Commercial Real Estate Transaction Checklist

Closing the Deal: Commercial Real Estate Transaction Checklist

Dec 05, 2023

Executing commercial real estate transactions as an active investor is challenging due to the numerous elements that require alignment and management. In fact, according to a recent survey by Deloitte, 58% of investors consider the transaction process the most challenging aspect of commercial real estate investing. 

Many investors use checklists to maintain order and prevent essential items from being overlooked. While investors often develop their own processes and checklists, starting with or referencing a foundational commercial property transaction checklist can be beneficial.

Here is a commercial property transaction checklist, including a due diligence checklist, that you can customize to enhance your property acquisition process.

Steps To Complete a Commercial Real Estate Transaction

  • Identify Assets of Interest

Begin your commercial real estate transaction process journey by identifying properties that align with your investment goals. Based on filters such as property type, location, size, price point, and value-add opportunities, streamline your search and identify potential properties for your next purchase.

  • Screen Assets of Interest

With a shortlist of properties that meet your preliminary criteria, delve deeper into each property. Perform preliminary calculations on potential cash flow and review non-financial aspects such as property history and zoning. This helps refine your list of potential properties to a select few that are then sent to the next step for detailed evaluation.

  • Complete the Underwriting and Valuation for Assets of Interest

At this stage, conduct a thorough financial analysis of the property. This involves estimating key financial metrics such as rental revenue, operating expenses, net operating income, and after-repair value (ARV). If the property checks out financially and aligns with your strategic goals, proceed to the next step.

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  • Arrange Your Financing

In most commercial real estate transactions, the purchase is funded by a combination of loans and equity. Identify your sources of funds and structure the financing in a way that suits you best. When you are confident of securing all the necessary funds, make an offer.

  • Submit an Offer

Submit an offer to purchase the property. This begins with a Letter of Intent (LOI) outlining your offer’s key details. Based on the agreed terms in the LOI, a formal sale agreement is drafted, and once signed, the property is under contract. The earnest money deposit is made at this stage, and the property enters escrow.

  • Conduct Due Diligence

Once the property is under contract, begin the due diligence process. This involves a thorough inspection of the property and reviewing all documents and financials. If issues are identified, consider bringing in experts for further evaluations and reports. The findings from this step will determine whether you are ready to proceed.

  • Secure Insurance

At this stage, discuss the policies you need for your property with your insurance broker and wrap up the necessary paperwork.

  • Arrange an Appraisal

Schedule an independent appraisal to assess the property’s current value. This ensures you are not overpaying for the property and protects the lender from over-lending on the deal.

  • Negotiate and Resolve Any Issues

Any issues discovered during the due diligence process should be brought up with the seller and negotiated. Once consensus is reached, you can make final revisions to the contract.

  • Close on the Property

With all steps completed, you are now ready to close the deal. This involves signing necessary documents and transferring funds as outlined in the closing statement. The exact closing process may vary.

To gain a comprehensive understanding of each step, partner with NexGen, a full-service commercial title agency. Visit nexgentitle.com for more information, or contact us.

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