✅ Commercial Real Estate Due Diligence

Before PSA

☐ Google Drive Folder
☐ Analyze Offering Memorandum (OM). Attach here
- ☐ Is it professionally managed?
- ☐ Research market rent rates
- ☐ Why Being sold
- ☐ Days On Market (DOM)?
- ☐ Was it listed previously?
- ☐ Why the current vacancy rate? Inquire about historic occupancy levels
- ☐ What deferred maintenance exists?
- ☐ When was the roof replaced? How old is it?
- ☐ When was the parking lot last repaved and/or re-striped? (2023)
- ☐ Check auditor value and last sale
☐ Analyze the current P&L's as well as historical (past 3 years) if possible
☐ Find any available information about the property and seller online
☐ Google the address and analyze from 30,000 foot view down to the street
☐ Google
- ☐ the population count.
- 1 mile: 8.5k
- 3 mile: 48k
- 5 mile: 58k
- ☐ Google the job growth
- ☐ Google the main employers in the area
☐ Acquire the current rent rolls
- ☐ Research the tenants foot traffic on Placer
- ☐ What is the Vehicle Per Day (VPD) on the surrounding streets? Access Department of Transportation
☐ What value-add potential exists?
☐ Underwrite
- ☐ Incorporate 10% vacancy
☐ Questions
- ☐ Is seller open to creative financing? (seller financing, subto)

Create Google Drive folder with property identifier (ie. address or location)

Upload OM and all documents provided by broker

Make sharable

Send Info to Team Members for Second Opinion

Send LOI

While Negotiating PSA

☐ Leases
- ☐ Cancelation/Termination Clause
- ☐ Buyout Clause
- ☐ Reduction of Space Provision
- ☐ TI dollars, unused TI credits. (get credit from seller in writing)
- ☐ Free Rent/Beneficial Occupancy (ask for credit if still on the hook)
- ☐ Renewal/expansion/contraction
- ☐ Caps on expense pass through, or expense exclusions
- ☐ Fixed option on renewal rates
- ☐ Refurbishment allowances
- ☐ Special Computer room/AC requirements
- ☐ Security Requirements
- ☐ All Ammendments
☐ Operating Expenses over the last 3 years (ideally as soon as possible)
- ☐ Trends in expenses
- ☐ Spikes in expenses
☐ Tenant files and correspondence
- ☐ Maintenance issues
☐ Verification of security deposits or letters of credit
☐ Any service contracts
- ☐ Elevator Maintenance
- ☐ Roof
- ☐ HVAC
- ☐ Interior Paint
- ☐ Landscape
- ☐ Music Streaming
- ☐ Janitorial
- ☐ Parking
- ☐ Trash Removal
- ☐ Property Management
- ☐ Pest Control Services
- ☐ Hazardous Waste
- ☐ Security
- ☐ Property Tax Appeal
- ☐ Utilities (Electrical Especially)
☐ Inventory of equipment
☐ Mechanical permits belonging to Landlord
- ☐ Elevators
- ☐ Fire panel
- ☐ Fire safety
- ☐ Boiler
- ☐ Emergency Generator
☐ Any Outstanding violations on the building
☐ Send to Lender
☐ Send to Insurance
☐ Send to Property Manager
☐ Send to Leasing agents
☐ Send to Lawyer
Have attorney draft a PSA for the particular asset and situation. If PSA presented by other party, present the PSA to attorney for review BEFORE signing.

After PSA execution (get reports from lender’s approved list)

☐ Environmental Reports
- ☐ Phase I
- ☐ Phase II
- ☐ Phase III
☐ Property Condition Assessment Report (which issues were outstanding at purchase)
☐ Due Diligence Company
☐ Seismic/PML Report (CA only)
☐ Title Insurance
☐ Property Condition Assessment
☐ Loan Agreement and Promissory note reviewed by Attorney
☐ Ask for one time assumption in loan at no cost
☐ Tenant Interview
- ☐ Does the landlord owe you any outstanding rent?
- ☐ Likes and dislikes about the building
- ☐ Any bad experiences with the building
- ☐ How is the security in the building and area
- ☐ Any problems with HVAC (or elevator)
- ☐ Have you experienced any leakage from the windows when it rains?
- ☐ How is business going?
- ☐ Is this your only location?
☐ PM and Building Engineer Interview
☐ Current Leasing Manager Interview
- ☐ Proposal leases
- ☐ Pending
- ☐ Any leases that fell through

Prospective Leasing Interview

☐ the building
☐ how it fits in the submarket
☐ competitive set
☐ what building needs for enhancement
☐ doing deals with current ownership
☐ how transactions are currently going
☐ what tenants are looking for
☐ subject building expectations in TI and rent

Inspections

☐ Water pumps have no rust
☐ Emergency generator clean with limited dust and maintenance logs
☐ Elevator. Maintenance logs are good. No hydraulic fluid smell or leaks.
☐ Roof. Age. Flashing pulled up. Wet spots
☐ Windows. Leaks. New Tiling. Gaskets around window.
☐ Water Heaters. Age and condition and rust.
☐ Fire Safety Panel. Age and last inspection
☐ Fiber Optics
☐ Fire sprinkler systems. Is the model on recall
☐ Electrical Panel thermoscan
☐ Grease trap. No leakage
☐ Kitchen. No odors
☐ Other Critical issues
- ☐ Building violations
- ☐ Code violations
- ☐ ADA Compliance
- ☐ Remodeling costs leading to new permitting
- ☐ Permitting
- ☐ Encroachments
- ☐ Pending litigation
- ☐ Confirm square footage
☐ Building Opportunities
- ☐ Parking structure lighting
- ☐ Tenant buildback
- ☐ HVAC efficiency
- ☐ Eddy Current Test
- ☐ Pneumatics
- ☐ Energy Management System

5-7 Days before end of DD

☐ Confirm all checklist
☐ Every unit walked

**PSA ACCEPTANCE***

Identify Timelines for EMD, DD, and Closing

Input EMD deadline

Input DD deadline

Input closing deadline

Input extension deadline

Send PSA to Title Company

Wire EMD

Call and confirm the wire information/instructions

Acquire Tenant Estoppels

Request Documents and Info

3 years P&L's (income statements)

3 years tax returns

5 years CapEx

Bank statements

Rent rolls

3 years cam reconciliation

YTD expenses

Estoppels

Survey

Current insurance policy

Service contracts

Leases and all addendums/renewals

Floor plans with tenant location and square footage

Roof repairs/warranties

HVAC repairs/warranties

Known issues with roof, parking lot, structure, HVAC, etc.

Management company info

Phase 1 and 2 reports

Property condition report

Elevator requirement and maintenance, if applicable

Sprinkler requirement and maintenance, if applicable

Is there a security deposit?

Inquire about expiring tenants. Are they planning on staying or leaving? Any replacements?

Inquire about TIA and payments

Are there delinquent tenants?

Asbestos?

Irrigation systems?

Is there a fire panel present? Where is it located?

Is there a house meter for utilities?

Attorney Review

Tenant responsibilities

Landlord responsibilities

Security deposit

Lease start and expiration

Lease renewal options

Is there a personal or corporate guarantee?

Exclusivity clauses

Tenant allowance

Sight line provisions

Easements

Out of the ordinary clauses (ie. rent fluctuations based on occupancy of another tenant)

Any attorney notes

Contact Zoning Department

Inquire about accepted/prohibited use

Inquire about current issues

What they would like to see in the area?

Are there any updates in the area?

Any current easements?

Historic district?

Any change of use?

Contact City/Economic Development

Inquire about code & any current violations

Inquire about open permits

Inquire about city council grants

Inquire about historic tax grants/facade grants

Inquire about tax abatements

Contact Fire Department

Contact Police Department

Check Floodplain

Community Reinvestment Act (CRA) Grants

Brownfields Grants

Facebook Page

Insurance Claims

Pending Litigation

Entity Transfer

Financing

Prepare PFS and financial documents (ie. 3 years tax returns, REO)

Order appraisal when credit approves

Order inspection when credit approves

Order any necessary third party reports (ie. phase 1, 2, 3, etc.)

Site Visit

Estimate repairs and capex

Subtle tenant interviews

Take pictures

Space Layout

**DECISION TO MOVE FORWARD***

Obtain Insurance Quotes

Set Up Inspections for Roof/Mechanicals

Market to Prospective Tenants

Form LLC & EIN

Create Bank Account

Identify Raise Amount

Pitch Deck

Prepare Webinar

Send to Investors

Prepare Legal Documents

1031

Escrow Funds

Acquire Keys

Celebrate

Lockbox

Create Google Doc with property info and record lockbox information and detailed location

Insurance

Letters to Tenants

Service Contracts

Landscaping

Irrigation

Snow removal

Utilities

Knox Box

Lighting Upgrades

Sign Vendor

Cost Segregation

Organize Documents

Send Google link

Cancel Services

Cancel insurance

Cancel utilities

Cancel any autopayment

Terminate service contracts

1031 intermediary

Listing Agent

Interview agent

Review listing agreement

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