Finalizing a commercial real estate deal is lengthy and tiring, but we will have it no other way. Property inspections are a mandatory part of the process and a crucial prerequisite before you officially agree to any terms and conditions. Your commercial real estate broker will discuss it with you beforehand.

You might find inspections a little chaotic, especially if your previous experience was lacking. However, with the right team, commercial real estate due diligence becomes straightforward to understand.

Why Due Diligence Is Important

Due diligence is not just a commercial real estate phenomenon. It is practiced in most business agreements to ensure both parties have third-party confirmation against claims before they agree to the terms and conditions of the contract. Following are its main benefits:

  1. Protects you against possible fraud.
  2. Highlights hidden issues with properties that you may have missed earlier.
  3. Gives you a fair valuation for your property.
  4. Unbiased evaluation and analysis of the commercial real estate property.

All of these reasons will reduce your risk when entering a contract as a tenant or property investor for commercial real estate properties.

Commercial Real Estates’ Due Diligence Guide

Now that you are aware of its importance, let’s move to the brief guide for commercial real estate due diligence to help you manage your risk.

1. Structural and Other Physical Inspections

The first part of any commercial real estate due diligence is the physical inspections. While the property may ‘look’ okay, there can be several hidden problems, like malfunctioning HVAC system, weak structural foundations, noncompliance with regulatory standards, etc., that only an inspection will reveal.

Therefore, make sure you hire an inspector before signing documents.

2. Tracing Financial History

Although real estate has provisions to protect buyers from potential financial risk completely, commercial real estate can’t follow the same rules because the ownership or properties changes more frequently.

Therefore, your commercial real estate broker will perform a financial background check on the property owner, buyer, or tenant to trace any possibility of pending mortgage payments or other financial issues in the property’s or the tenant’s history.

3. Examining Network Information

Commercial real estate brokers have a wide network of people working in the industry or related industry. They utilize this network to get intelligence about the involved parties and properties to cover every possible aspect.

4. Legal Inquiries

Finally, you should conduct thorough research through your broker or related parties to check if the contracting person or their property is, or has been, involved in any legal troubles. If there is an open dispute about the property’s ownership, do not proceed with the purchase.

Secondly, if your shortlisted tenant has had a history of poor financial and legal decisions, you need to reconsider creating a business partnership with them.

Conclusion

To conclude, commercial real estate due diligence highlights risks associated with the deal and helps you get a realistic picture of what you are getting out of the contract.

If you are in the process of agreeing to a residential tenancy or investing in commercial real estate property, contact our team immediately. The CHRE team has a long history of successful commercial real estate brokerage, and we will work with you to find the best possible deal for you!