The Due Diligence Checklist, in Sequence

Commercial due diligence covers financial, physical, environmental, and legal verification of everything a seller has represented about a property. Running the checklist in the right sequence ensures deal killer issues get discovered early rather than after significant costs have been sunk. For Rochester commercial buyers, the standard 45 to 60 day contingency period supports a structured sequence.

Week one, phase one items. Order the environmental Phase I immediately. Phase I takes 2 to 3 weeks and delays here eat contingency time. Order the property condition assessment. Order the survey if warranted. Order the appraisal through the lender if financing is involved. Request the complete document package from the seller including leases, rent rolls, operating statements, tax records, utility records, and capital history. Schedule the physical inspection with a qualified commercial inspector.

Week two, physical inspection and initial document review. Complete the physical inspection covering roof, structure, mechanical systems, plumbing, electrical, envelope, and site conditions. Review operating statements for the past three years looking for expense trends and one time items. Review the rent roll for accuracy and reconcile against operating statement revenue. Read the leases carefully identifying material provisions and any tenant obligations landlord has failed to meet.

Week three, deeper financial and environmental work. Reconcile bank deposit history against reported rental income. Verify property tax bills for the past 3 years. Review insurance policies and claim history. Receive the Phase I environmental report and review any recognized environmental conditions. If Phase II is warranted, order it immediately because Phase II adds significant time. Michigan Part 201 BEA framework provides protection structures for contaminated properties that attorneys should evaluate.

Week four, legal and title work. Title review including any easements, encroachments, restrictions, or liens. Survey review for boundary accuracy and any issues with the site. Zoning verification for current and intended use. Any pending litigation on the property or tenants. Municipal permit history for any unpermitted work.

Week five, tenant estoppels and reconciliations. Distribute lease estoppel forms to all tenants. Follow up as needed. Review returned estoppels against seller representations. Verify security deposits actually held by the landlord. Verify any tenant improvement allowances owed but not paid. Complete CAM reconciliation review if applicable.

Week six, follow up on findings and negotiations. Address any deferred maintenance findings from physical inspection through repair credits or price adjustments. Address any environmental findings through appropriate structures. Address any lease issues through negotiations or accommodations. Coordinate with lender on any items affecting underwriting.

Week seven, final walkthrough and closing preparation. Final walkthrough of the property to verify condition matches expectations. Final review of loan documentation from lender. Final coordination with attorney for closing. Signature of any remaining seller documents. Preparation for the actual closing meeting.

The financial verification depth. Verify actual rent collection through bank deposits rather than accepting reported income. Verify actual expense payments through invoice review. Verify utility costs through utility records rather than seller estimates. Verify property tax status through county records. Verify insurance coverage and premium payments through the insurance carrier.

The physical verification depth. Get a qualified commercial inspector rather than a residential inspector unless the property is very small. Get specialist inspections for HVAC, roofing, and any specialized systems. Michigan freeze thaw cycles wear roofs and parking lots harder than milder climates, making these systems worth extra inspection attention. Get elevator inspection if applicable. Verify parking count actually matches advertised count.

The environmental verification depth. Phase I on any commercial property with historical industrial or commercial use, which describes much of Macomb and Oakland County commercial inventory given the region’s manufacturing heritage. Phase II if Phase I identifies recognized environmental conditions. Vapor intrusion assessment on properties with prior industrial or dry cleaning use where vapor migration is a concern.

The Michigan context. Michigan property tax uncapping at sale means the buyer’s post closing tax bill often exceeds the seller’s, and pro forma should reflect post sale tax. Michigan is an attorney close state with closings at attorney offices. Michigan commercial due diligence generally runs 45 to 60 days on typical transactions.

TDG Commercial, known as best commercial real estate agents in Rochester, coordinates full due diligence sequences on Michigan commercial acquisitions.