Real Estate Due Diligence Checklist

Our Real Estate Due Diligence Checklist is tailored specifically to transactions involving commercial real estate spaces. It includes all the questions you need to ask during the diligence stage.

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Due Diligence

Real Estate Due Diligence Template

The Real Estate Due Diligence Checklist provides a framework of initial due diligence requests. These are tailored specifically to transactions involving commercial real estate spaces.

Most suitable for transactions that involve commercial real estate
Initial requests help prompt basic information for a general overview of the target company
Playbooks may be customized to accommodate your team’s or deal’s unique needs

What Tasks does the

Real Estate Due Diligence Checklist

Include

Property Information

Likely if you are investing in commercial real estate you are interested in the physical property or location itself. Appraising and inspecting the property’s specs, features, and physical space is integral to closing a real estate deal. It helps you accurately assess value and discern if it will be a profitable investment. Data required includes roofing and HVAC information, environmental reports, and conducting or ordering in-depth inspections.

ITEMS IN PROPERTY INFORMATION DUE DILIGENCE INCLUDE:

Review mechanical reports (HVAC, electric, structural)
Review all inspection reports (roofing, HVAC, foundation, septic)
Review environmental reports (soils tests, radon, mold, lead paint and asbestos)
Review geotechnical soils reports and documents
Review seismic risk assessment (probable maximum loss) reports
Review plans, specifications, and other documents detailing the property's "as build" condition
Order Property Condition Assesment
Order current Phase I Environmental Site Assessment
Order current Additional Site Investigation (Phase II)
Obtain certification or studies confirming the property's square footage
Obtain reports certifying compliance with Americans with Disabilities Act (ADA) requirements
Review building warranties and guarantees
Review certificates of occupancies, licences, and building permits
Receive copies of insurances (liability, casualty, etc.)
Review energy usage reports in conjunction with energy expenses
Review matienence schedules for property and property equipment

Operational Information

Often times, commercial real estate is more than just a property; it’s a business. What this means is that aside from just purchasing the physical space, you could also acquire a bundle of employees, vendors, and other relationships. With that in mind, you need to confirm that everything is healthy and complaint on the business side of things. Data required includes employee metrics and information on the company’s relationships with employees and vendors.

ITEMS IN OPERATIONAL INFORMATION DUE DILIGENCE INCLUDE:

Obtain a list of positions, employees, wages, and benefits
Review history of labor or strikes, verify no current labor disputes
Verify no disputes with brokers, suppliers or employees

Survey, Title, and Zoning

Zoning laws dictate the rules and regulations that govern building, remodelling, or utilizing your space commercially. However, these laws change constantly. Performing survey, title, and zoning due diligence will help you certify that everything is up to date and in working order. It will also help you learn more about any potential restrictions that are unique to your property. Data required includes zoning reports, surveys, covenants, restrictions, and easements.

ITEMS IN SURVEY, TITLE, AND ZONING DUE DILIGENCE INCLUDE:

Appoint a title company
Forward appointed company the seller's title commitment and other respective documents
Order current title commitment, ALTA survey and other respective documents
Review most recent title and/or boundary survey
Obtain zoning reports
Confirm all leases and entitlements are in the seller's name
Review covenants, restrictions, and easements

Tenancy

If the target property is one that leases to tenants, you will want to do a thorough investigation of them and their leases. This will help you get to know your new customer, help ease the transition of new ownership, and give you a better scope of each parties’ responsibilities. Most importantly, you want to verify all of their leases, security deposits, etc. with a keen eye on financials. Some documents needed here are leases, amendments, and rent rolls.

ITEMS IN TENANCY DUE DILIGENCE INCLUDE:

Obtain current rent roll
Review reports detailing current and historic vacancy rates
Obtain a copy of all leases containing all associated exhibits and attachments and amendments, including guarantees and subleases
Review tenant files (lease, correspondence, etc.)
Resolve any standing tenant issues
Obtain copies of LOCs
Review security deposit information and reconciliation
Review tenant credit quality and payment history reports
Review cost pools for overcharges to tenants
Review leases and highlight contractual landlord obligations to tenants
Prepare and distribute Tenant Estoppel Letters
Receive and review all distributed Tenant Estoppel Letters
Tenant interviews

Legal, Contracts, and Insurance

The last thing you want to walk into when engaging in a new investment is walking into a sticky web of legal issues. Conducting this type of due diligence will ease the transfer of ownership and safeguard from potential issues. Elements needed here include litigations, insurance policies, and a team to help transfer any trademarks.

ITEMS IN LEGAL; CONTRACTS; AND INSURANCE DUE DILIGENCE INCLUDE:

Review historic and pending litigations
Review and transfer trademarks, brochures and websites to the buyer
Review current insurance policies in effect on the property
Obtain an insurance quote from Risk Management

Financial Information

As with any other investment, financials are key in valuing an investment, especially if the property owner is already claiming that it is profitable. Nonetheless, financial due diligence helps piece together the full picture of your investment and protect against unexpected problems down the line. Items here include income statements, expenditure history, and expenses.

ITEMS IN FINANCIAL INFORMATION DUE DILIGENCE INCLUDE:

Review income and expense statements from the past three years
Review audited financial statements from the past three years
Review and compare actual vs budgeted operating and capital expenses
Analyze 5-year capital expenditure history
Review utility bills from the past three years
Review tax documents, including real estate taxes from the past three years
Compare realized expenses to the appropriate building data
Obtain a list of all unfunded capital projects in process
Review capital improvements and improvement plans
Obtain current General Ledgers
Obtain tenant recovery schedule
Analyze 5-year leasing cost information
Review 24-month aged receivables

Governmental

Similar to legal, contracts, and insurance due diligence, governmental helps you verify that the property is compliant with jurisdictions and environmental regulations. Additionally, researching and obtaining all necessary licenses and permits promote a smooth transition and helps prevent other legal troubles. Items to investigate here include governmental and environmental regulations and any administrative proceedings.

ITEMS IN GOVERNMENTAL DUE DILIGENCE INCLUDE:

Research, obtain and verify all necessary licenses and/or permits
Verify the property’s compliance with governmental and environmental regulations
Verify no governmental plans or administrative proceedings that may affect the property
Verify no existing contemplated assessments

FAQ

What Is Due Diligence?

Due diligence is a critical aspect of any deal that begins very early in the process and can continue right up until closing. During due diligence, the potential buyer asks questions and requests documentation from the seller that helps the buyer understand the target company and its business. These requests are usually general to start and become more specific as the buyer develops a greater understanding of the target. Buyers use the information provided by the seller to evaluate the opportunities and risks associated with the potential transaction. It is important for sellers to stay organized throughout the process. Buyers often submit thorough, detailed request lists that require input from numerous members of the seller’s deal team.

What is a due diligence checklist?

As the name implies, a due diligence request list is a list of questions and requests for information and documentation that a buyer submits to a seller in order to learn about the target company, its business and its operations. The initial diligence request list tends to be broad and typically includes an extensive list of questions covering a wide range of subjects. This allows the buyer to gain a broad understanding of the target company and identify key issues that can be investigated and considered more closely. Because every deal is different, due diligence request lists have to be tailored to meet the needs of the buyer and address the unique circumstances of your transaction.
However, there is a variety of fundamental requests that are relevant in most deals. These are the types of requests that our templates are designed to address.

What Questions Does the Master Due Diligence Questionnaire Include?

Key considerations when using our m&a due diligence template

Our templates are drafted to provide an inclusive and wide-ranging list of initial due diligence requests. However, the templates, as well as the information contained therein, are not legal advice. They are not complete, and they are not specific to your transaction. The templates are designed to elicit general information from the seller that will provide the buyer with a broad overview of the target and it’s business and operations. You should review any template before using it, and it may need to be modified to ensure that it is suitable and relevant to your circumstances. Information provided by the seller will likely trigger additional questions that focus on specific aspects of the target’s business and issues identified during the due diligence process.

Are the requests in the template comprehensive?

No. Our Due Diligence Checklist is drafted to include typical requests that are relevant in most transactions. However, every deal and every target company is unique. Before utilizing any template, it is important that you review it with the help of your legal and other professional advisors to ensure that the requests are complete and tailored to the specific circumstances of your deal.

How to use the template with Dealroom

Start 14-day Free Trial of DealRoom and sign-up
Select a Master Due Diligence Template while creating a new room
Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

Can I change requests in this checklist or add new?

Every M&A process is different. Downloaders are urged to make these checklists their own by changing the providing information to better fit their needs.

Does this questionnaire provide all the necessary integration information?

This checklist was created by and for M&A professionals. It includes a comprehensive starting point for the integration process. However, every deal is different and may require additional requirements and tasks.

How to use this template with DealRoom?

Start 14-day Free Trial of DealRoom and sign-up
Select an Integration Template while creating a new workspace
Start planning, assigning, adding to, and completing integration tasks. The Requests tab is automatically populated with the tasks from the integration template.

Key considerations when using our m&a due diligence template

Are the requests in the template comprehensive?

How to use the template with Dealroom

Start 14-day Free Trial of DealRoom and sign-up
Select a Master Due Diligence Template while creating a new room
Start assigning, adding to, and completing due diligence requests with needed documents by uploading them into the built-in virtual data room. The Requests tab is automatically populated with the requests from the due diligence template.

Real Estate Due Diligence Checklist

Our Real Estate Due Diligence Checklist is tailored specifically to transactions involving commercial real estate spaces. It includes all the questions you need to ask during the diligence stage.

Start trial with this playbook

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