Commercial Real Estate Due Diligence Checklist | Free Download

Commercial real estate due diligence checklist

About the Commercial real estate due diligence checklist

A commercial real estate due diligence checklist is designed to provide a thorough evaluation of properties. Begin with property details, capturing essential information like location, zoning, and size to understand potential and limitations. Conduct a financial analysis to assess value, taxes, and potential return on investment, ensuring sound financial decisions.

Include legal compliance by reviewing title deeds, liens, and zoning regulations. This protects you from legal disputes and ensures the property can be legally transferred. Perform a physical inspection to document the property’s condition, identifying structural issues or necessary repairs.

By using this checklist, you streamline the due diligence process, reduce risks, and make informed decisions. It helps you anticipate challenges and negotiate better terms, ultimately enhancing your investment strategy and ensuring successful commercial real estate transactions. This structured approach provides clarity and confidence in your property evaluations.

Key elements of a commercial real estate due diligence checklist

Understanding the key elements of a commercial real estate due diligence checklist helps you streamline your property evaluations. Here are the crucial components:

Property specifics: Record vital information like location, zoning, and dimensions. This ensures you grasp the property’s potential, spot any development limitations, and confirm it fits your strategic objectives.
Financial evaluation: Evaluate the property’s value, tax obligations, and expected return on investment. This analysis helps you identify financial risks, secure profitability, and make well-informed investment choices.
Legal verification: Examine title deeds, liens, and zoning laws. This process ensures the property is legally clear, safeguarding you from disputes and confirming it can be transferred without complications.
Condition assessment: Assess the property’s condition, identifying structural issues or needed repairs. This enables you to estimate maintenance expenses, plan for improvements, and negotiate better terms based on its current state.

When to use a commercial real estate due diligence checklist

Using a commercial real estate due diligence checklist is crucial in several scenarios to enhance your workflow. When considering property acquisitions, this template helps you thoroughly evaluate potential investments, ensuring you capture all necessary details. It’s also vital during lease negotiations, allowing you to verify property conditions and legal compliance.

In redevelopment projects, the checklist guides you through assessing zoning regulations and structural integrity, helping you anticipate challenges and plan effectively. Additionally, use it when conducting periodic property reviews to ensure ongoing compliance and maintenance. By using this checklist in these contexts, you streamline processes, reduce risks, and make informed decisions, maximizing the benefits of your real estate transactions.

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Preview of the template

Representatives

Site Representative

Name

Contact Number

E-mail

Investor

Name

Contact Number

E-mail

Due Diligence

Property

Location

Building Type

Construction Type

Building Size

Summary of Site History and Development

Topography

Interior and exterior maintenance

Occupied and vacant spaces

Restrooms and public facilities

Traffic Conditions

Parking

Environmental conditions

Certificates of Occupancy

Warranties

Licenses and Permits

Preventative Maintenance Program

Deeds of Trust and Mortgages

Other interests in real property

Shareholder Information

Records setting forth all issuances or grants of stock, options and warrants by the Company, listing the names of the issuees or grantees, the amounts issued or granted, the dates of the issuances or grants, the number of shares presently exercisable (if applicable) and the consideration received (or to be received) by the Company in each case.

Lists of all current shareholders, including addresses and numbers of shares owned.

Numerical listing of stock certificates showing certificate number and date, name of shareholder, number of shares, date of Board approval, and permit and tracing transfers.

Lists of all options proposed to be granted, if any, including names and addresses of proposed option holders and number of options to be held by each.

Financials

Previous 3-year income and expense statements

Current and incoming year's budget

Audited financial statements

Material Contracts

Bankline of credit agreements, including any amendments, renewal letters, notices, waivers, correspondences, etc.

Other agreements evidencing outstanding loans to or guarantees by the Company, including correspondences.

All outstanding leases for real and personal property.

Material contracts with suppliers or customers. Please indicate which suppliers are the sole source.

Agreements for loans to and any other agreements (including consulting and employment contracts) with officers, directors or employees, whether or not now outstanding.

Schedule of all insurance policies in force covering property of the Company and any other insurance policies such as ''key person'' policies, director indemnification policies or product liability policies.

Form of employee confidentiality invention assignment agreement.

Any other material contracts outstanding.

Operations

List of third-party developers showing total and type of project for each developer during the last and current fiscal years, contact names and phone numbers, together with forms of agreements entered into with third-party developers.

List of third-party software duplicators and manual publishers showing total and type of services from each duplicator and publisher during the last and current fiscal years.

Form of agreements relating to the sale or lease of material capital equipment.

List of top 20 accounts payable with contact names and phone numbers.

Competition Research

Copies of all market research or marketing studies conducted in the last three years.

List of the Company's competitors.

List of the Company's 20 largest customers or groups in each of the last two fiscal years, indicating the types of products and the amounts of each purchased, and contact name and phone number for each customer.

All material agency and advertising contracts to which the Company is a party.

Copies of all market research or marketing studies.

Backlog at end of the most recent fiscal year and most recent fiscal quarter.

Litigation and Audits

All letters which have been sent to auditors in connection with year-end and current interim audits, including ''litigation letters.''

Copies of any auditors' letters to management regarding internal accounting controls.

Descriptions of (and reasons for) any change in accounting methods in the past three years.

Active litigation files, including letters asserting claims, complaints, answers, etc.

Any litigation settlement documents.

Any decrees, orders or judgments of courts or governmental agencies.

Description of any warranty claims which have been made against the Company, any subsidiary, or any partnership or joint venture and the resolution of such claim.

Information regarding any material litigation to which the Company is a party or in which it may become involved.

Environmental

Schedule of Hazardous Materials stored, manufactured or located at any facility of the Company either now or in the past, or that the Company ships or transports (Hazardous Materials means any substance or any material containing a substance that could be considered toxic or hazardous under law, including solvents, petroleum, pesticides, paints, asbestos containing materials, lead based batteries, radioactive materials and PCB containing transformers.)

Schedule of chemicals, toxic substances or air contaminants which are regulated present in any facility of the Company.

Schedule of any incidents involving the release of a potentially hazardous amount of any carcinogen into, or presence of asbestos in, the workplace.

Schedule of all instances in the past in which the Company has corrected unsafe working conditions.

Schedule of all the facilities of the Company that discharge waste into any body of water, stream or any sanitation systems.

Schedule of all permits or approvals obtained from any governmental body responsible for environmental or health regulation.

Schedule of all occasions in which a liquid or solid waste material or any fuel or other Hazardous Material was accidentally or intentionally spilled or released.

Any notices of violation or requests for information that have been received or threatened at any time for alleged failure of any facility to comply with applicable air pollution laws or with any air quality permit.

Others

Copy of any internal or outside studies of the Company or the market for its products (e.g., management consultants).

Summary of all occupational health and safety inquiries (if any).

Summary of all Labor inquiries.

Summary of state, local and foreign income tax status, i.e., have all returns been filed? all taxes been paid? any audits by taxing authorities?

Permits for conduct of business, including licenses, franchises, concessions and distributorship agreements.

Completion

General Comments

Conducted by: (Name and Signature)

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Frequently asked questions

Why is commercial real estate due diligence important?

Commercial real estate due diligence is essential because it helps you identify potential risks, verify property details, and ensure legal compliance. This process protects your investment by providing a comprehensive understanding of the property’s financial, legal, and physical aspects, reducing the likelihood of costly surprises.

How can I assess a property’s financial viability?

To assess a property’s financial viability, evaluate its current value, tax obligations, and potential return on investment. Analyzing these factors helps you make informed decisions and identify any financial risks early, ensuring a sound investment strategy.

What legal issues should I consider in real estate transactions?

In real estate transactions, review title deeds, liens, and zoning regulations. Ensuring legal compliance protects you from potential disputes and confirms the property’s ability to be legally transferred, safeguarding your investment.

How do I evaluate the condition of a commercial property?

Evaluate the condition of a commercial property by conducting a thorough physical inspection. Identify structural issues and necessary repairs to estimate maintenance costs and negotiate better terms, ensuring you are fully aware of the property’s current state.

This template, developed by Lumiform employees, serves as a starting point for businesses using the Lumiform platform and is intended as a hypothetical example only. It does not replace professional advice. Companies should consult qualified professionals to assess the suitability and legality of using this template in their specific workplace or jurisdiction. Lumiform is not liable for any errors or omissions in this template or for any actions taken based on its content.