Sale of real estate loans is difficult largely due to their lack of homogeneity and the due diligence process, which can be very inefficient, time-consuming and expensive for the potential loan buyers. To provide liquidity through securitization, CRE loans that are originated for securitization employ underwriting, structures and documentation that conform to market standards, permit a more efficient due diligence process by buyers and result in better pricing.
To facilitate the sale of developed property, project documents and supplements must be made available to investors to enable them to perform their due diligence on the transaction. Due diligence efforts focus on developing assumptions and underwriting analyses for the properties and the loans that are appropriate for the facts and circumstances of these loans.
Following the due diligence, in which all available information about the property is evaluated from the legal, tax, technical and commercial points of view, the purchaser communicates its decision whether or not it wishes to go ahead with the investment.– Mayer Brown, 2015
Due diligence is performed by loan sellers to determine which, if any, loans to sell and to establish an acceptable offer price. Due diligence is performed by loan buyers to determine which loans to bid and an acceptable purchase price. Loan pricing variables are subject to due diligence and must be considered when developing key assumptions for cash flows and values.
Statistical sampling techniques and modeling are used to configure loan portfolios. This is done by both buyers and sellers, using similar information, to determine the assets to buy and sell, respectively, and conduct diligence and establish the fair price of the assets, either on individual loans or a group of loans of the same kind.