Due Diligence In A Hot Commercial Market
The character of commercial real estate markets all over the US has changed for the better in the past few quarters. Heightened volume means more deals and more competition, which adds up to extra time pressure on buyers. Particularly in the area of due diligence – also known as the research into a property before a purchase.
Before finalizing a deal, but often after a down payment goes into escrow, a property’s financials need to be collected, closely reviewed and analyzed, all within a time limit. That ticking clock is what takes causes pressure in a hotter market — it’s a critical set of tasks that have you running against the clock.
What’s pertinent to the property?
At the very least, buyers need to see and get comfortable with:
- The property’s taxes
- Reimbursable income accounting
- Historical financials
- Projected income
- Operating expenses
- Insurance history
- Environmental history
In how much time? Less than ever.
Time frames for due diligence are increasingly being offered at 30 days or less, where once, in a sleepier market, 45 days or even 60 days was common. Looking at the above list is sobering; if you have at least seven projects (14 if you count the obtaining of the information and the analysis as separate) and 30 days to get them done, chances are you’re already behind the eight-ball.
Human capacity being finite, something has to give, and often enough, due diligence will be what suffers. But failing to catch problems now practically ensures big problems later.
Combat this by employing a well-made diligence/closing checklist tailored for the kind of transaction you’re undertaking. And get help – always retain qualified counsel when doing due diligence in commercial real estate transactions. With timeframes shortening, splitting the work with a qualified professional is often the best way to make sure that you, the buyer, beware.