Once commercial property is under contract, effective due diligence represents one of the most critical phases of the transaction, requiring systematic investigation of legal, financial, environmental, and operational factors that could affect property value, usability, and long-term investment returns. For decades, The Strong Firm has guided Texas businesses through commercial property due diligence, developing comprehensive approaches that maximize resources and approaches and assures a buyer identifies material opportunities and risks in order to assess the final purchase decision before transaction commitments become binding or earnest money “goes hard”.
Effective due diligence on a commercial property extends far beyond the basic property inspections to include legal compliance verification, financial analysis, market evaluation, tenant and lease quality evaluation and strategic assessment of how specific properties align with business objectives of the owners and investors. The most successful commercial property transactions are those supported by thorough due diligence that addresses all material factors affecting property value and business/investor suitability.
Title examination reveals ownership clarity and identifies potential legal obstacles.
Comprehensive title examination goes beyond reviewing title ownership history, to in depth analysis of liens and encumbrances, entitlements to access, roads, utilities and municipal services (like detention, fire, water and sewer), as well as verification of authority and competing property ownership and use rights. These detailed title related issues can stand in the way of development, construction, operation and ownership and create ongoing legal and operational obligations that affect property use and value.
The Strong Firm’s review process examines all of these matters along with ownership chains, easement rights, covenant restrictions, entitlements and legal proceedings that could affect property rights or transferability. Early identification of title issues allows resolution before transaction deadlines create pressure for unfavorable compromises.
Survey analysis confirms property boundaries and identifies encroachment issues.
An up to date and accurate detailed property survey should provide essential information about exact property boundaries, easement locations, encroachments and historical covenants and restrictions which will value, and potential property use and, in some instances, create legal liability. Survey information has to be closely coordinated with title examination to in tandem ensure comprehensive understanding of property rights, uses and limitations.
Well executed land surveys can identify boundary disputes, easement conflicts, and improvement encroachments and other on the ground issues that might not be apparent from a simple visual property inspection. The Strong Firm works with qualified surveyors to ensure survey information addresses transaction-specific concerns and legal requirements during execution.
Environmental and Geotechnical Assessments evaluate risks and regulatory compliance obligations.
Environmental due diligence includes Phase I Environmental Site Assessments that attempt to identify potential contamination sources and evaluate compliance with environmental regulations. Properties with contamination risks may require extensive remediation and/or use restrictions that affects transaction and use economics and ongoing operational obligations.
Environmental as well as geotechnical (if soil conditions are critical to civil engineering) assessments should consider both current property conditions and historical and anticipated uses that could create legal or regulatory issues. A qualified environmental consultant with expertise in the area of use will ensure environmental due diligence addresses both immediate transaction concerns and long-term operational considerations and The Strong Firm works with them to properly manage the risks (and rewards) associated therewith.
Zoning and land use verification confirms permitted activities and expansion opportunities.
Municipal zoning and in certain master-planned developments, private deed and use restrictions will determine activities and types of development permitted on commercial properties, and may affect operations, expansion or modification plans. Land use due diligence can be multi-layered and complicated in verifying zoning classifications, permitted uses, and identifying any special requirements that could affect business operations.
Land use planning should consider both current business needs and potential future expansion and redevelopment uses (including tenant used) that could require future modifications or special permits and/or permissions. The Strong Firm helps clients understand use and zoning implications and evaluate whether properties support both immediate and long-term business objectives.
Financial analysis evaluates property economics and investment returns.
Commercial property financial due diligence includes detailed analysis of operating expenses (including tax and insurance implications), revenue potential (from use or rental), market comparisons to other nearby properties, and investment return projections in the short and long-term. Financial analysis should consider both current property performance and market trends that could affect future property values and returns.
Such financial analysis should include evaluation of tax obligations and potential changes in taxes based on modified use, insurance costs based upon the likely occupants, maintenance requirements based on age and type of property, and capital improvement needs to make the property desirable, all which affect total ownership costs. The Strong Firm has historical knowledge and prospective and works with other professionals to ensure comprehensive analysis of property investment implications.
Lease review identifies tenant relationships and ongoing obligations.
Properties with existing or prospective tenants require comprehensive lease term and structure review to understand tenant relationships, rental income stability, and landlord obligations for the future based upon the transfer of ownership. Lease analysis should evaluate tenant credit quality, lease terms, tenant problems and any tenant improvements or concessions that affect property value into the future.
Lease due diligence should also identify any lease provisions or tenant requirements that could limit property use, require capital expenditures, or create ongoing management obligations. The Strong Firm’s lease review process evaluates both financial and operational implications of existing tenant relationships based on a thorough understanding of landlord tenant relationships from both a contractual and management perspective.
Building code and regulatory compliance verification prevents costly surprises.
Due to the public nature of access to the properties, commercial properties must comply with building codes, accessibility requirements, and safety regulations that often require expensive modifications based on ever changing regulations or existing violations. Code and regulatory compliance due diligence is meant to identify any existing violations and updated regulations and evaluate the cost of achieving full compliance.
Building mechanical system evaluations are invaluable in assessing the condition and remaining useful life of major building components including HVAC, electrical, plumbing, elevators, fire suppression systems, and structural systems. The Strong Firm coordinates with qualified inspectors and contractors to ensure building evaluations address both immediate and long-term maintenance considerations.
Regulatory compliance analysis should consider both current requirements and anticipated regulatory changes that could affect property operations and costs. The Strong Firm helps clients understand regulatory obligations and plan for compliance costs in their transaction analysis.
Market analysis provides context for investment decisions and future planning.
Commercial property market analysis includes evaluation of comparable property sales, applicable rental rates, occupancy trends (both for the subject property and in the comparable area), and economic factors that could affect property values and investment returns both short-term and long-term. Market context helps evaluate whether transaction terms reflect current market conditions and support business objectives.
Market analysis should consider both current conditions and projected trends that could affect property performance over anticipated ownership periods. The Strong Firm helps clients understand market dynamics and evaluate how properties position businesses for future success.
The Texas commercial real estate market provides numerous opportunities for businesses seeking strategic commercial property investments, but success requires comprehensive review and due diligence with seasoned professionals that address all factors affecting property value and business suitability. The Strong Firm’s due diligence experience and expertise helps clients make informed decisions while avoiding the costly surprises that can derail commercial property investments.
This information is provided for general awareness only and should not be considered legal advice. Commercial property due diligence involves complex legal, financial, and technical considerations that vary significantly by property type and transaction structure. Always consult with qualified real estate counsel for guidance specific to your property transaction needs.
Ready to ensure your commercial property investment is properly evaluated? Contact The Strong Firm today to develop a comprehensive due diligence strategy that protects your interests and supports your business objectives.