Due Diligence Check List for Commercial Real Estate Acquisitions

Winston Rowe and Associates

Due diligence is a comprehensive, complex, and critical stage in any commercial real estate acquisition. You don’t want to leave any stone uncovered, and you want the most time available to review all documents and look for any and all possible red flags with the property, title, tenant relationships, and numerous other considerations.

That’s why we’ve created the checklist below, which outlines many of the key documents, records, and financial information needed for a full and complete due diligence on a prospective property acquisition.

In many transactions, we typically urge clients to incorporate this checklist into the sale contract and require that the specified due diligence period will not commence until the date that the seller produces the last of each of these deliverables. Simply put, when you’re the potential buyer of a property, you deserve to have all the necessary documentation in your hands before you start the intensive due diligence process.

Whether you’re a growing business looking for your first independent location, or a developer with an experienced deal team conducting diligence on multiple acquisitions simultaneously, we hope this checklist will serve as a helpful guide for the items you’ll need to make the most informed decision possible on your next real estate acquisition.

The most recent title policy or title commitment on the property in the possession or control of seller together with all related documents.

The most recent ALTA survey and topographic study for the property and a copy of the construction blueprints, engineering plans and as-built drawings in the possession or control of seller.

Legal description of the property.

Zoning Compliance Certificate for the property and all zoning approvals (including variances and any pending applications).

Declaration of covenants, conditions, restrictions, reservations and easements for the property.

Seller’s third-party engineering, environmental reports (including but not limited to Phase I and Phase II reports, NFR letters, mold abatement reports and underground storage tank  testing and closure reports), appraisals, soil tests, boring reports, foundation reports (logs of pilings), termite or radon studies.

A true, correct and complete copy of each written lease and each guaranty (together with any amendments), and a certification that there are no oral leases or oral understandings, if any.

An accounting of all rent and other income, common area maintenance, security deposits and real estate tax contributions paid by any tenant at the property, including, without limitation, a certified rent roll, showing current rent, previous rent if applicable, delinquencies, security deposits, years of occupancy, lease commencement date and lease termination date.

All security deposits and any other amounts to which any tenant, vendor, or any other party may be entitled.

A copy of the last three years’ real estate tax bills, including special assessments or incentives, copies of all tax protests, related correspondence and protest results for the property and copies of the prior two years’ utility bills for the property.

A true, correct and complete copy of each written service contract (together with amendments thereto, if any) and a true, correct and complete written summary of each oral service contract, together with copies of any and all other contracts and agreements relating to the operation, maintenance and repair of the property.

An accounting of all income and expenses related to the property, including collection reports and tax statements for the last three years.

A list of all personal property, if any, owned by the seller, located at the property, and used or useful in connection with its operation and maintenance.

A list of all permits, partial certificates of occupancy, certificates of occupancy, warranties, government notices, special assessments, code violations and unexpired guaranties and copies of same in seller’s possession or control.

A copy of existing insurance policies and certificates and any pending claims against the property.

A schedule of pending litigation, if any, affecting the property or seller’s ability to convey the property.

Any and all other matters as purchaser may deem reasonably necessary to satisfy itself, in its sole discretion, concerning the property and the status of the property’s title.

Commercial Real Estate Loans – Due Diligence 101

Real Estate Due Diligence Lenders making commercial real estate loans in the commercial real estate market face harsh competition in terms and pricing and often have to make significant concessions to borrowers.

Given the highly competitive market, loan officers may end up focusing on doing whatever it takes to get the loan in the door, and may inadvertently overlook pertinent details in connection with the borrower, the guarantor or the collateral.

This oversight may not be discovered until after the loan has been approved by the lender and a loan commitment letter has been provided to a borrower, which could leave the lender in a precarious position. In order to reduce the lender’s risk of discovering problems after the loan has been approved, lenders should take steps to obtain and review potential borrowers’ due diligence documents before loans are approved.

At a minimum, lenders should know the following information:

Is the borrower an individual, a trust, a partnership, a limited liability company or a corporation?

Who are the trustees, beneficiaries, partners (limited or general), members, managers, officers or directors of the borrower?

If borrower is not an individual, has the borrower provided copies of the trust agreement, partnership agreement, operating agreement or by-laws for each layer of the borrower entity?

Has lender run credit checks and UCC/judgment/pending litigation/bankruptcy and tax lien searches on the borrower and guarantor?

What financial obligations do the borrower and/or guarantor have to other lenders?

How is title to the real estate collateral held, and what is the intended use of the real estate collateral?

What property interest does borrower own or intend to acquire?

What is the borrower’s intended use of the real estate collateral?

Are there any physical limitations to borrower’s intended use of the real estate collateral?

Are there any legal restrictions to borrower’s intended use of the real estate collateral?

What is the estimated value of the real estate collateral?

Are there encroachments, encumbrances, environmental issues that affect the use or value of the real estate collateral?

Are there any leases in effect, and if so, what are the terms of those leases?

Does the income from the real estate collateral cover the monthly debt service?

Does the borrower plan construction with all or a portion of the loan proceeds?

What is the estimated value of the real estate collateral post-improvements?

How will loan proceeds be disbursed (i.e., through a construction escrow at a title company, or directly to the general contractor and subcontractors in exchange for lien waivers)?

Does the borrower have a budget for the proposed construction?

Has the borrower entered into any contract with an architect or general contractor regarding the proposed construction?

What type of additional collateral is the borrower and/or guarantor offering as security for the loan?

Business accounts, operating accounts, accounts receivables, stock certificates, etc.?

Who owns title to the additional collateral? Is it owned jointly with another person or entity?

Does the borrower or guarantor actually own the additional collateral or does the borrower or guarantor merely lease the collateral?

How will the lender properly secure and perfect its interest in the collateral?

When lenders take the time to ask questions and obtain documentation regarding the borrower, the guarantors and the proposed collateral prior to approving commercial financing, this puts lenders in the best position to evaluate the proposed transaction and to properly secure the collateral for the loan.

“An ounce of prevention is worth a pound of cure.” -Benjamin Franklin

Winston Rowe and Associates No Upfront Fee Commercial Loans

Free Business And Real Estate Investing eBooks

Contact Winston Rowe and Associates

Welcome to Winston Rowe and Associates knowledge blog, scroll down to the right for posts about commercial real estate.

This is a list of free books about real estate investing, commercial real estate financing and business strategy.

We’re always on the lookout for great free books so bookmark this blog and check back for monthly updates.

These links are not affiliate marketing links, just publications that we feel may add value to people and businesses.

Commercial Real Estate Finance

The eBook Commercial Real Estate Finance, by Winston Rowe & Associates discusses the fundamentals of the different types of commercial property, the various options that are included with properties and the capabilities that you will have as a commercial property investor.

Real Estate Investing Articles

This is a link to 1226 real estate investing articles written by industry veteran’s.

25 Productivity Tips for Successful Business Owners

Productivity is critical to your success at work. Business owners, managers and executives all want to get the most from their employees. If you’re not performing as efficiently or effectively as others, your long-term job prospects could be in trouble.

Real Estate Investing: How to Find Cash Buyers and Motivated Sellers

“Real Estate Investing: How to Find Cash Buyers and Motivated Sellers” teaches real estate investors and those interested in learning to invest in real estate how to define and target ideal cash buyers and motivated sellers. The book covers absentee owners, rehab investors, Section 8 landlords, and other buyer types. Some of the marketing topics include mailing lists, postcards, both online and offline marketing strategies along with examples. Anyone who wants to wholesale a house or is curious about flipping houses should pick this book to get educated on cash buyers and motivated sellers for their real estate investing.

Real Estate – Breaking Bad How to Flip Decaying Real Estate Properties for Profit

Tired of working 9 to 5? You should think of making money with real estate! Yes, the effort is well worth it! You just have to ditch the misconceptions and embark with all the passion you have in store for this amazing trip of rehabbing old houses and giving them a new look and a new owner.  Your reward? A nice profit!

Real Estate Forms Portfolio

A FREE and ready-for-download eBook consisting of a comprehensive collection of real estate-related forms for real estate investors.

Real Estate Secrets Exposed

This FREE e-Book sheds some light on the often mysterious and sometimes daunting world of real estate.

Use 1031 Real Estate Exchanges to Create Multiple Streams of Income

Discover how to use 1031 tax-free exchanges, tenants in common interests, and zero cash flow properties to create new sources of income. Learn how to offer bundled services and attract new clients. This FREE, ready for download eBook is perfect for anyone involved in real estate, taxes, mortgages, insurance, or law.  Download it now!

Make Money Through Real Estate Renovations

Download this FREE eBook and learn how a successful investor makes thousands of dollars from real estate renovations. Download it now!

Discover the Secrets of How to Fund Your Real Estate Deals with Private Lenders

Download this FREE e-Book, and discover the new secrets of funding real estate deals in the post-bubble real estate market, where traditional lending sources are getting very difficult to obtain. Download it today!

Real Estate Investing Strategy for Rehabs

This eBook is about residential rehabbing and the multiple strategies that can be used to maximize profits in this current economic climate. My goal has always been to share knowledge with folks that are truly interested in rehabbing and view it as not only for monetary gain but also see is as an “art and science” like I do. Happy Rehabbing!!

How to Be A Super Property Investor

A FREE, step-by-step guide that will help you become a super real estate property investor. Learn all the basic and some advanced investing techniques that have generated millions for property investors. Ready for download now!

Financial Terms Dictionary – 100 Most Popular Financial Terms Explained

This practical financial dictionary helps you understand and comprehend more than 100 common financial terms. It was written with an emphasis to quickly grasp the context without using jargon. Every terms is explained in detail with 600 words or more and includes also examples. It is based on common usage as practiced by financial professionals.

The Prince by Niccolò Machiavelli

Niccolò di Bernardo dei Machiavelli was an Italian diplomat, politician, historian, philosopher, writer, playwright and poet of the Renaissance period. He has often been called the father of modern political philosophy and political science.

The Science of Getting Rich by W. D. Wattles

This book is pragmatical, not philosophical; a practical manual, not a treatise upon theories. It is intended for the men and women whose most pressing need is for money; who wish to get rich first, and philosophize afterward. It is for those who have, so far, found neither the time, the means, nor the opportunity to go deeply into the study of metaphysics, but who want results and who are willing to take the conclusions of science as a basis for action, without going into all the processes by which those conclusions were reached.

Sun Tzu Art of War

Written in the fifth century B.C., Suntzu and Wutzu still remain the most celebrated works on war in the literature of China. While the chariot has gone, and weapons have changed, these ancient masters have held their own, since they deal chiefly with the fundamental principles of war, with the influence of politics and human nature on military operations; and they show in a most striking way how unchanging these principles are.

Make Extra Money Flipping Houses While On Vacation by Jason Medley

Reveals his simple and proven systems to automate, delegate and outsource nearly every function of his business except cashing his checks. He shows the exact steps that has allowed him to go on multiple vacations with his family throughout the year while having his system continue to flip houses for him.

Achieving Wealth Through Real Estate: A Definitive Guide To Controlling Your Own Financial Destiny Through a Successful Real Estate Business

Have you ever thought about making money with real estate? In Achieving Wealth Through Real Estate: A Definitive Guide to Controlling Your Own Financial Destiny Through a Successful Real Estate Business, author and entrepreneur Kirill Bensonoff takes you through the process of starting your own real estate business step-by-step, featuring his expert tips and tricks.

Business Loans Uncovered

Knowing if you qualify is one of the most important things to know when applying  for a loan of any type. Blindly applying for a loan and being declined increases the chances of you being declined again and again because you not only lower your credit score each time you apply, multiple inquires also serves a red flag to other lenders and as a result lenders put you in a high risk category and charge higher interest rates in the event of an approval Includes: ​Traditional Lenders, Government Sources, The 7(a) loan guarantee program, SBA Low Doc loan program, SBA Express loan program, Factoring, Venture Capitalists, Angel Investors.

50 Simple Secrets To Be A Happy Real Estate Investor

Discover the secrets used by successful real estate investors to create happiness in their lives and businesses. Naturally create more happiness for yourself by implementing time-tested secrets to happiness used by other real estate professional and investors just like you. Start to experience more productivity, satisfaction, and success immediately.

50 Simple Secrets To Be A Happy Real Estate Investor

Discover the secrets used by successful real estate investors to create happiness in their lives and businesses. Naturally create more happiness for yourself by implementing time-tested secrets to happiness used by other real estate professional and investors just like you. Start to experience more productivity, satisfaction, and success immediately.

Marketing Strategies for Real Estate Photography

One of the biggest problems that real estate photographers have once they have set up their business as a legal entity, obtained all the right equipment and perfected their technique is obtaining new clients.

Clients and customers are the lifeblood of any business, but how do you obtain new clients after starting your business?

By developing and executing a strategic marketing plan tailored to your business.

This short guide has been written to help real estate photographers develop their marketing plan and assist with winning new business.

It includes a series of digital and direct marketing strategies along with useful tips and lessons the author has learned from his own experiences that can save you time and money when growing your business.

A marketing action plan template has been included to help photographers execute the strategies learned in this guide book.

Books by Dr William Edward Deming

William Edwards Deming (October 14, 1900 – December 20, 1993) was an American engineer, statistician, professor, author, lecturer, and management consultant.

Educated initially as an electrical engineer and later specializing in mathematical physics, he helped develop the sampling techniques still used by the U.S. Department of the Census and the Bureau of Labor Statistics.

In his book The New Economics for Industry, Government, and Education Deming championed the work of Walter Shewhart, including statistical process control, operational definitions, and what Deming called the “Shewhart Cycle, which had evolved into Plan-Do-Study-Act (PDSA). That was in response to the growing popularity of PDCA, which Deming viewed as tampering with the meaning of Shewhart’s original work.

Deming is best known for his work in Japan after WWII, particularly his work with the leaders of Japanese industry. That work began in July and August 1950, in Tokyo and at the Hakone Convention Center, when Deming delivered speeches on what he called “Statistical Product Quality Administration”.

Many in Japan credit Deming as one of the inspirations for what has become known as the Japanese post-war economic miracle of 1950 to 1960, when Japan rose from the ashes of war on the road to becoming the second-largest economy in the world through processes partially influenced by the ideas Deming taught