Top 5 Due Diligence Mistakes Made in Commercial Real Estate
- Incorrect Property Valuation: One most common mistake made by tenants while leasing a commercial space is that they don't valuate the property correctly. This might lead to lots of misunderstandings which would finally end up with a wrong deal. So, just make sure that you really are conservative when it comes to underwriting a deal. Check for sales competitors and other properties available in the market by getting in touch with the most active commercial agents.
- Not Understanding Lender's Underwriting Requirements: Before spending your valuable time, money and energy conducting due diligence, make sure that you have a prior discussion with the lenders about the loan amount they would put on your property. Because, these days the lenders have been very conservative and they consider lots of things like the physical condition, intended use, sale and lease comparable, environmental issues and so on. So just check with the lenders before taking it too far down the road.
- Not checking if the Property Complies: These days, it's not at all uncommon that a buyer gets to know that the property doesn't meet the compliance of building after purchasing it. The buyers usually get to know about it when the city inspector comes to check if there's any infarction associated with the property. So, it's always a good idea to have an architect, planner or the contractor to inspect the property and discuss the issues related to compilation during the due diligence period.
- Assuming There Are No issues: Usually the buyers or tenants who are in a hurry to get into a property make this mistake. They just want to get settled in a space which makes them assume that there are no issues. But sometimes the leases can have tripwires like contraction provisions, cancellation provision, fixed option rents, etc. As a tenant you must be aware of these provisions as it can put you in a bind making you devalue the property. So if you are not familiar with the commercial real estate leasing , it's good to have an attorney who can help you in reading the lease.
- Not Spending Time at the Property: When you are about to buy a property or leasing it, it's not just enough if you take a bland look at it as it's something that impacts your business heavily. Make sure you do a thorough round up going there at different times in a day; this gives you a better idea of what goes on there at the property. Sometimes it may also change your mind and the decision of buying the property. You won't just know what's going to be hidden; may be the molds or the fire issues in some units to name a few. Spend enough time at the property and make sure that it's ideal for you.
Many commercial real estate investors are not aware of the things that they are unaware of! The above mentioned points surely give a brief idea and they'll also get to know the things they need to follow while looking out for a commercial space to set up their business.