1. DEFINING DUE DILIGENCE

  • The process of investigation, performed by investors, into the details of a potential investment
  • Webster’s Dictionary: Research and analysis of a company or organization in preparation for a business transaction (as a corporate merger or purchase of securities)
  • Discussion on who owns due diligence
  • Examples of due diligence items
  • Creating a list of due diligence items
  • Broker involvement

2. CONDUCTING LEASE REVIEWS AND HAVING MARKET KNOWLEDGE

  • Review a lease for existing tenant covenants or affected rights
  • Constraints on future leasing
  • Review for exclusivities, prohibited uses, parking restrictions, other tenant options, rights to purchase and renewals.
  • Review for future tenant rights to expand.
  • Researching market rental rates and effective rental rates
  • Comparing market rents to the building’s contractive rents
  • Researching for landlord lease concessions

3. RESEARCHING MORTGAGES PRIOR TO LEASING

  • Researching and due diligence for the tenant’s behalf
  • Research landlord’s ability to execute a lease
  • Researching as a listing broker for use restrictions
  • Local by-law issues, landlord covenants or other tenant covenants
  • Research if lender has final lease approval rights
  • Note if there is a Master or Special Servicer
  • Research mortgage constraints

4. RESEARCHING THE OWNER’S TITLE

  • Research title to confirm ownership: review resources
  • Identify any liens on the property that can a lease
  • Identify any Activity and Use Limitations (AUL) on the property
  • Identify the owner/landlord’s real estate attorney.
  • Contact the attorney and introduce yourself.
  • Review any attorney lease template

5. RESEARCHING THE PROPERTY AT TOWN HALL

  • Applicable for listing a property or representing a tenant
  • Research the zoning at the town planning dept.
  • Identify allowed and prohibited uses or special permit uses
  • Research Conservation Commission for flood plains
  • Research for town water, town sewer or septic system
  • Research Board of Health for size and capacity of septic system
  • If septic, research last pumping of system
  • Research the real estate tax assessment, tax rate and prompt payment of taxes
  • Research the Building Dept. for any permit moratoriums
  • Research for other filings that might impact tenant improvement work or additions

6. ESTABLISHING THE FACTORS OF THE PHYSICAL ASSET

  • Check list for research for both listing and tenant brokers.
  • Inspect and tour a building for its building characteristics, land and appurtenances
  • Inspect for utilities, rail service, telecom capacity
  • Inspect common areas, restrooms,
  • Inspect and research for floor load capacity, clear height, column spacing, sprinklered, demising capability, roofing system, etc.
  • Research for building dimensions
  • Identify if a signage program exists
  • Note the external retail and municipal support services
  • Research the labor market and costs
  • Identify the location of highway access and mass transit opportunities
  • Research if the commercial building is LEED rated
  • Identifying physical maintenance issues and costs
  • Disclose physical defects
  • Identify any market and leasing design considerations
  • Discussion on landlord need for a tenant indemnification on due diligence. Evidence of insurance/Certificate of Insurance Binder.

7. ENVIRIONMENTAL ISSUES

  • Items that a broker should review
  • Identify environmental issues that affect offer contingencies
  • Tenant’s need for a 21E inspection
  • Landlord’s need to know tenant’s detailed hazmat issues
  • Identify tenant leaser environmental responsibility and future liability
  • Identify the financial strength of a tenant to comply with environmental laws
  • State the Title V impact from a tenant
  • Stating the negative impact of Title V on a tenant’s operation

8. FINANCIAL STRENGTH OF TENANT

  • Landlord’s need for tenant financial statements
  • Broker wants to inform perspective tenant’s for financial
  • Landlord may want audited or unaudited. Discuss the years of corporate returns.
  • Can have tenant accountant discuss with landlord’s accountant.
  • The importance of financial review with security deposit, tenant improvement work, term and other rental concessions, etc.