Financial Due Diligence for Commercial Real Estate
Property photos alone do not tell the entire story! More important than photos is the examination of the property and the seller's provided financials. Every commercial real estate transaction should be examined from top to bottom to ensure what's reported is accurate.
Finding out if what the seller’s saying is true versus what’s being reported, and
Determining the financial health of the property's tenants?
Lenders expect the building and ground to be safe and clean. What about the financials? They too deserve a high degree of scrutiny. Don't assume the reported details within are accurate. In fact, the financials may contain a number of misrepresentations or other costly errors. During the process, tenants should not be forgotten! One should examine not only the property's financial statements and tax returns, but learn all they can about the financial well-being of the tenants. The estoppels by themselves are not an indicator of the tenant’s financial health. For example: If tenants are on percentage pay leases, find out if they are current. If they're near bankruptcy, maybe the buyer would want to know this as well. Remember, what originally appeared to be a stable property may actually be weeks away from going dark. It's wise to remember that vacant or low occupied properties come with their own set of issues. The objective of your due diligence should be to reduce surprises while learning the whole story.
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