off-guard post-closing.

The moral of these stories? Due diligence is a worthy, and at times, profitable exercise.

The McGovern Group offers high-quality due diligence services for high-quality clients. It’s no coincidence that is every single one of you! Call or contact us for a friendly conversation today about your environmental consulting and other due diligence needs.