In commercial real estate transactions, thorough due diligence is the critical component that either holds together successful deals or dissolves transactions. The detailed process of due diligence involves a comprehensive examination of all aspects of a property, ensuring that potential risks and opportunities are unearthed before finalizing any transaction. Here are some of the key elements that constitute effective due diligence in the commercial real estate transaction.
Legal Scrutiny
One of the first steps in due diligence is a rigorous review of the legal standing of the real estate at issue. This includes an examination of titles, zoning laws, environmental regulations, and any existing litigation. Identifying potential legal hurdles at an early stage allows stakeholders to make informed decisions and mitigate risks effectively.
Financial Analysis
A complete financial analysis is essential in evaluating the viability and profitability of a commercial property. Investors and stakeholders need to delve into the property’s financial history, including income and expense statements, lease agreements, and potential future cash flows. This analysis aids in understanding the property’s revenue-generating potential and forms the basis for sound investment decisions.
Physical Inspection
A thorough physical inspection of the property is extremely valuable in uncovering any hidden issues or deferred maintenance. Engaging professionals to assess the structural integrity, mechanical systems, and overall condition of the property provides a clear picture of its physical health. This step is crucial for estimating potential future capital expenditures and avoiding unpleasant surprises.
Market Analysis
Understanding the market dynamics in which the property is situated is key to assessing its long-term value. A comprehensive market analysis considers factors such as supply and demand, rental trends, and economic indicators. This insight helps stakeholders determine the property’s competitiveness and growth potential in the broader market context.
Operational Evaluation
In addition to financials, due diligence should encompass an operational review. This involves evaluating the efficiency of property management, lease administration, and overall operations. Evaluating these aspects ensures that the property is being managed effectively and that there are no operational inefficiencies that could impact its performance.
Effective due diligence in a commercial real estate transaction combines legal scrutiny, financial analysis, physical inspection, market evaluation, and operational assessment to help stakeholders make well-informed decisions, while mitigating risks. Contact Baer Reed today for commercial due diligence support.
Mr. Reyes graduated with honors from the Ateneo de Manila University, where he received the Procter and Gamble Student Excellence Award. He obtained his Juris Doctor degree from the Ateneo de Manila School of Law. During law school, Mr. Reyes was part of the Philippine delegation to the Willem C. Vis International Commercial Arbitration Moot held in Vienna, Austria. He was also a member of the Ateneo Society of International Law and the St. Thomas More Debate Society. He completed his internship at the Public Attorney’s Office. He wrote a thesis entitled: “To Kill A White Elephant: An Analysis of the Fiduciary Exception to the Corporate Attorney-Client Privilege”. Mr. Reyes is admitted to practice law in the Philippines and the State of New York.
Ms. Lardizabal-Manzano is a graduate of San Sebastian College-Recoletos, where she earned her B.A. in Political Science. In 2003, she received her law degree from Lyceum of the Philippines and was admitted to practice law in 2004.
Matthew Hersh earned a B.A. in Political Science from Columbia University in 1990 and graduated cum laude from Georgetown University Law Center in 1999. He also holds a master’s degree in international relations from the Georgetown University School of Foreign Service.
Cap. Avi Levak (Res. IDF) graduated from from Israel’s prestigious Ben-Gurion University of the Negev with a Bachelor of Science in Computer Science and Mathematics. He is also a Leadership and Communication coach trained in TuT coaching by Alon gal in Israel. Avi specializes in high-level, in-depth analysis of business and client needs, within systems and software strategy and architecture.
Ms. Tyler graduated cum laude from Georgetown University and received her law degree, cum laude, from Georgetown University Law Center. During law school, she interned at the United Nations Economic Commission for Europe. She also worked on The Tax Lawyer journal and was a member of the award-winning Barristers’ Council Mock Trial Team. Ms. Tyler is admitted to practice law in the State of California and the District of Columbia.
Ms. Cruz-Anonuevo graduated cum laude and top nine in her batch from Miriam College with a degree of Bachelor of Arts in InternationalStudies. She obtained her Juris Doctor degree from Ateneo de Manila University School of Law in Rockwell. During law school, she interned in Rivera, Santos, Maranan & Associates. She was also part of Ateneo’s Labor Law Bar Operations. She wrote her thesis on, “Stealing Privacy: Limitations on Media’s Photographic Invasion.,” Ms. Cruz-Anonuevo is admitted to practice law in the Philippines.
Ms. Aquino-Batallones obtained a Bachelor of Arts degree in Development Studies (with Minors in Global Politics and Hispanic Studies) from the Ateneo de Manila University. In 2011, she received her Juris Doctor degree from Ateneo de Manila University School of Law. During law school, she interned at Romulo Mabanta Buenaventura Sayoc & de los Angeles then became an intern of Ateneo Legal Services Center’s Clinical Legal Education Program.
Mr. De Guzman graduated from San Beda College with a degree of Bachelor of Arts Major in Economics and received his law degree from San Beda College of Law. He is multilingual and is fluent in three languages: Chinese, Filipino, and English. He was admitted to the Philippine Bar in 2003.