Today, I want to guide you through the lessons I picked up in small CRE deals, not just how to market properties but how the right tactics can make even modest listings stand out and sell.
Today, I want to guide you through the lessons I picked up in small CRE deals, not just how to market properties but how the right tactics can make even modest listings stand out and sell.
Today I want to show you not just that depreciation is a deduction but how it can significantly shape the financial results of your CRE investments.
(From a CRE Professional Who’s Learned the Hard Way)
If there’s one lesson the Commercial Real Estate (CRE) business has taught me over and over, it’s this: due diligence can make or break your success.
When I first started out, I thought due diligence was just a checklist. Look at the title, check the zoning, order an inspection and boom, you’re good to go, right?
Wrong.
Over the years (and yes, a few hard lessons), I’ve learned that true due diligence is an art and a discipline. It’s about uncovering the story behind the property and making sure that story aligns with your investment goals or your client’s objectives.
Recent disputes in commercial real estate have been widely reported and exercising due diligence could have saved a lot of resources from all parties involved. One recent example: last March, Wells Fargo, acting as trustee for investors, filed a lawsuit in the Southern District of New York against JPMorgan Chase over a $481 million commercial real estate loan used to finance the Chetrit Group’s 2019 acquisition of 43 multifamily properties across ten U.S. states. Wells Fargo alleged that JPMorgan and Chetrit knowingly misrepresented the net operating income of the properties by inflating it by 25% at closing, which led to significant investor losses after the loan defaulted in 2022, and is seeking either a repurchase of the loan or damages for breach of contract. This example is a huge picture that can be dissected to reflect a close-up view of investment issues around us. Today, I want to walk you through how I guide my team to perform bulletproof due diligence the same process I use myself every time.
One of the biggest rookie mistakes is thinking that due diligence starts after you sign a purchase agreement.
The truth? Pre-contract due diligence is your first line of defense.
Here’s what I check before even drafting an offer:
What’s happening with rents, vacancy rates, and comparable sales? According to CBRE’s 2024 U.S. Real Estate Market Outlook, industrial rents are projected to grow by 5.6% this year, but office vacancies are rising to record levels in many cities.
Is the area prone to flooding, environmental contamination, or new regulations?
Sometimes a simple online search reveals liens or ownership issues.
Pro Tip: A quick conversation with the city’s zoning and planning department and a review of the property through the use of online tools can save you weeks of headaches down the road.
This is where we separate the professionals from the amateurs.
I personally go through every single line of the rent roll and operating statements because sellers don’t always tell you the whole story and sometimes, they don’t even realize the full story themselves.
Key areas I focus on:
Statistics: According to NAIOP research, unplanned CapEx can reduce investor returns by up to 17% if not properly budgeted during acquisition.
Pro Tip: Always ask for utility bills, service contracts, and property tax bills from the last 2-3 years to get a real financial picture. And always ask the ownership is there anything else.
A property might look great in a polished brochure, but you need boots on the ground.
When I advise younger brokers and investors, I tell them:
Inspect the roof. It’s often the most expensive component to replace.
Check drainage and grading. Water issues can cause structural damage.
Review mechanical systems. HVAC, plumbing, electrical get specialists to assess them.
Pro Tip: Walk the property at different times of day. What feels safe at noon might feel sketchy at 8 PM.
Never and I mean never cut corners on title review.
At minimum, I insist on:
Pro Tip: If there’s even a hint of environmental issues (former gas stations, dry cleaners, industrial use), require a Phase I Environmental Site Assessment.
Fact: The EPA estimates that environmental cleanup costs can exceed $250,000 for even moderate contamination sites. Without due diligence, that cost may become your liability
If you’re buying a leased property, the real asset isn’t just the building, it’s the leases.
Here’s what I verify:
Data Point: In a study by JLL, properties anchored by investment-grade tenants have cap rates 75–100 basis points lower than non-credit-anchored properties.
Translation: Good tenants = higher value.
Never assume the current use is compliant just because it exists.
I personally double-check:
Example: A client of mine almost bought a warehouse building next to their residence only to find out that the warehouse was in an area zoned for residential use meaning the current use was a “pre-existing nonconforming” use.
That would’ve killed their long-term strategy. Due diligence saved them and their investment.
If the property comes with maintenance contracts, property management agreements, or vendor relationships, you need to understand:
You’d be shocked how often small, automatic-renewal contracts turn into costly obligations after closing.
CRE deals are all about managing risk.
Before closing, I make sure:
According to Zurich Insurance, underinsured properties account for 75% of commercial property losses post-disaster. You don’t want to be in that group.
Final Thoughts
Due diligence isn’t just a box to check it’s your ultimate protection.
It’s where deals are made, saved, or lost.
Every hour you invest before closing is worth 10 hours of headaches (and thousands of dollars) avoided later.
So slow down. Ask hard questions. Hire the right experts.
Your future self and your bank account will thank you.
Because remember: In CRE, you don’t get paid for buying properties. You get paid for buying smart properties.
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