Situation

When acquiring a property, we implement a sophisticated due diligence protocol. In this notable case, we were presented with a property in a suburb called Shelby in Charlotte, NC by a highly-regarded REIT seller based in South Florida. The center was a value-add type of property with several fixable imperfections but with a great upside. In looking at the sale offering, it was indicated that the roof was under warranty and needed some repairs that they estimated at $40,000.

Strategy

We called in our certified roofing consultant to check the warranty and “shoot” the roof with infrared cameras—a best practice, considering it is the most important physical inspection. Walking the property with the tenants was imperative to ensure there were no defects or issues that would prevent a successful upgrade. We assessed unusual repairs and damage to the parking lot. The front of the center needed reasonable repairs but the area behind the center was literally sinking. The roof inspection revealed massive potential water damage that possibly affected the metal deck. Removal of the ceiling tiles revealed pervasive rusting. The roofer’s review of the warranty showed that the fee was not paid at the time of purchase by the REIT, resulting in a lack of coverage.

Results

The initial $40,000 roof repair estimate proved to actually be $500,000 including deck replacement and no warranty. It was determined that this would not be a profitable purchase, saving Tobin hundreds of thousands thanks to our due diligence.