Comprehensive guide to deal analysis for small bay warehouses

Deal analysis refers to the process of evaluating the financial and qualitative aspects of a potential investment or transaction. In the context of commercial real estate, deal analysis involves a comprehensive assessment of a property or development project to determine its profitability, risks, and feasibility. In addition to due diligence, deal analysis is another step I take to ensure I’m putting my money in a secure investment.

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Deal analysis entails analyzing various factors such as market conditions, income potential, expenses, financing options, projected cash flows, return on investment, and risk assessment. The goal of deal analysis is to make informed decisions about whether to proceed with an investment, negotiate terms, or explore alternative opportunities based on a thorough evaluation of the deal's financial and qualitative aspects.

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Property Evaluation

To conduct a thorough evaluation of the location you’re considering investing in, consider the market dynamics. These include supply and demand, demographic trends, infrastructure, and proximity to amenities, transportation, and target tenant base. Also ensure the property itself is in good physical condition. Take into account the property’s age, maintenance history, potential renovation and/or redevelopment requirements and budgets, and compliance with building codes and regulations.

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Financial Analysis

Financial analysis requires careful and thorough consideration, so I always make sure to spend a good amount of time on this step. Some of the basic considerations are income projections, operating expenses, cash flow analysis, and profitability. These are important to determine whether you will need to finance the costs of the project, or set aside a budget for maintenance and extra costs. Also keep in mind factors such as rent escalation, lease renewals, and lease-up periods, and factor these in when creating a financial plan for the property. For an in depth look at financial analysis, take a look at my blog post here.

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Risk Assessment

Evaluate potential risks associated with the market, including economic downturns, changes in supply and demand dynamics, regulatory changes, and competition. Consider the property's sensitivity to these risks. For development deals, assess risks related to construction costs, permits and approvals, construction timelines, and potential delays or cost overruns. Lastly, be sure to evaluate any financial risks, such as interest rate fluctuations, debt maturity, and the ability to secure favorable financing terms.

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While this is a brief overview of some of the main processes involved in deal analysis, there are many more considerations that must be taken into account before making a final decision of the deal’s profitability vs. risks. These may include a sensitivity analysis, market analysis, ROI assessment, etc. If you’re interested in learning the full process of deal analysis, as well as gaining access to experienced mentors to guide you through your investment and development process, tap in to Flex Space Network, where my team is ready to help.

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