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.