Due Diligence Checklists – For Commercial Real Estate Transactions

Are you planning to purchase, finance or develop any of the following types of Commercial or Industrial Real Estate?

  • Shopping Center?
  • Office Building?
  • Large Multifamily residential?
  • Parking Lot/Parking garage?
  • Retail Store?
  • Mixed-Use?
  • Restaurant/Banquet property?
  • Sports and Entertainment Venue?
  • Intermodal Logistics Terminal?
  • Medical Building?
  • Gas Station?
  • Distribution Center?
  • Manufacturing facility?
  • Pharmacy?
  • Special Use facility?
  • Other?

A key element to successfully investing in commercial or industrial real estate is performing an adequate Due Diligence Investigation prior to becoming legally bound to acquire the property. An adequate Due Diligence Investigation will assure awareness of all material facts relevant to the intended use or disposition of the property after closing.

For a Full List of Due Diligence checklist, contact the Pileggi Real Estate Team.

I. The Property:

1. Exactly what PROPERTY does Purchaser believe it is acquiring?

  • Land?
  • Building?
  • Fixtures?
  • Other Improvements?
  • Other Rights?
  • The entire fee title interest including all air rights and subterranean rights?
  • All development rights?

2. What is Purchaser’s planned use of the Property?

3. Does the physical condition of the Property permit use as planned?

4. Is there any legal restriction to Purchaser’s use of the Property as planned?

5. How much does Purchaser expect to pay for the property?

6. Is there any condition on or within the Property that is likely to increase Purchaser’s effective cost to acquire or use the Property?

7. Any encroachments onto the Property, or from the Property onto other lands?

8. Are there any encumbrances on the Property that will not be cleared at Closing?

9. If the Property is subject to any Leases, are there any:

10. New Construction?

II. The Seller:

1. Who is the Seller?

2. If other than natural person, does Seller validly exist and is Seller in good standing?

3. Does the Seller own the Property?

4. Does Seller have authority to convey the Property?

5. Who has authority to bind Seller?

6. Are sale proceeds sufficient to pay off all liens?

III. The Purchaser:

1. Who is the Purchaser?

2. What is the Purchaser/Grantee’s exact legal name?

3. If Purchaser/Grantee is an entity, has it been validly created and is it in good standing?

4. Is Purchaser/Grantee authorized to own and operate the Property and, if applicable, finance acquisition of the Property?

5. Who is authorized to bind the Purchaser/Grantee?

IV. Purchaser Financing:

A. BUSINESS TERMS OF THE LOAN:
1. What loan terms have the Borrower and its Lender agreed to?

B. DOCUMENTING THE COMMERCIAL REAL ESTATE LOAN
Does Purchaser have all information necessary to comply with the Lender’s loan closing requirements?

Conducting the Due Diligence Investigation in a commercial real estate transaction can be time consuming and expensive in all events.

If the loan requirements cannot be satisfied, it is better to make that determination during the contractual “due diligence period” – which typically provides for a so-called “free out” – rather than at a later date when the earnest money may be at risk of forfeiture or when other liability for failure to close may attach.

For a Full List of conditions and requirements, contact the Pileggi Real Estate Team.

Conclusion

Conducting an effective Due Diligence Investigation in a commercial or industrial real estate transaction to discover all material facts and conditions affecting the Property and the transaction is of critical importance.  Unlike owner occupied residential real estate, when a house can nearly always be occupied as the purchaser’s home, commercial and industrial real estate acquired for business use or for investment is impacted by numerous factors that may limit its use and value.
The existence of these factors and their impact on a Purchaser’s ability to use the Property as intended can only be discovered through diligent and focused investigation and attention to detail.

Exercise Due Diligence!