CRE Due Diligence Checklist
A comprehensive checklist for commercial real estate acquisitions. Covers financial analysis, property inspection, legal review, and environmental assessment to help you identify risks and make informed investment decisions.
What is CRE Due Diligence?
Due diligence is the comprehensive investigation buyers conduct before acquiring a commercial property. It verifies the seller's claims, identifies hidden risks, and ensures you understand exactly what you're buying. The goal is to uncover any issues that could affect property value or your investment returns.
Typical timeline: 30-60 days from executed purchase agreement
The Four Pillars of Due Diligence
Financial Analysis
Verify income claims through rent roll and T12 analysis. Review all leases, understand tenant quality, and confirm operating expenses are accurate and sustainable.
Physical Inspection
Assess building condition, major systems (roof, HVAC, elevator), and identify deferred maintenance. Understand capital expenditure needs over your hold period.
Legal Review
Verify clear title, confirm zoning compliance, review all contracts and encumbrances. Obtain estoppel certificates from tenants to confirm lease terms.
Environmental Assessment
Identify contamination risks through Phase I ESA. Test for hazardous materials like asbestos and lead. Understand flood zone and environmental liabilities.
Financial Due Diligence Checklist
Financial due diligence is the foundation of your investment decision. These documents verify income claims and help you build an accurate underwriting model.
Current Rent Roll
CriticalList of all tenants, unit details, lease terms, and rent amounts
T12 Operating Statement
CriticalTrailing 12-month income and expense statement
Historical Financials (3 years)
Prior year operating statements for trend analysis
Copies of All Leases
CriticalFull executed leases for every tenant
Lease Abstracts
Summary of key lease terms, options, and special provisions
Accounts Receivable Aging
CriticalOutstanding tenant balances and collection history
Security Deposit Schedule
List of deposits held for each tenant
Property Tax Bills
CriticalCurrent and historical property tax assessments
Insurance Policies
CriticalCurrent property and liability insurance coverage
Utility Bills (12 months)
Historical utility costs if not tenant-paid
Service Contracts
CriticalAll vendor contracts (HVAC, elevator, landscaping, etc.)
CAM Reconciliations
Common area maintenance billings and reconciliations
Pro Tip
Always compare the rent roll to the T12. If the rent roll shows $500K annual income but the T12 shows only $450K collected, that $50K gap needs explanation—it could indicate vacancy, bad debt, concessions, or overstated rents.
Property Inspection Checklist
Physical inspection reveals the true condition of the property and helps you budget for capital expenditures during your ownership period.
Property Condition Assessment (PCA)
CriticalProfessional inspection of building systems and structure
Roof Inspection/Report
CriticalAge, condition, and remaining useful life of roof
HVAC Inspection
CriticalCondition of heating, ventilation, and air conditioning systems
Elevator Inspection
Condition and compliance of elevator systems
Parking Lot/Garage Condition
Pavement, striping, lighting, and drainage assessment
ADA Compliance Review
CriticalAmericans with Disabilities Act accessibility compliance
Building Plans/As-Builts
Original construction drawings and modifications
Capital Expenditure History
Record of major improvements and replacements
Deferred Maintenance List
CriticalKnown repairs and maintenance needs
Watch Out
Deferred maintenance is one of the most common surprises in acquisitions. A roof replacement can cost $5-15 per square foot. An HVAC system replacement can run $3,000-7,000 per ton. Budget conservatively and negotiate accordingly.
Legal Due Diligence Checklist
Legal due diligence protects your ownership rights and ensures you can operate the property as intended. Title and zoning issues can be deal-breakers.
Title Report/Commitment
CriticalOwnership verification and encumbrance search
Survey (ALTA)
CriticalProperty boundaries, easements, and encroachments
Zoning Verification
CriticalConfirmation of permitted use and compliance
Certificate of Occupancy
CriticalBuilding permits and occupancy approvals
Existing Litigation
CriticalAny pending lawsuits involving the property
CC&Rs and HOA Documents
Covenants, conditions, restrictions if applicable
Ground Lease (if applicable)
CriticalTerms of underlying land lease
Estoppel Certificates
CriticalTenant verification of lease terms
SNDAs
Subordination, non-disturbance, and attornment agreements
Environmental Due Diligence Checklist
Environmental issues can create significant liability and remediation costs. A Phase I ESA is standard for all commercial transactions and required by most lenders.
Phase I Environmental Site Assessment
CriticalHistorical use review and contamination risk assessment
Phase II ESA (if triggered)
CriticalSoil and groundwater testing if Phase I identifies concerns
Asbestos Survey
CriticalTesting for asbestos-containing materials
Lead Paint Assessment
Testing for lead-based paint (pre-1978 buildings)
Radon Testing
Radon gas levels in applicable regions
Mold Assessment
Inspection for mold and moisture intrusion
Underground Storage Tanks
CriticalIdentification and compliance of any USTs
Flood Zone Determination
CriticalFEMA flood zone classification
Critical Warning
Environmental contamination can create unlimited liability for property owners. Under CERCLA (Superfund law), buyers can be held responsible for cleanup costs even for contamination that occurred before their ownership. Never skip the Phase I ESA.
Red Flags to Watch For
These warning signs during due diligence should trigger deeper investigation or price renegotiation:
Income Discrepancies
Rent roll income doesn't match T12 collections
High Tenant Concentration
Single tenant represents >25% of income
Near-Term Lease Expirations
>30% of income rolling in 12 months
Below-Market Rents
Significantly below market with no escalations
Deferred Maintenance
Significant capital needs not disclosed in pricing
Environmental Concerns
Phase I flags requiring Phase II testing
Title Defects
Liens, easements, or encroachments affecting use
Zoning Non-Compliance
Current use not permitted under zoning
Collection Issues
High accounts receivable or frequent late payments
Incomplete Documentation
Seller unable to provide requested documents
Typical Due Diligence Timeline
Document Request
Submit comprehensive document request list. Order title, survey, and Phase I ESA.
Document Review
Analyze rent roll, T12, and leases. Identify initial questions and discrepancies.
Property Inspection
Conduct property walk-through. Complete Property Condition Assessment (PCA).
Third-Party Reports
Receive and review Phase I ESA, title commitment, and survey. Identify any issues.
Estoppels & Follow-Up
Collect tenant estoppel certificates. Follow up on outstanding questions.
Final Review & Decision
Complete underwriting model. Make go/no-go decision or negotiate adjustments.
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Frequently Asked Questions
Common questions about CRE due diligence