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Due diligence and feasibility periods in commercial real estate

On Behalf of | Jan 24, 2024 | Real Estate |

Savvy commercial real estate investors assess many factors before finalizing a deal. Two phases of this fact-finding process are the due diligence and feasibility periods.

Knowing what to look for during these times can help buyers be certain that a property meets their criteria before purchasing it.

Due diligence

During the due diligence period, potential buyers inspect the property to gather essential information. This phase allows buyers to assess the property’s condition, legal status and potential challenges. The goal is to uncover any issues that might affect the property’s value or usability.

Physical inspection

One important part of due diligence is the physical inspection of the property. This process involves examining the building’s structure, systems and condition. Buyers may hire professionals such as inspectors or engineers to identify any maintenance or structural issues.

Title examination

It is also important to examine the property’s title. Doing so ensures that the seller has clear ownership and the legal right to sell the property. It helps buyers avoid potential legal complications that may arise from unclear title issues.

Environmental assessment

Buyers often conduct environmental assessments during due diligence to identify any environmental risks associated with the property. Factors may include soil and water testing to detect contamination and ensure compliance with environmental regulations.

Feasibility period

Once due diligence is complete, the feasibility period begins. This phase allows buyers to analyze the gathered information and reconsider the deal based on the findings during due diligence.

Financial analysis

During the feasibility period, buyers conduct a thorough financial analysis to assess the investment’s viability. This analysis includes evaluating the property’s income potential, operating expenses and potential returns on investment. Buyers aim to ensure that the property aligns with their financial objectives.

Based on the findings of the due diligence and feasibility periods, buyers may negotiate with sellers to address any concerns or renegotiate the terms. If they have doubts about any aspect of the property, they may choose to exit the deal without significant financial repercussions.