Commercial Property Purchase Check List

Commercial Property Purchase Check List

Many new commercial property investors lack a fundamental understanding of the complexities of the business and property due diligence and time frames involved.

When considering the purchase of commercial real estate consider the following check list. Do this prior to any purchase offer or setting an arbitrary closing date.

Without the necessary property and business due diligence. It’s unlikely that a financing proposal will have a successful outcome. Or worse you’ll purchase a property that quickly will become a money pit.

Acquisition Actions / Documents

Signed Letter of Intent

Investment Committee Presentation and Approval

Request/obtain Due Diligence Materials

Select Legal Counsel

Select UBIT/ERISA Counsel

Obtain/review 1st draft of Purchase Contract

Obtain/review 2nd draft of Purchase Contract

Obtain/review 3rd draft of Purchase Contract

Obtain/review 4th draft of Purchase Contract

Obtain/review 5th draft of Purchase Contract

Obtain Access Agreement

Client Authorization Letter

Portfolio Manager Authorization Letter

Obtain/review fully executed purchase contract

Deliver copy of fully executed Contract into escrow

Arrange for Buyer’s initial LC or cash deposit with Escrow Holder

Arrange for investment of Buyer’s initial cash deposit

Independent Contract Consideration to Seller

Prepare funding schedule and forward to portfolio manager/client

Obtain name of acquiring (title holding) entity

Arrange for required bank accounts to be set up

Obtain fully executed 1st Amendment to Purchase Contract

Obtain fully executed 2nd Amendment to Purchase Contract

Title/Survey/Zoning Matters

Select Title Company

Receive/review Sellers title commitment and underlying documents; forward to Title Company

Order current title commitment and underlying documents

UCC and judgment lien searches

Receive and review existing survey

Order new ALTA survey (or update)

Subdivision and parcel maps

Restrictive covenants, easements, and agreements

Local improvement district information

Verify Leases, Entitlements, and other assets are in Seller’s name or that appropriate Assignment documents exist

Confirm releases available from current lienholders (if applicable)

Deliver Title and Survey Objection Letter to Seller (if applicable)

Tenant/Lease Matters

Obtain current Certified Rent Roll

Receive/review Leases, Amendments and all related documents; prepare Lease Summaries

Engage Legal Counsel to review Leases and prepare Lease Summaries

Compare Internal Lease Summaries to Legal Counsels Lease Summaries

Compare Lease Summaries with Rent Roll and Pro Forma

Review Tenant Lease Files

Resolve issues regarding Leases

Review Tenant Correspondence Files

Compare expense pass-throughs/CAM charges to Operating Statements

Review cost pools for overcharges to tenants

Receive/review tenant sales reports

Receive/review list of security deposits

Receive/review aged receivables report

Review tenant credit information, payment history

Review Leases for any contractual Landlord obligations (i.e. construction, payments to tenant)

Compare square footage between Leases and Rent Roll

Prepare Tenant Estoppel Certificates

Review signed Tenant Estoppel Certificates

Cross‑check signed estoppels against the rent/deposit schedule

Financial Matters

Receive and review copies of historical and proforma financial information

Receive and review utility bills (electric, water, gas)

Receive and review most recent tax statements and related information

Verify all expenses of operating the property have been reflected in the financial information provided by the Seller

Compare expenses to comparable building data

Receive/review past and budgeted capital improvements

Service Contracts

Receive and review service contracts

Verify all service contracts terminable without penalty

Confirm assignability of service contracts

Approve contracts to be transferred & notify Seller

Litigation

Review litigation list (if applicable)

Determine existence of contingent liabilities or open claims against the property

Insurance

Obtain insurance quote from Risk Management

Review third party Property Management Agreement for adequacy of insurance coverage

Provide information to Risk Management for final Certificate of Insurance

Physical Property Inspection and Review

Receive/review as-built plans/specs (electrical, mechanical, structural)

Receive/review existing inspection reports (roofing, HVAC, seismic, soils)

Order current engineering report (Property Condition Assessment), to include structural, mechanical, code compliance and ADA compliance.

Receive/review existing environmental reports and studies

Order current Phase I Environmental Site Assessment

Order current Additional Site Investigation (Phase II)

Receive/review building permits, licenses, certificates of occupancy

Verify parking is adequate (i.e. governmental regulations, practical requirements, lease requirements)

Verify approximate sf of improvements

Review utility site plan, verify adequate utility hook-ups, verify all utility hook-up fees paid, identify requirements for utility deposits

Review energy usage reports; compare usage to expenses

Verify amount of available wattage past and compare to market

Receive & review construction contracts/subcontracts

Receive & review building warranties/guarantees

List of personal property and trade/service names

Copies of liability, casualty and other insurance

Site plans, leasing brochures, maps and photographs

Personal Property Inventory

Receive and review list of personal property

Verify no material personal property omitted from personal property list

Verify personal property in good operating condition

Governmental Review

Review licenses and permits; verify no breach of licenses and permits, that all conditions are satisfied, that licenses and permits are in current Owners name and whether transfer is required, and that there are pending applications for licenses and permits

Verify certificates of occupancy for property and tenant spaces on file

Verify proper zoning; obtain zoning letter

Verify improvements comply with governmental regulations

Verify no development rights transferred

Verify no existing contemplated assessments

Verify no pending rezoning

Verify no pending administrative proceedings or governmental plans or studies

Verify no utility moratorium

Closing and Miscellaneous Actions

Notify Seller of any breach or misrepresentation discovered during due diligence review

Aggregate cost of correcting any problems discovered through due diligence

Initiate any necessary changes to forms of Closing Documents

Prepare and approve authority documents

Request current financial information from Seller for prorations

Confirm prorations for taxes and assessments

Confirm prorations for utilities

Confirm prorations for rents

Confirm prorations for permit and license fees

Confirm prorations for utility deposits

Confirm prorations for operating accounts

Confirm prorations for obligations under contracts

Confirm prorations for security deposits

Confirm prorations for closing costs

Confirm prorations for any commissions, tenant improvements, or other leasing expenses

Confirm prorations for any other apportionments

Request schedule of Buyer’s title related costs from title company

Prepare schedule of estimated closing costs

Prepare & distribute form of Tenant Notice

Prepare the assignment of Purchase Contract

Arrange for Buyer’s replacement/additional cash deposit

Arrange for investment of Buyer’s replacement/additional cash deposit

Confirm return receipt of initial LC and return it to bank; or

Confirm return receipt of initial/additional cash deposit; or

Instruct bank to transfer returned cash deposit to line of credit Prepare schedule of Buyer’s funding into escrow

Arrange for Buyer’s purchase proceeds to be funded into escrow

Arrange for Buyer’s purchase proceeds to be invested overnight

Review escrow instructions and exhibits to closing documents

Coordinate delivery of original documents to property manager

Obtain/review the closing statement

Confirm recording/disbursement of funds

Confirm property/liability insurance in place

Send letter to client confirming closing (with closing statement/funding schedules)

Instruct counsel to distribute the closing binders

Property Operations and Management

Select Property Management company

Finalize Property Management Agreement

Verify financial terms of Property Management Agreement are reflected in proforma

Select leasing company

Verify Service Contracts are at market

Verify no disputes with brokers, suppliers or employees

Verify no existing or contemplated labor strikes

Verify all obligations and trade creditors being paid in normal course

Review Property management files

Review list of warranties and expiration dates

Review maintenance schedules for equipment, and repairs and maintenance expenses

Financing Matters (If applicable)

Contact Mortgage Consultant

Provide Property information to Mortgage Consultant

Receive/review Loan Quotes

Select Lender

Signed Loan Commitment

Arrange Payment of Loan Commitment Fees

Receive/review/negotiate Loan Application

Signed Loan Application

Provide Mortgage Consultant/Lender with requested documents

Finalize Loan Documents

Signed Loan Documents

Arrange for funding of Financing Proceeds

Internal Procedures and Reporting

Confirm property visit by Asset Management and Management Committee member

Confirm that all client specific acquisition requirements are met

Issue transition memo to Asset Management, Property Management and Accounting (if applicable)