Hello and welcome to Civignite University! Civignite is the online home of commercial real estate expertise. My name is Roger Owers. ‘m a commercial real estate broker and the co-founder of Civignite commercial real estate. My path to commercial real estate brokerage began with about 5 years as a civil engineer and construction manager, followed by a 15 year career as an Attorney. In my law practice, I focused on real estate law, construction law, and Indian law. I now use the experience gained in these professions to help my commercial real estate clients in a wide variety of transactions. I also enjoy sharing some of this experience with you in these videos! In this presentation, I’m going to provide an overview of due diligence for buying land and commercial real estate. Now the topic of due diligence in general is very broad, so this overview provides only a big picture of due diligence. In fact more detail about due diligence items is provided in other videos on this website www.civignite.com. This presentation will focus on five main subjects in due diligence for buying land and commercial real estate. First, what exactly is due diligence for buying land and commercial real estate? Second, why is due diligence important? Third, who does the due diligence for the buyer? Fourth, when is due diligence typically performed? And Fifth, what are the key activities of due diligence? Let’s get started. First what is due diligence? Well, according to Wikipedia, due diligence is an investigation of a business or person prior to signing a contract or an act with a certain standard of care. In addition to business or person, I will add real-estate Interest. So that’s what we are talking about here today. In other words, due diligence is a process to make sure that the real estate buyer knows exactly what they’re considering buying. Without due diligence, a buyer would be at the mercy of the seller’s advertising claims or marketing Materials. Let’s continue to the second point. Why is due diligence important? Due diligence is important because it allows the buyer to know exactly what they will have if the deal is finalized—the good, bad, and the ugly. Due diligence is also important because it avoids surprises that might spring up after the deal Closes. “Oh, did I forget to mention that there was a gas station on this site in the 1950s?!?!” Let’s continue on to the third Point. Who does the due diligence when buying land and commercial real estate? Well, the due diligence we’re talking about today is done by the buyer’s team. The buyer’s due diligence team is usually made up of various professionals. examples of these professionals include title companies, attorneys, financial professionals, land surveyors, architects, and engineers. We’ll explore some of these roles in a few minutes. Continuing on to the fourth point…When his due diligence performed? Well, to the extent time allows, an interested buyer should perform some very preliminary due diligence before even making an offer, letter of intent, or executing a purchase and sale agreement. In the period immediately after the execution of the purchase and sale agreement, due diligence is much more thorough and Comprehensive. In fact, this phase is commonly called the “Due Diligence Period,” depending on the complexity of the deal. The due diligence period can range from a few days to several months in duration. However, due diligence periods of 30 days, 60 days, and 90 days are pretty common. OK…moving on to the fifth point. What are some of the key due diligence Activities? Well, the first major activity is to make or obtain a checklist. all due diligence activities should then be listed and tracked in this checklist. The checklist should identify what information is to be obtained from the seller or other resources, and should all can contain due dates and persons responsible for gathering that Information. Another due diligence activity is to obtain copies of public Records. Examples of public records include tax assessor information, deeds, ownership information, liens, CC&R’s applicable to the property, and other recorded documents. Some jurisdictions have very user-friendly websites where this information could be obtained inexpensively and easily, while others… not so much. Title insurance companies prepare a report called the title commitment. This report focuses on the legal status of the title of the real estate being Considered. Title commitments will identify who owns the property and what other parties may have interests in the Property. Examples of other interests include rights-of-way, easements, liens and mortgages. A fourth due diligence activity is the ALTA land survey. Registered land surveyors perform a land survey according to detailed requirements of the American Land Title Association, known as ALTA. Among other things, the land survey identifies the property’s boundaries, access, rights-of-way easements, and the locations of key structures, improvements, and geographical Features. The ALT land survey is typically performed in conjunction with the title commitment work. Environmental engineers or consultants perform “environmental site assessment” of the subject property. At a minimum a “Phase 1” ESA should be performed. A Phase 1 ESA relies primarily on public records, a site visit, and interviews to determine the extent, if any, in contamination of the subject property. If the Phase 1 ESA warrants additional assessments, then a Phase 2 ESA is performed. A Phase 2 ESA can require testing and sampling of the site’s water and soil and is much more comprehensive than a Phase 1 ESA. The sixth due diligence step is the “Property Condition Assessment.” Architects, engineers, or other technical professionals physically inspect and perform an assessment of the subject property’s buildings and improvements. The property condition assessment looks at such building components as the roof, walls, structural members, utilities, life safety systems, and mechanical systems of the building. Property condition assessments also address the property’s compliance with building codes, safety, and the Americans with Disabilities Act (known as the “ADA”). Rhe prospective buyer should understand what zoning and entitlements apply to the property. Some Zoning departments might be able to issue what’s called a “Zoning Verification Letter.” The property’s development rights, permitted uses, excluded uses, CC&R’s, and reciprocal easement agreements should also be obtained and understood. The 8thi due diligence activity concerns leased property. If the subject land or commercial real estate involves leased property, such as an office building or shopping center, then additional information should be obtained. Such information includes a lease summary, the property’s financial documents, rent rolls, estoppel certificates, subordination and non disturbance agreements, common area maintenance records, and information regarding the tenants’ rights and tenants’ use Agreements. If the transaction is primarily about a land purchase and in particular, rural land, then the buyer should also obtain additional Information. This information includes site access, topography, improvements on the site, utilities, and any sort of rights of way or easements on the Property. The buyer should also identify any hunting and fishing rights and any mineral rights which may include rights to harvest timber, mining rights, production of oil and gas, etc. Depending on the type of property, there’s a myriad of other information about the land or commercial real estate that might provide valuable insight about the property to the buyer. Examples of such information include contracts, leases and subleases, warranties, bonds and Guarantees. Other information includes permits, licenses, sales comps, appraisals as-built drawings, topographic surveys, flood zone maps, maintenance records. Also it would be helpful to understand if the property has been involved in any sort of litigation. So wrapping up, again this is a broad brush approach to the topic of due diligence of land and commercial real estate purchases. This overview is by definition not a comprehensive or exhaustive approach. The scope and timing of the diligence activities will vary depending on the type of real estate being purchased. However, once the due diligence information is obtained, then the buyer will be in a much better Position. The buyer will then be able to make an informed decision about whether to go forward with buying the land or commercial real estate or to pass. More detailed information about due diligence can be found elsewhere on the Civignite Website. Civignite is a commercial real estate brokerage. We serve commercial real estate buyers and sellers, investors, and commercial tenants throughout the United States, including projects in Indian Country. You can find more information related to commercial real estate, along with more videos similar to this one, at our website: www.civignite.com. Due to an increasing demand for our services, Civignite is actively recruiting highly skilled and experienced commercial real estate Professionals. Contact us on our website to learn more. Also, if you would like Civignite to help you buy, sell, or lease commercial real estate, please contact us on our website. If you like this video please give it a thumbs up! Add any comments below, and please subscribe to our YouTube channel. Thank you for Watching! This presentation is for general information purposes only. It is not to be construed as providing any Advice, whether legal, real estate, tax or otherwise.