Euan is a Principal Planner at Woods. He has over 25 years of professional experience in planning, iwi liaison, due diligence, consent strategy and project management for both public and private sector clients.
Due diligence is an investigative process that reviews the facts or details around a particular agreement or contract.
A more exciting definition of due diligence is that it either saves you from making a million-dollar mistake or identifies a million-dollar opportunity you didn’t know existed.
However, to get any kind of significant result, due diligence needs to be done as early as possible in the process of buying a piece of land for development.
Why is it important, and when should it be done?
Unfortunately, the New Zealand market doesn’t tend to handle due diligence well. It’s often seen as just a cost that can be cut away to save a bit of money. However, that seemingly small budgeting measure can result in hundreds of thousands of wasted dollars, and all you’ll have to show for it is an empty piece of land.
On the flip side, due diligence can highlight opportunities that might not have initially been recognised. There could be opportunities to increase yield, make building cheaper, or the project could take on an entirely different shape as a result of thorough due diligence.
Whether it’s planning, engineering, three waters, surveying, or urban design, due diligence should be conducted as early as possible. This is especially true considering the time between when a piece of land gets advertised before a developer shows interest can add up to several weeks. Tenders, particularly with auctions, have a time limit of four to eight weeks, leaving only about two to four weeks to complete due diligence.
The bottom line, the earlier, the better. More risks and more opportunities can be discovered in one month of due diligence than in two weeks.
Consequences of not doing due diligence
The real victim of not doing due diligence is you (and your budget).
At Woods, we have often walked into situations where a new client has asked us to do due diligence on a piece of land after they’ve already bought it. We then have to bear the burden of delivering some bad news that could have been avoided had they engaged with us earlier.
By identifying risks and opportunities, due diligence can be used to indicate whether or not developers are getting the best price for the land.
Without due diligence, you run the risk of overbidding (and paying too much) or underbidding (and losing out).
Due diligence gets you closer to the right price. Sometimes that means getting hold of a profitable opportunity at the best price, and sometimes it just means walking away.
What happens when due diligence is done well
While we love to see due diligence open up new opportunities, there are cases when it reveals there actually isn’t as much opportunity as anticipated.
Despite that this isn’t always the best news, Woods values being able to save developers from making costly mistakes.
Recently a client of ours got in touch regarding an opportunity they came across to buy a land development site. They had been told the site had the potential to build 180 dwellings. The current landowner had done designs incorporating these dwellings, and the council was processing it.
However, we conducted our due diligence for the client and concluded that the original projected 180 dwellings was actually closer to 100. After breaking down the design, it came to light that it was more of a theoretical projection than an achievable one for several reasons.
While our client was disappointed by the news, they were thrilled to know we had saved them from paying a high price for a piece of land that wasn’t worth what it had promised.
Woods and due diligence
When we start our due diligence process, we first ask ourselves, “What is the client looking to achieve?” and “How can we help?”.
From there, the process follows what is demanded of it. This might mean we include schemes or drawing up potential building designs to give clients a better understanding of the site.
Our ability to conform our due diligence to a client’s requirements comes from Woods’ multi-disciplinary approach. We have a full suite of architects, urban designers, surveyors, and engineers, all under one roof. It’s easy for any of us to turn to any expert and ask, “Is this achievable?”
In cases where we only have two to four weeks to conduct due diligence, we can pull a planner, an architect, and an engineer into one room and work through it.
This also allows us to deliver faster turnarounds for our clients, so they don’t risk missing out on an opportunity.
Due diligence is not only something we do well at Woods — it’s something we strongly value. We’re eager to see our clients get the best prices and the best results for their projects.
So, as soon as you set your eyes on a piece of land, get in touch with our team.