Commercial real estate

Due diligence in commercial real estate

Due diligence in commercial real estate involves making sure that the real estate can be used for the purpose for which you intend.  If you are purchasing a piece of property where you are thinking of building a restaurant, for example, due diligence involves making sure the property is zoned for commercial use as well as an environmental report on the soil.  If the property was previously used as a gas station or dry cleaners it may not be safe for restaurant use as the soil is most likely contaminated.

In addition to environmental concerns, due diligence in commercial real estate also requires the buyer to examine a survey and make sure that any easements are included either in the lease or deed, if purchasing the property.  Investing in commercial real estate is different than investing in residential properties and requires knowledge of both the market as well as local and state ordinances and laws. 

If you are purchasing commercial real estate, you will want to make sure the legal description on the survey matches the legal description on the title insurance commitment.  The title insurance commitment is issued by the title company that will most likely be facilitating the settlement of the property.  They will search the property to make sure that there are no liens or encumbrances that will prevent you from taking ownership of the property, that the seller has the authority to sell the property and that taxes have been paid.  You should either know how to perform due diligence in commercial real estate before investing in commercial real estate property or find a qualified real estate attorney.

Along with environmental reports, survey and title commitment, other due diligence requires you to make sure that the property has the needed improvements for the use you are planning.  If it needs utilities or sewer connections, you need to know this prior to buying the property.

If you are purchasing commercial real estate such as a store or other free standing commercial building, you will want to get the property inspected prior to committing to the purchase.  It is well worth the money to pay to a qualified home inspector to  insure that your property is in sound condition.  Any time you purchase a building you should have an inspector check it out and give you a report.

Due diligence in commercial real estate is usually performed by your attorney or, if you are knowledgeable when it comes to commercial real estate, by yourself.  If you are unsure what you are doing or how to read a survey or title commitment, you are wise to hire an experienced attorney to facilitate the due diligence for you.

Commercial real estate investing can be profitable if you have good basic knowledge of the market and commercial business law.  Commercial real estate encompasses property where you plan to make a profit without living on the premises.  It can range from apartment buildings, stores, land, industrial properties, strip malls or large developments.  It is necessary to perform due diligence in commercial real estate just as in residential real estate.

• Commercial real estate to lease
• Commercial real estate investments
• Purchasing an apartment building