Conducting due diligence when purchase a commercial property is critical to the ultimate success, but most investors are satisfied with bare minimum. No wonder the success in commercial real estate does not come easily for many investors. They have to go through trials and errors, but many, after major errors, could never recover or come back.
In this short series, attorney Lei Jiang will walk you through the due diligence in different stages when you acquire a commercial property, be it an apartment, office building, or retail center. The concept is similar and can be applied with a few modifications.
Negotiating Due Diligence
Due diligence starts before you sign a purchase agreement (PA). First and foremost, you need a detail oriented and experienced real estate attorney on your side. This attorney will help you to spot pitfalls and resolve problems. This is not the time to save a small amount of money. In this world, average people do get what they pay for. Experienced attorney will guide you and resolve problems creatively, as oppose to learn on your dime.
Before sign a PA, you need to ask to see all leases. When you go through each, take notes on any rental concession, tenant improvement dollars, option to renew, pass through operating expenses, any allowances, etc. You should also review all amendments.
It is wise to request tenant files as well. In these files, you will spot rental issues, problems with the building, and how seller is managing the building.
You should ask for service contracts, prior survey, existing environmental reports, and other applicable reports. If you don’t ask, the answer is always no. But if you ask, you may get the files.
The goal in this stage is verify the income, verify the expense, and determine whether the property is a good fit to your financial goal.
Finally, you should visit the property, not once, but multiple times at different hours to get a true feeling of it.
To be continued…
Attorney Lei Jiang is an experienced real estate attorney licensed in Ohio, New York, Michigan and Illinois. She has helped many clients to achieve success in real estate. For real estate issues, transactions, or disputes, please contact her at (440) 835-2271.
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