The Encyclopedia of Commercial Real Estate Advice

CHAPTER 3Outstanding Due Diligence for Buyers

Getting acquainted with a commercial property after your offer has been accepted goes through the same phases as any potentially long-term relationship. In the courtship phase both sides present the best of themselves to each other. This is followed first by the getting-to-know-you phase, where the real you comes out, and then by the let's-have-a-permanent-relationship phase or the I'm-breaking-up-with-you phase.

“Conducting due diligence,” as it's referred to in a commercial purchase and sale contract under the feasibility and inspection clauses, refers to the period of time the buyer has to investigate and inspect all aspects of the property. This is the getting-to-know-you phase, and if done correctly it will allow the buyer to make an informed decision about going forward with the purchase. Due diligence actually starts when you review the numbers in the marketing flyer and compare them to other like properties that have sold or are currently for sale in the market. It then kicks off when you give the seller a due diligence checklist (Encyclopedia Topic B, Due Diligence) in the purchase and sale contract and agree on a drop-dead date to complete your research.

As I am writing this chapter, I am thinking that this topic could easily be a book in itself. There could easily be 60 or more individual items that a buyer should inspect, collect, and review for multifamily properties, and a hundred or more for multi-tenant retail, office ...