Planning to buy or refinance a commercial or industrial real estate? Mall? Office Building? Restaurant / banquet property? Parking Lot? Shop? Gas station? Production facility? Store? Logistics Terminal? Build your doctor? Nursing home? Hotel / Motel Pharmacy? Banking system? Sports and Entertainment Arena? Other?
A KEY to invest in commercial real estate, is it a reasonable investigation to ensure due diligence, to knowall relevant facts to make a wise investment and the expected return on investment to calculate.
The following checklists will help you lead a focused and significant due diligence.
Basic concepts of due diligence:
Commercial real estate transactions are not comparable with the purchase of a large house.
Caveat Emptor: Let the Buyer Beware.
Consumer protection laws that are rarely used for the purchase of the house is not for building,Real estate transactions. The rule that a purchaser to examine, evaluate, and try it for yourself, is that for the acquisition of commercial real estate.
Due Diligence: expect "Such a measure of prudence, activity or industry, as it belongs to, from, and usually by a reasonable and prudent [people] in the special circumstances of an absolute point measured exercised, but as a function of the facts of each case. "Black Law Dictionary, WestPublishing Company.
Contractual representations and warranties are no substitute for due diligence.
Breach of the representations and warranties = Litigation, time and money.
No matter, what could "?
'S, intensity, scope and focus of the investigation or due diligence of commercial real estate industry for the aims of the party for whom the investigation is conducted. These goals may vary depending on whether the surveyperformed for the benefit of (i) a strategic buyer (or long-term tenants), (ii) a financial buyer, (iii) a developer, or (iv) a lender.
If you're a seller, understanding that the buyer has to complete the transaction (and its lenders) the problems of all the material to be target face ? which has some information only you can make adequate as the owner.
General objectives:
(I) a "strategic buyer" (or long-term lessee) acquires the property for their own use and should ensurethat the property is suitable for their intended purpose.
(Ii) a "financial buyer" the property for the expected return on investment purchases generated by the flow of property income is, and the quantity, speed and duration to determine the revenue. A sophisticated buyer will probably financial performance calculated on discounted cash flows, rather than the capitalization rate is less precise ("cap rate") is based, and need for adequate financial information towell.
(Iii) the "developers" are trying to add value, change the character or use of property ? usually with a short-medium term exit strategy to dispose of the property, even if a developer could plan to keep the property as a long-term financial buyer after the development or redevelopment. The developer must focus on whether the forecast can change in character or use is done in a cost effective manner. A developer carrying out due diligence will focus on topicswith the market demand, access, use and finances.
(Iv) A "provider" is trying to create two basic lending criteria:
1st "The ability to redemption" ? the ability to generate revenues of the property sufficient to repay the loan on time, and
2nd "Adequate security" ? The value of the available objective guarantee in case of default, to ensure sufficient funds to repay the loan, implementation and costs of collection in the collection is forced by eventsnecessary.
To spend the amount of careful investigation (such as "due diligence") in order to investigate a particular project, commercial or industrial properties, the level of investigation required to each of the following issues as relevant to the objectives of the party implementation of the "survey response:
I. PROPERTY ":
1st Exactly what feels no properties "buyer, he buys?
(A) land?
(B) Building?
(C)Calendar?
(D) Further improvements?
(E) other rights?
(F) The full title of the interest rates with all the rights of air and underground rights?
(G) All rights development?
2nd What is the Buyer's use of the property?
3rd The physical properties of the permitted use as intended?
(A) appropriate market access roads and public paths?
(B) adequate parking?
(C) structural condition improved?
(D) environmentContamination?
(I) vs. Innocent Purchaser Defense Disclaimer
(Ii) All appropriate inquiry
4th Is there a legal restriction on property buyers than expected?
(A) zoning?
(B) Private land use controls?
(C) Americans with Disabilities Act?
(D) the availability of licenses?
(I) the liquor license?
(Ii) the entertainment license?
(III)-License dine al fresco?
(Iv) permitted by the window?
(E) OtherObstacles?
5th As a buyer would expect them to pay for the property?
6th Is there any condition or on the property, which is likely to acquire the actual cost of the buyer or use to enhance the properties?
(A) the facility owner feedback?
(B) the property taxes in accordance with the value?
(C) the special assessment?
(D) Required fees for the services needed?
(I) exhaust?
(Ii) access?
Parking (Iii)?
(Iv) other?
7th AllAbuse on the property, or possession of other countries?
8th There are limits on the properties that are not settled at the conclusion?
(A) easements?
(B) Making alliances with the world?
(C) Liens or other financial bondage?
(D) locations?
9th Leases?
(A) deposits?
(B) options to extend the mandate?
(C) Options to purchase?
(D) the right of first refusal?
(E) Rights Offering?
(F) MaintenanceObligations?
(G) A requirement for utilities to offer the landlord?
(H) property tax escrow, or CAM?
(I) delinquent rent?
(J) Pre-paid rent?
(K) Tenant / controls?
(L) Tenant exclusively?
(M) the parking requirements of the tenants?
(N) make auto lease mortgage the future?
(O) Other material term of lease?
10th The construction of the new?
(A) the availability of building permits?
(B)Utilities?
(C) NPDES (National System of exhaust pollutants elimination) Permit?
(I) the second phase with effect from March 2003 ? approval required if the property on one or more acres of land destroyed.
(Ii) where appropriate, the rainwater Prevention Plan (SWPPP) is required.
II Seller:
1st Who is the seller?
(A) person?
(B) trust?
(C) Partnership?
(D) Corporation?
(E) a limited liability company?
(F) such other companies legally exist?
2ndIf non-natural person is not effectively present seller and the seller in good standing?
3rd Property of the seller?
4th The seller has not have the power to convey a property?
(A) Board of Director Approvals?
(B) the approval of the shareholders or partners?
(C) Others disagree?
(D) If the foreign natural or legal person shall, special requirements?
To do (I) qualification for the business in the jurisdiction of the property?
(Ii) withholding tax?
(III)U.S. Patriot Act compliance?
5th Who has the power to bind to the seller?
6th The proceeds from the sale are sufficient to pay all the privileges?
III. BUYER:
1st Who is the buyer?
2nd What is the buyer / receiver 's Legal exact name?
3rd If the purchaser / recipient is an individual who was legally created and is in good standing?
(A) or incorporation Articles ? Articles of Organization
(B) Certificate of Good Standing
4th And "buyer / dealer to possess andDo not operate the property and possibly to finance the acquisition of the property?
(A) Board of Director Approvals?
(B) the approval of the shareholders or partners?
(C) If a foreign citizen or legal person, the special requirements?
To do (I) qualification for the business in the jurisdiction of the property?
(Ii) U.S. Patriot Act compliance?
(Iii) Bank secrecy Act / Anti-Money Laundering Compliance?
5th Who is authorized to bind the purchaser / recipient?
BUYER IVFUNDING:
CONDITIONS: A. Loans:
What are the terms of the loan, the buyer has agreed to be the borrower and his lender?
(A) What is the loan amount?
(B) What is the interest rate?
(C) What are the terms?
(Q) What is the warranty?
(I) commercial property alone?
(Ii) movable and immovable property together?
(E) First Lien? A junior lien?
(F) E 'a single advance loan?
(G)more advance loan?
(H) a construction loan?
(I) If there is a multiple advance loan, the client can be re-borrowed once repaid prior to maturity, making it, in fact, a revolving line of credit?
(J) There is reserve?
(I) Interest reserves?
(Ii) the reserves of the repair?
(Iii) property tax reserves?
(Iv) Provisions for?
(V) Environmental remediation reserves?
(Vi) Other reserves?
(K)There are requirements for the borrower, account management business to open with the lender? In this case, the borrower is required a minimum balance of compensation to be received?
(L), the borrower must undertake additional corporate accounts?
(M) There are no fees or early repayment of maintenance made (in each case as a "prepayment penalties" called)?
(N), there are blackout periods during which repayment of the borrower may not repay the loan?
(O)It is a commitment fee loans, or "good faith deposit" at the acceptance of the debtor's loan commitment?
(D) There is a fee for the granting of loans or loan brokerage fees or other loan or a loan broker lender due to the closure?
(Q) What are the obligations of the borrower for reimbursement of expenses Lender? If they are due? What is the obligation of the borrower pay the lender when the loan closes?
B. COMMERCIAL real estate loan DOCUMENTATION
Buyerhave all the information necessary to satisfy the requirements of the lender to satisfy the loan closing?
Not all loan documentation requirements can be met at the beginning of a transaction, even though most of the commercial real estate loan documentation requirements are fairly typical. Some information can be obtained only by the seller. The production of such information to the buyer for delivery to the lender should be required in the purchase agreement.
As an indication of what a commercialThe following real estate lender can find a checklist of typical conclusion of a loan secured by real estate.
Commercial Real Estate Loan Closing Checklist
1st Promissory notes
2nd Personal guarantee (which can be fully, partially secured, unsecured, guarantee, warranty or collect a variety of other types of guarantees may be required by the lender).
3rd Loan (often involved inPromissory note and / or mortgage instead of a separate document)
4th Mortgage [sometimes extended to a mortgage, security transfer and storage attachment]
5th Assignment of rents and leases
6th Security Agreement
7th Financial statement (sometimes called "UCC-1," or, "Initial Filing")
8th The proof of the borrower in good standing, including
(A) copy of the organizational documents of financial companies (including ArticleIncorporation, if the borrower is a company, the articles of organization and functioning written when the borrower is a limited liability company, a certified copy of the contract of trust with all changes if the borrower is a land trust or confidence others, etc.)
(B) Certificate of Good Standing (if a corporation or LLC) or Certificate of Existence (if limited partnership) or a Certificate of Qualification for commercial transactions (if borrower is an institution in another Member State than theTraining)
9th Proof of Authority borrowers, including
(A) Certificate of the debtor;
(B) certified resolutions
(C) Certificate in Office
10th Commitment to the satisfaction of the title insurance (usually required for the analysis by the service, copies of all documents for registration, on the B list of promises that the title should remain after the closure to appear), the required Title with endorsements commercial insurance and often:
(A)Yes Creditors Rights Endorsement (the extension of coverage beyond the seven political exclusion and political exclusions 3 (a) and 3 (d), as they relate to issues of rights of creditors)
(B) Endorsement ALTA 3.1 Zoning be changed to include parking
(C) HIGH 1 Full Endorsement
(D) Location Endorsement (address)
(E) Confirmation of access (driving on public roads and paths)
(F) Approval of contiguity (assuming that the land consists of a single package with no gaps orGores)
(G) Endorsement (PIN ensure that the identified property tax permanent index numbers, PIN numbers are for interest only and that the guarantee applies only to property that is also a guarantee)
(H) Endorsement carry (to ensure that the loan is not against the prohibitions against excessive interest charges)
To protect (I) such other approvals for the intended use of title insurance and the value of the collateral,how to check the commitment for title insurance, survey, or from the existence of special problems in connection with the transaction or the borrower can be determined.
11th Current ALTA survey (3 sets) [usually in line with 2005 on minimum standards for the testing details Terra Alta / ACSM Title, certified lender to the buyer, and title insurers, including the elements from 1 to 4, made 6, 7 (a), 7 (b) (1), 8 to 11 (a) and 14 from the Surveyor of "Optional Survey tasksand Specifications "called" Table A "].
12th Current Rent Roll
13th Certified copy of all leases (3 sets)
14th Tenant estoppel certificate
15th Tenant subordination, non-interference and the agreements Attornment [sometimes referred to as simply "SNDAs" refers].
16th UCC, Judgement, pending litigation, bankruptcy and tax lien search report
17th Rating (must be in compliance with Title XI of FIRREA (Financial Institutions Reform Act, exploitation and enforcement of 1989, when his) Modified
18th Environmental Site Assessment Report (sometimes referred to as Phase I environmental and / or Phase 2 Audit Reports)
19th Environmental Indemnity Agreement (signed by the borrower and guarantor)
20th Page Improvements Inspection Report
21st Evidence of insurance as a lender of danger mortgage bank / provider and the recipient Loss Lender liability insurance naming "additional insured" as (sometimes referred to simply as "Acord Acord 27 and 25 above respectively)
22nd LegalOpinion of the Attorney borrowers
23rd Underwriting loan documents such as signed tax returns, declarations, operational characteristics, etc., as determined by Lender
24th Compliance Agreement (sometimes called errors and omissions), in which the borrower agrees to correct, after closing, errors or omissions in the documentation loans.
It's good to familiarize yourself with the requirements of lending as lenders in the documentation already familiar practice. TheRequirements is likely to be exposed in some detail in the loan commitment by the lender ? usually much more detailed commitments in residential transactions made available.
Due diligence makes the investigation in a commercial real estate transaction can be time consuming and expensive in any case.
If the loan requirements can not be met, it is better to make the provision of this agreement during the "due diligence" ? that usually sees a so-called "free out" ? rather than at a later date if the payment can reduce the risk of loss or other liability for failure to be close, if they can fix.
CONCLUSION
The implementation of an effective due diligence in a commercial real estate transaction to find out all the facts and conditions that the property and the transaction is of critical importance.
Unlike owner-occupied residential property> Summer, when a house is almost always used as a registered buyer, the property for business use or for investments purchased affected by numerous factors that may affect the use and value.
The existence of these factors and their influence on the ability of the buyer, the property for its intended use and planned use return on investment can not find buyers through careful study and attention to detail.
TheCircumstances of each transaction to determine what level of care is required. The level of care required by the circumstances, the care that he is guilty.
Exercise due diligence.
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