Challenge

Tonka Bay Equity Partners, a Minneapolis-based private equity investment firm, looks for new investments in businesses in specific industries and sectors – from manufacturing to distribution to business services. One important part of their due diligence process is understanding the commercial real estate. To complete that part of their diligence, Tonka Bay relies on Forte Real Estate Partners’ advisors.

Forte has assisted Tonka Bay in their real estate due diligence evaluation on numerous potential acquisitions during the last two years.

Strategy

The commercial real estate evaluation includes:

1. The lease obligations if the company is leasing their space. Those obligations include base rent, operating expenses, lease options including termination and renewal clauses, landlord management duties and fees, and overall expense compared to market.
2. If the business owner owns the property, as is common practice, Forte is asked to provide an assessment of value and options to de-couple the real estate from the business acquisition.

Forte assesses all contracts that impact the real estate properties, expenses, and long-term growth, finding the things to “keep an eye on.”

Results

Forte’s team has identified issues with lease language that wouldn’t allow consolidating multiple locations, sale language that eliminated a specific tenant class, and contractual language that required tenant contributions that exceed market standard.

“All of our work benefits both the PE investment firm and the acquired business,” said Jim Jetland, principal – Forte. “Our focus is on how the real estate can make the business more efficient, effective, and profitable.”

Tonka Bay Partner Steve Soderling said, “Forte is an important due diligence partner and helps us uncover material real estate due diligence findings that allows us to better access the risks and confidently underwrite the investment. We value their counsel and long-term partnership to support our investments.”