With commercial property, there is no second chance. Once you sign, you own the building, the lease, the rights and all the problems that were already there. Proper due diligence takes weeks, not days, and it is the least expensive tool in the transaction.
First layer: rights and registration
Check an up-to-date Land Registry extract, precise identification of the property, liens, cautionary notes, leasehold rights and their terms. For properties in condominiums and shopping centres, also check the bylaws and any areas appurtenant to the property, such as parking spaces and storage units.
Second layer: planning and permits
Request the building permit and the building file from the local authority. The key question is whether the actual use complies with the permitted use. A restaurant operating in premises approved as an office, or a warehouse converted for manufacturing without a permit, creates a risk of stop-work or closure orders, financing difficulties and problems when selling the property.
Third layer: the lease and the tenant
Read the lease in full, including options, indexation, adjustment dates, termination rights, repair clauses and securities. At the same time, examine the tenant: how long the business has been operating, its financial strength, and how dependent it is on this particular location.
Fourth layer: actual expenses
Request actual figures for at least two years: municipal property tax (arnona), management fees, insurance, electricity for common areas, maintenance and repairs. The gap between the expenses presented by the seller and the actual expenses is where returns disappear.
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Fifth layer: physical condition
Commission an engineering inspection. Check the roof, waterproofing, electrical systems, air conditioning, sewage, accessibility, fire safety and structural integrity. For industrial properties, also check floor load capacity, clear height and truck access.
Sixth layer: taxation and VAT
Review the transaction structure with a tax adviser: VAT, purchase tax, betterment tax and the impact of the ownership structure. In commercial property, VAT is part of the cash flow, not a footnote.
Seventh layer: the vacancy scenario
The question that concludes every due diligence process is simple. If the tenant leaves tomorrow, how long will it take to find another tenant, how much will the fit-out cost, and at what rent can the unit be leased? If the answer makes the transaction uneconomical, the price is too high.
How we help
Flamingo carries out this due diligence for property owners and investors, from the lease to the physical condition, and presents a conservative cash flow forecast with a clear conclusion: buy, investigate further or walk away.
