What is due diligence in commercial property?
Due diligence is the investigation of a commercial property’s physical standing and its documentation.
The physical aspect includes looking over such elements as:
- State of the property
- Building and structural report
- Environmental and safety assessments
- Physical defects
- Plant machinery permits
- Required maintenance and structural repairs
- Dates and assessment of any fit outs
The documented aspect of a due diligence includes even more elements:
- Certificate of Title
- Restrictions on sale
- Restrictions on lease
- Tenancy schedule
- Existing commercial lease agreement review
- GST position in leases
- Current zoning and use
- Rates and tax adjustments
- Current and required insurances
- Contacting ASIC, PPSR and search registries
Both lists goes on. And on.
Each element – and there are plenty more than those listed above – must be scrutinised. Sometimes it’s the small, precise and trivial details that cause the biggest upsets for commercial property investors down the line.
It’s all about caution and care when investing in such a big ticketed item as commercial real estate. Leave no stone unturned. Even before you inspect a commercial asset, there are several questions you should ask.
Why is due diligence so important in commercial property?
The due diligence phase of commercial property acquisition can make or break your investment. A due diligence done poorly may leave you with hefty expenses later on. You may discover the physical aspect of the property will soon be in need of major repairs and maintenance, and the capital expense to complete them may carry a hefty price tag. But it’s best to make this discovery well before settlement so you have the luxury to decide whether or not to proceed with the purchase.
We’ve been caught with tough decisions on many occasions, having signed an offer and acceptance and later finding a hair on the commercial property during the due diligence investigations. But we have never been frightened to walk away from a deal at the eleventh hour when an investment hasn’t not met our strict due diligence criteria.
Do I need to conduct due diligence on my property?
An asset management team of a commercial property group may help you with your due diligence investigations if you’re not up to the task yourself. But beware: While their intentions may be good, not every asset management company will have the same investment in your due diligence findings as a party who is actually invested in your commercial property.
Investing alongside a commercial property syndicator or an unlisted property trust means your due diligence is taken care of for you, by experts who have an interest in the same investment.
Want to know the benefits of investing in an unlisted property trust?
If you’re interested in learning more about investing in a property syndicate or unlisted property trust, you’ll find plenty of benefits. Take a look for yourself.
For information on how to partake in a high-quality commercial property investment in a property syndicate, get in touch with Properties & Pathways. We invest alongside our investors in exclusive commercial property investment opportunities, and conduct industry-leading due diligence on each and every property.
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