When I worked in private equity real estate, I completed no shortage of DDQs for prospective investors in our fund or syndication. Each investor due diligence questionnaire (DDQ) had its own flair for questioning our track record, fund strategy, team strengths and composition, among other criteria. We knew that we needed a simpler way to complete these forms. To make it easier on ourselves, we pre-built our own DDQ, acting as if we were the investors. We provided this document in our due diligence files, and we used it to shortcut completing DDQs for investors. If you want to save yourself time (and carpal tunnel) from retyping the same thing over and over again, read on. Here’s what you should include in a real estate fund DDQ.
Sections to Include in Real Estate Fund or Syndication DDQ
Firm Overview – Provide a brief history of your firm, highlighting what makes you unique. Talk about how you’re best suited to guide your investors to high returns.
Team – Who leads your firm? How do you organize by team? What characteristics make them uniquely capable of making the best investment decisions?
Investment Strategy – Describe where you see the best opportunity for investment and why. Be specific; identify property type(s), location, vintage, supply/demand, among other relevant characteristics.
Market Overview – What makes the markets you want to invest in so attractive? Again, be specific here. Provide visualizations if appropriate. For time series information, line or bar charts typically provide the best explanations.
Investment Process – How does your firm make investment decisions? Do you have an Investment Committee? A Pre-Investment Committee? Who’s on those committees? And who has decision-making authority? What documents do you retain around your decision-making process?
Track Record – Demonstrate successes and failures by listing each investment that your firm has made. And do not hide your failures; no investor will expect perfection. They do expect, however, that you explain what went wrong, what you learned, and how you will avoid that mistake in the future. Some firms may also break down what portion of their successes were due to the market compared to what pieces of the returns were generated by their strategy and management. You may choose to provide detailed track record information in an addendum.
Investor Reporting – Describe how frequently and how much you will report to your investors. Read more about investor reporting here.
Fund or Syndication Overview and Terms – List the partnership name, a brief description of the investment strategy, fund or investment size, target returns (typically only IRR here), commitment and investment periods, term and any extensions, waterfall distribution details, and management fee calculations.
Administrative Activities – Describe the contributions and distributions process. List the fund or syndication administrator, insurer, auditor, compliance service, and any other relevant parties in the administration of your investment. Provide specifics as needed. Also, you may describe any relevant software packages used to manage investments.
ESG, DE&I and Innovation Strategy – If applicable, detail your policy on ESG, DE&I, and technology/innovation.
Cybersecurity Policy – Provide information on how you safeguard investor assets and information.
Disclaimer – Be sure to include the appropriate disclaimers throughout your DDQ. Your legal team will help you.
That’s it! With these sections, you will be off to the races with your pre-filled real estate fund DDQ.
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I hope you use this information to become more efficient in your real estate due diligence process.
Let me know if you have any questions or edits. I always love hearing from you.