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Real Estate Transactions: Due Diligence Investigations , Part 1

Commercial real estate transactions are large deals that involve thousands or millions of dollars. The lifetime of these investments is measured in decades, not years. They involve enormous amounts of energy, years of projections and piles of cash. As such, every commercial real estate transaction should be approved in a diligent manner. The buzzword in these approaches is “due diligence.” Due diligence refers to the investigation of the property, company and other factors that underlie a commercial real estate transaction. Due diligence ensures that a particular company and property are worth the investment.

The type and amount of due diligence required largely depends upon your goals with the property. If your goal is to purchase a building and improve the existing structure then you will want to ensure that the proposed remodel can be supported by the building superstructure, that you can get the necessary permits, that the current tenants will allow you to remodel and other factors. It isn’t a simple purchase building, began remodeling. You need to confirm that everything you need to achievable or already addressed.

Conversely, if you are an investor looking to maximize an income stream then you are probably more concerned about the company’s financial health, its debt to equity ratio and debt to income ratio. You may want to interview company officers and board members to ensure that your investment is being run properly.

As you can see, a due diligence investigation is dependent upon your goals with the property. Regardless of the outcome, every due diligent investigation must be conducted with the utmost attention to detail. It should strive to answer every single question and to provide the data and assumptions that underlie its conclusions.

If your company is preparing to engage in a commercial real estate transaction then you may want to speak to an attorney. A lawyer can review the contract and the details of the arrangement to confirm you are getting an appropriate deal. Additionally, an attorney can assist you in conducting a due diligence investigation. Attorneys are trained to identify risk and address it ? which is largely what a due diligence investigation endeavors to do. Don’t risk your company’s financial stability on a bad deal, seek help before you ink a deal.

Mon Aug 27, 5:35pm