Investors have a lot to consider when buying commercial real estate. One crucial step is CRE due diligence. Due diligence can provide a clearer picture of the property and its value. However, there are many components to the due diligence process.

Part two of this post covers the types of commercial real estate due diligence. If you want to learn more, you can click here for part 1. The first post covered physical, legal, and environmental due diligence.

3 More Types of CRE Due Diligence

Financial Due Diligence

With commercial real estate, investors buy to generate revenue from a property. Since it is a financial investment, you must investigate the property’s finances. The beginning of financial due diligence involves a look at the current owner’s books. You need to see how they’re doing for cash flow, operating expenses, revenue, etc. Hiring an accountant can be a way to ensure a thorough financial investigation.

Beyond the financial books of the current owners, there are several other steps to this stage of due diligence. For example, you should review vendor contracts, utility bills, existing leases, bank statements, etc. You should also review the tax history. You should consider interviewing some tenants if the property is a strip mall or office building.

Operational Due Diligence

If you are buying a functioning business property, you need to know that it is well-run, making operation due diligence essential. It involves assessing the business operations on the property. Operational due diligence can start with meeting the team managing the property. You need to interview the team to understand their management practices.

Operational due diligence can help you assess the performance of the current management team. You might also meet with other employees to evaluate their performance. It can help you decide whether to keep different team members. Beyond that, it can also help you develop a management plan for when you take over.

Market Due Diligence

Market due diligence is an assessment of the market in which the property operates. The investor is looking to understand the local market to see if it is a good place for investments. You want to ensure sufficient growth or strength in the market to make the investment worthwhile. Investors also want to avoid markets that may be shrinking.

For example, if you are looking at office buildings, you would assess the local supply and demand for office space. You can also assess various economic developments that indicate future growth. The investor might also look at population trends or the labor market.

Do you need help with commercial real estate transactions in the Columbus, GA, area? Click here to contact the Cummings Commercial Team. Our local real estate experts are ready to help you through every stage of the transaction.

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