Due Diligence Checklist for Commercial Real Estate Transactions
Article by David Morgan
Due diligence is the process of evaluating the commercial property that you have under contract by checking and confirming information about that property. The importance of due diligence is twofold:
First, you learn specifics about the property which enables you as the Buyer to make an informed decision.
Second, it allows you to uncover potential problems before closing escrow.
The due diligence clause in the Letter of Intent to Purchase allows the Buyer to analyze the property for a free period of time, typically 30 to 60 days.
Here is a sample Due Diligence Checklist which should be submitted as an Exhibit to the Letter of Intent to Purchase and referred to in the paragraph outlining the due diligence to be conducted.
DUE DILIGENCE CHECKLIST
PRIORITY:
____ Preliminary title report and all underlying documents____ Existing title insurance policy and underlying documents____ Existing survey of Property
REQUIRED:
____ Current rent roll indicating lease terms, rental rates, concessions granted, renewal options, security deposits, and any outstanding delinquencies or prepayments____ A list of tangible personal property owned by Seller and used in connection with the ownership, operation, use and maintenance of the Property____ Current ad valorem tax bills and property tax statements____ Historical financial and/or operating statements for the prior three years and current year-to-date statements ____ Maintenance/service contracts and agreements and any other contracts relating to the ownership, operation and maintenance of the Property including the standard lease form, pest control, janitorial, and landscape maintenance contracts and agreements____ Liability Insurance Policy and claims records____ Capital expenditure records for the past five years____ Utility bills for the preceding twenty-four month period____ List of vendors and utility companies with account numbers____ Certificates of Occupancy – building and tenants
OTHER:
____ Payroll summary for on-site employees____ Phase I, II, and/or III Environmental Report____ Reports, records, and documentation relating to Mold, Mildew and Fungus repairs made to the Property____ All governmental permits or zoning restrictions affecting the Development and occupancy of the Property____ Mortgage payment information (if loan is assumable)____ Assumption papers from lender____ Permitted and As-Built Building Plans – including Architectural, Structural, Mechanical, Electrical, Plumbing, Fire sprinklers, Landscaping and Civil Engineering____ Floor plans____ Site plan____ Tenant profiles or surveys, if available____ Traffic study or report____ Move Out Notice(s)____ Most recent appraisal____ Most recent engineering report____ Statement of structural alterations made to premises,with plans and permits____ Guarantees and warranties on roofs, and any other portions of the structure or facilities; major repairs, etc.____ Roof inspection reports____ Market surveys or studies of area or comparable properties____ Brochures of project and comparable or competitive projects____ Any other agreements or documents that may affect the Property
About the Author
For more information on investing in commercial real estate, visit his website where you can receive absolutely free the 10-day email mini-course “Keys to Buying Commercial Real Estate”. http:/www.beginerreinvesting.com/