Commercial Real Estate Requires More Than Finding a Suitable Building

Commercial real estate transactions involve a sequence of legal, financial, operational, and regulatory considerations that are not always apparent at the outset. Many clients understand some of the individual steps, but not necessarily how those steps affect one another—or the financial consequences of proceeding without a complete understanding of the property and its intended use.

Before a client signs a lease, submits a letter of intent, or commits personal assets to a transaction, the relevant questions should be addressed. These may include:

• What regulations apply in the applicable county or municipality?
• Is the intended use permitted under the current zoning classification?
• If a zoning change is required, what is the process, cost, and likelihood of approval?
• Are the necessary permits, licenses, parking, signage, and occupancy approvals available?
• Does the property support the client’s operational requirements?
• What financial obligations may arise beyond rent or the purchase price?
• Are there conditions that could affect the building owner, the tenant, the lender, or the client’s personal assets?

Commercial property can become unnecessarily complicated when these issues are identified only after a lease has been signed or financing has been arranged. In some cases, business owners pledge their homes or other personal assets as collateral without fully understanding the risks associated with the transaction. Proper representation requires identifying those risks early and explaining them clearly.

At MacGeorge Realty, we evaluate the transaction as a complete process rather than focusing solely on the property itself. Before recommending that a client proceed with a letter of intent, we work to understand the relevant variables, including the property’s legal use, physical condition, financial performance, local requirements, and suitability for the client’s business plan. The objective is to reduce avoidable surprises and provide the client with a clearer basis for making an informed decision.

A successful transaction is not measured only by the commission earned at closing. It is measured by whether the business is properly positioned to operate, grow, and meet its obligations after the transaction is complete. Helping a company enter the right building under appropriate terms—and receiving future referrals from that client and their professional network—is the result we value most.

The following is a general guide to the principal matters that should be considered when evaluating a commercial property. Requirements vary by county, municipality, building, property type, and intended use. This guide is not a substitute for advice from qualified legal, financial, environmental, engineering, zoning, or other professional advisers. Its purpose is to clarify the principal stages of review and reduce common misunderstandings.

Conduct Commercial Due Diligence in an Orderly Sequence

Once a suitable asset is identified, diligence should proceed through a documented process. The representative should coordinate the relevant advisers and maintain a clear schedule of deliverables.

1. Preliminary screening

Review:

• Location and access
• Zoning and permitted use
• Price and comparable sales
• Tenant profile
• Current income and expenses
• Physical condition
• Market liquidity
• Financing feasibility
• Potential legal restrictions

2. Letter of intent

The letter of intent should address the principal commercial terms, including:

• Purchase price
• Deposit
• Diligence period
• Closing date
• Financing conditions
• Included and excluded assets
• Allocation of closing costs
• Access for inspections
• Confidentiality
• Exclusivity, if applicable

Although often non-binding, the letter of intent can determine the structure of the definitive purchase agreement. It should therefore be prepared with appropriate legal input.

3. Legal and title review

Counsel should examine:

• Title and recorded interests
• Surveys
• Easements
• Restrictive covenants
• Existing leases
• Service contracts
• Litigation
• Permits
• Corporate authority
• Seller representations
• Purchase and sale agreement provisions

The buyer should understand exactly what is being acquired and what liabilities may continue after closing.

4. Financial and tenant analysis

For an income-producing asset, the review should include:

• Rent roll
• Lease abstracts
• Tenant payment history
• Lease expirations
• Renewal options
• Rent escalations
• Tenant improvement obligations
• Operating expense recoveries
• Security deposits
• Delinquencies
• Co-tenancy or exclusivity provisions
• Tenant financial strength

Reported net operating income should be reconciled to source documents and bank records where appropriate. Particular attention should be given to unusual income, deferred maintenance, underfunded reserves, and expenses that may not be reflected in historical statements.

5. Physical and environmental inspections

The scope will depend on the asset, but may include:

• Structural systems
• Roof and exterior envelope
• Mechanical, electrical, and plumbing systems
• Fire and life-safety systems
• Accessibility compliance
• Parking and paving
• Building systems and controls
• Hazardous materials
• Flood exposure
• Soil and groundwater conditions
• Deferred capital expenditures

Environmental issues can create substantial financial and legal exposure. An environmental assessment should be performed by qualified professionals, with additional investigation where the initial review identifies potential contamination.

6. Zoning and operational review

The buyer should verify that the existing use is lawful and that the intended future use is achievable. This may involve:

• Zoning classification
• Special-use approvals
• Building permits
• Certificates of occupancy
• Signage rights
• Parking requirements
• Expansion potential
• Historic restrictions
• Local development plans
• Licensing requirements

A property’s physical suitability does not establish its legal suitability for the investor’s intended use.

Why would you give out the recipe?

Throughout my years in the culinary industry, I have often been told, “I cannot believe you are willing to share the recipe.”

The reality is that a recipe alone does not produce a distinguished result. It provides a framework, but the outcome depends on the quality of the ingredients, the precision of the preparation, the timing, the technique, and the judgment applied throughout the process.

Two individuals can follow the same instructions and produce entirely different results. The distinction lies in execution: understanding the details, anticipating challenges, maintaining consistency, and knowing how to make informed adjustments when circumstances change.The value is not in withholding the recipe. The value is in possessing the experience and discipline required to execute it properly.