Two Minutes of Due Diligence

The Real Estate Espresso Podcast

Two Minutes of Due Diligence

Spotify Google Podcast Apple Podcast Subscribe via RSS Leave a Review

Two Minutes of Due Diligence

I’m your host, Victor Menasce. On today’s show, we’re talking about performing even the most basic due diligence when it comes to potential suppliers, customers, tenants, lenders, brokers. It’s sad to say, but there’s a large ecosystem of fraudulent players out there.

Due diligence is both an art and a science. In fact, I have an upcoming episode where I interview a specialist in due diligence. On that show, we will dive into some of the more sophisticated techniques, but on today’s show, we’re focusing on even the most simple forms of due diligence that are so easy to perform, they quite frankly expose a large number of these individuals with a questionable history.

Let me start with a tenant for a commercial property who gave his permanent address on the lease as having been located in Puerto Rico. The property manager who signed the lease failed to notice that this address on the lease did not match the address on the person’s driver’s license, which happened to be based in Florida. The address in Puerto Rico wasn’t even a legitimate address. Yes, there are liars out there, but this one wasn’t even that sophisticated. It was so easy to catch, and it simply required paying attention.

Then there’s the case of a service provider, where a simple comparison of the information on the website does not match the reality on the ground. The address on the website is a legitimate office in an office building, but unfortunately the company located at that address is in a completely different industry. It’s occupied that space for years. A phone call to the company located at that address confirms there is no relationship between a business at that address and the website claiming to have an office at that location.

Further analysis of the company and the principals, using a very simple AI search, uncovered a recent conviction from a federal lawsuit, an injunction from continuing to do business. Further investigation shows a new company formed with a similar name, having recently opened and basically the same business, having the same business address. The salesman in that particular company was very smooth-talking, rather aggressive, and failed to answer direct, pointed technical questions.

Then there’s the case of the commercial lender who turned out not to be a legitimate lender. Somehow the lender had managed to infiltrate a network of commercial mortgage brokers. Most commercial real estate investors are conditioned to trust an introduction made by a high-quality mortgage broker. Further investigation of this lender and its principals uncovers a series of lawsuits against the lender for failing to perform on loans and running off with loan origination fees that were advanced by the borrower. Discussion with law enforcement confirms a large number of both civil actions and now criminal investigations into this so-called lender.

Here’s a case of a subcontractor who bid on a project demanding a sizable deposit prior to starting the work. The address claimed to be the subcontractor’s head office, and it matches the address for a Mexican restaurant. When confronted with this fact, the subcontractor said that his office was on the second floor above the restaurant. When I asked him the name of the restaurant, he couldn’t tell me, and furthermore, the building was a single-story building with no second floor.

All of these irregularities could be found in less than five minutes of due diligence. I’m talking about using the simplest of search tools like Google Maps. I’m asking artificial intelligence tools to research the background of these people involved in these businesses. I’m not suggesting that this level of due diligence is sufficient to provide a green light for any of these jokers, but if you can get a flashing red light in only a few seconds or perhaps at most a few minutes of effort, why would you skip that step?

Most of us know how unsafe it is to respond to the dozens of email solicitations we receive every day. Based on the sheer volume of solicitations, you could easily conclude that we’re living in a cesspool of criminal activity. Now, fortunately, that’s not the case, but those few folks do get around. Fortunately, most of us are savvy enough to know the difference and not to respond to malicious solicitations.

Then there are the legions of fraudsters out there on LinkedIn who reach out on a daily basis offering non-recourse loans for any amount of money, from fifty thousand to two hundred million at interest rates between four and a half to six and a half percent. Your initial reaction might be, “Oh wow, where have you been all my life? Why have we not done business before?” Or maybe you’ll realize that this is simply a bait to try and get information about you that will eventually result in identity theft or maybe transfer of fees.

Due diligence has become so much more important in today’s environment. It’s a necessary step for anyone you do business with, and that first level of due diligence is necessary before you even step into the first conversation.

As you think about that, have an awesome rest of your day. Go make some great things happen and we’ll talk to you again tomorrow.

Stay connected and discover more about my work in real estate and by visiting and following me on various platforms: