Commercial property purchase due diligence

[Georgee Gilbert]

When purchasing commercial property what are your due diligence? 

How do you determine if it's a good deal?

How much does due diligence cost out of pocket? 

What steps can you take before spending money to determine if its worth your time and money? 

Is it best to use a commercial realor or will your buyer's agent do fine? 

What should you look out for and avoid at all cost? 

[Frank Chin]

What type of commercial property? It ranges from free standing stores large and small (for supermarkets to dry cleaners), small strips with several stores, small to large office buildings, mixed use, like a property with stores downstairs and apartments upstairs.

If your just talking stores, I looked at a number of single empty ones and you'll have to figure out why they're empty. Is it because people are going to newer strips nearby? What helped me was I was also looking for laundromats to buy, working with a store broker whose also a commercial realtor. One store, rented to a laundromat didn't do all that well because of traffic patterns, It was just awkward to drive to.

I was looking at a small strip with three stores, all rented, and one to a restaurant. My wife was in city planning, and knew the head of city planning whom she used to car pool with. Decided to drop in and pay him a visit, and we spoke about looking at a strip in town. He knew right away which one it is and asked if the seller mentioned anything about the new rules for providing parking depending on the number of seats in the restaurant. We answered "no".  He said they let the current strip landlord and restaurant tenant slide, but the new owners will have to pave the empty lot behind the strip to provide more parking. The town already spoke to the commercial property owner next store about an easement to get in and out for the additional parking. The sellers mentioned they knew nothing about it.

Talking about city planning, they're good folks to know if you plan to invest in a certain area. City planning usually have a master plan which for an investor is good to know.

For stores rented to businesses such as  dry cleaners, are there any contamination issues, past or present, which greatly diminishes the value and imposes liabilities for current and past owners?

There are insurance issues. My dad owned a mixed use properties, and commercial insurance varied greatly, so if he rented the store as an office, the insurance on it could be five time greater if it was rented to a restaurant.

These are just a few examples. You can do very well with commercial but there's a lot more issues you have to know and look into.