Navigating Due Diligence: A Guide for Industrial Property Investors
Investing in industrial properties can be a lucrative venture, but it comes with its own set of challenges. Proper due diligence is crucial to ensure a successful transaction and to avoid potential pitfalls. Here, we outline the key steps every investor should take during the due diligence process.
1. Securing the Appraisal and Lending Approval
The cornerstone of any real estate transaction, particularly in industrial properties, is securing lending approval. This process is heavily dependent on the property appraisal.
Understanding the Appraisal Process: The appraisal, typically managed by your lender, determines the property's market value. Given the specialized nature of industrial properties, finding an appraiser with relevant experience is vital. The limited number of qualified appraisers means you should expect this process to take 30 to 45 days.
Negotiating the Due Diligence Timeline: Ensure your due diligence period is long enough to accommodate the appraisal and subsequent lender approval. A 60-day period is recommended, though you may need to negotiate this with the seller, who might push for a shorter timeframe.
2. Conducting a Thorough Title Review
Title issues can significantly impact your investment. Conducting a comprehensive title review early in the due diligence process is essential.
Identifying Encumbrances: Look for any liens, unpaid taxes, leases, or mortgages that could impede the transfer of a clean title. Early identification of these issues allows you to address them without delaying the transaction.
Starting Early: Delaying the title review can lead to time crunches and unnecessary stress. Begin this process as soon as possible to ensure a smooth closing.
3. Surveying the Property
A detailed survey of the property is crucial, especially when dealing with industrial properties.
Obtaining an ALTA Survey: Most lenders will require an ALTA (American Land Title Association) survey, which provides a detailed view of the property, including boundaries and any potential encroachments or easements. These surveys typically take 15 to 30 days to complete.
Addressing Encroachments and Easements: Be prepared to resolve any issues that arise from the survey, such as encroachments or underground utility easements, which could affect future development plans.
4. Conducting Environmental Assessments
Environmental due diligence is particularly important in the industrial sector, where properties may have a history of heavy industrial use.
Selecting Qualified Environmental Surveyors: Ensure your environmental surveyor is approved by your lender and has a solid understanding of the local market. Opting for a cheaper, out-of-town vendor might result in a subpar report, potentially delaying your loan approval and increasing costs.
Comprehensive Environmental Reports: These reports include both physical inspections and historical research. They typically take 30 to 45 days to complete, so start this process on day one of your due diligence period.
Interviewing and Coordinating Vendors
Choosing the right vendors for appraisals, surveys, and environmental assessments can make or break your due diligence process.
Interviewing Vendors: Don’t just go with the cheapest and fastest option. Instead, interview vendors to ensure they have the necessary expertise and recent experience with similar properties. This upfront diligence can save time and money in the long run.
Coordinating Efforts: Run all due diligence tasks in parallel to maximize efficiency. This means initiating appraisals, title reviews, surveys, and environmental assessments simultaneously once the purchase agreement is signed.
Streamlining the Due Diligence Process with Professional Help
Managing the due diligence process requires significant time and effort. Engaging professionals who specialize in real estate transactions can greatly simplify this process.
Vendor Sourcing and Coordination: Professionals can source and coordinate with vendors, ensuring competitive bids and timely site visits. They can also assist in reviewing reports and addressing any issues that arise.
On-Site Management: Having a team that can meet vendors on-site and facilitate access can ensure thorough inspections and accurate reporting.
Problem Resolution: Post-report, professionals can help navigate any necessary clean-ups or negotiations, ensuring the property meets all necessary standards for a successful purchase.
Due diligence is a critical phase in industrial property investment — and done well, it can propel you over the finish line with confidence. By securing thorough appraisals, conducting detailed title reviews and surveys, performing comprehensive environmental assessments, and selecting the right vendors, you can mitigate risks and pave the way for a successful investment.
Engaging our team will help you further streamline this process, allowing you to focus on your investment strategy and long-term goals.
