Due Diligence Guidelines for Acquiring Small-Bay
Industrial Properties
Investing in small-bay industrial properties necessitates a
thorough due diligence process to ensure a successful acquisition. This
involves a comprehensive evaluation of various aspects of the property to
identify potential risks and confirm its financial viability. The following
guidelines outline key areas to focus on during due diligence:
1. Property Information Collection
Begin by gathering all pertinent documents related to the
property. This includes previous environmental assessments (Phase I or II
reports), preliminary title reports, and records of any past permits or
licenses. Understanding the property's history and current status is
foundational for informed decision-making.
2. Financial Analysis
Conduct a detailed review of the property's financial
performance. Examine past financial statements, operating costs, rental income,
and vacancy rates. This analysis helps in assessing the property's
profitability and forecasting future financial performance.
3. Market Analysis
Evaluate the local market to understand supply and demand
dynamics for small-bay industrial spaces. Analyze tenant profiles, prevailing
rental rates, and occupancy trends. This information is crucial for positioning
the property competitively within the market.
4. Legal and Regulatory Compliance
Ensure the property adheres to all applicable zoning laws,
building codes, and environmental regulations. Reviewing past permits and any
history of legal issues can reveal potential compliance concerns. Addressing
these matters proactively can prevent future liabilities.
5. Physical Property Inspection
Perform a comprehensive inspection of the property's
physical condition. Assess the state of the roof, structural integrity, HVAC
systems, plumbing, electrical systems, and other critical components.
Identifying necessary repairs or upgrades is essential for budgeting and
negotiating the purchase price.
6. Lease Analysis
Review all existing lease agreements to understand tenant
obligations, lease terms, and rental rates. This analysis provides insight into
current income streams and potential future revenue. Identifying any
unfavorable lease terms or upcoming expirations is vital for financial
planning.
7. Risk Assessment and Mitigation
Identify potential risks associated with the property,
including environmental liabilities, market fluctuations, and structural
issues. Develop strategies to mitigate these risks, such as securing
appropriate insurance coverage or planning for capital improvements.
“Due diligence isn’t about slowing down a deal — it’s
about protecting the investment you’re about to make.” – Cody Payne
By diligently addressing these areas, investors can make
informed decisions and enhance the likelihood of a successful acquisition of
small-bay industrial properties.
“In small-bay industrial, skipping steps in due diligence
is the fastest way to turn a great-looking deal into a costly mistake.” – Cody
Payne
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