The Importance of Conducting Commercial Real Estate Due Diligence

The commercial real estate market has seen its fair share of challenges in recent years. Labor shortages, supply chain disruptions, inflation, and other post-pandemic struggles have cropped up incessantly, making it an uncertain venture. However, despite the rocky economic climate, the commercial real estate market continues to make up one of the largest industries in the U.S. When investing in commercial real estate, you need to eliminate risk as much as possible, which is why it is important to complete your commercial real estate due diligence.

What is Due Diligence in Commercial Real Estate?

Due diligence is a critical point in any sale. This is an important period of time where you can examine and inspect a potential real estate property in order to determine if the property is suitable to continue with the sale. Typically, due diligence occurs before you purchase the property and can take anywhere from 30 to 60 days, though you can negotiate for more time if needed.

It’s important to conduct due diligence in order to minimize risky surprises and allow for a more stable – and ultimately, successful – transaction. Let’s dive into some key steps you should take when conducting due diligence in your next commercial real estate transaction, and how Covercy can help you manage it all.

Evaluate the Property

When you’re at the crucial stage of deciding upon an investment property, you need to consider the physical aspects of the property, like its size, condition, and location. Are there any obvious structural or foundation issues that can pose an immediate threat to your investment? It’s worthwhile to take a professional along with you as you inspect the physical condition of the property.

Location is also particularly important. Is this property in a trendy, up-and-coming neighborhood? Is it in a spot that is surrounded by other established venues? It’s important to conduct this research ahead of time to ensure you’re not entering into a risky arrangement.

Review Important Documents

Before signing any contracts, you also need to review some financial records that belong to the current property owner, like lease payment history and loan documents. You need to review past transactions on the property so that there are no surprises when it comes time to sign on the dotted line. It’s also important to look over other property documents, like the title, any site plans, or other zoning documents.

It would be helpful to be able to compile all this useful documentation into one place, and that is where Covercy can step in. Beyond banking and investment management, Covercy also allows flexible and confidential document sharing so that you and your investors are all on the same page. This can help with making your transaction smoother and more efficient when you’re ready to move forward with your commercial real estate purchase.

Get Your Financing Options in Order

Before continuing with a commercial real estate deal, you need to make sure your financing is in order. A lot of this preparation should be done before you sign your final contracts, which is why this step should definitely be on your due diligence checklist. Ensure that you’re working with the right lender, as well as investors. You’ll want to make sure that you and your investors have the same goals for the property in order to maintain alignment throughout the process.

To help organize your financial information, you should utilize the most effective technology. Find an investment database management portal that can help you stay organized and streamline operations. Ideally, you should be able to review transaction history, conduct reporting, offer distribution payments, and effectively manage investor relationships all in one easy-to-use platform. Luckily, Covercy has an intuitive platform you can explore, with all of the attributes you need, and more. Our commercial real estate embedded banking services will help you distribute payments efficiently, fundraise with capital calls, and earn up to 3.84% APY on your deposits.

Covercy Will Help You Manage Your Commercial Real Estate Deals

Conducting due diligence is so vital for your commercial real estate transaction because you want to do everything in your power to eliminate risks. This mindset should continue even after the contract is signed and the deal is complete.

Covercy streamlines your commercial real estate operations, and helps you continue to mitigate risk through a supportive and intuitive investor management platform with the features you need. With an investor portal that allows shared documentation, efficient reporting, and improved communication, you can strengthen the relationship between you and your investors and pave the road for further success. We can also easily help you with complex automated distribution payments and capital call payment processing.

Due diligence is important to conduct before your transaction is complete, but it is equally as crucial to organize operations afterwards. To see how you can leverage Covercy to better manage your commercial real estate deals, book a demo with us today.