I'm fairly new to the world of private debt. While I feel fairly comfortable building out a model, I find I have been struggling quite a bit with all of the due diligence. How did you all learn to go through this process? Or what is the process for due diligence at your firms?
Specifically i'm talking about: abstracting leases (understanding all the in's and outs), survey reports, going through construction contracts/documents, insurance, going through 3rd party reports (seismic, Phase I, Zoning, etc), working with legal on documentation.
I'd love to hear all of your experiences and/or how this process works at your firms
I will preface this by mentioning that I work at a large life company that has done lending for 50+ years, so they have this process down pretty well and we have a fair amount of support staff, but essentially, originators handles the memos/term sheets/applications and AM/Closing (with the help of legal) does everything else.
Every deal we do starts with a closing checklist that contains all of the items needed to close (these are generally copied from deal to deal and then tweaked as needed).
We farm out lease abstracts, Insurance is reviewed by our insurance team, and ESA/PSA are handled by our architectural/engineering team. With those items, it is more about getting them paperwork/information and then troubleshooting when something is wrong (insurance coverage is too low, you have vapor issues, a crapload of undisclosed termination options, etc.).
The rest of the DD (legal documents, organizational chart review, appraisal review, etc.) is all handled by the closer. However, I will say our legal is really good about boiling down/creating a list of business items in the docs that we need to decide and handing the rest themselves, so that helps a whole lot.
Honestly, your job is really to identify how far your company is willing to deviate from their standard language and then make sure you color inside the lines. The one thing that you will hear/say a lot is "what have we done in the past." Lenders, similar to judges, don't like to set precedents. With balance sheet lending, it is common to have more than one deal with a borrower. As such, what you don't want is to have not done something/given something away once, and then have it thrown back in your face over and over again (it usually goes along the lines of "...well in xyz deal, you didn't ask for that, why do you want it now"), which beyond creating relationship issues, is how borrowers chip away at your position as a lender over time and make things more favorable for them.
P.S. Usually, when I'm in the middle of heavy due diligence review, I'll book a conference room for a couple of afternoons in a row, put on some headphones and go in there to read/spread shit out.
Reps. The more repetitions you get, the better you'll be. It's something you pick up over time and lots and lots of reps. If you seem lost now that's ok.