Signing a purchase contract can feel like the finish line. Yet it is really the start of your risk. A commercial real estate evaluation helps you confirm what you are buying and what you are inheriting. That includes leases, income, costs, and building condition. It also includes legal limits, like zoning and easements. Many bad deals look fine at first. Then a lease ends, a roof fails, or taxes jump. So, you want a clear plan before you sign. The goal is simple: verify the facts with documents and inspections. When you do that, you make fewer guesses. And you can negotiate based on proof, not opinions.
Start With The Lease And the Rent Roll
Your leases and rent roll drive the value. So, start here before anything else. Ask for the current rent roll and the full lease files. Then match them line by line. Check unit numbers, tenant names, and rent amounts. Also, confirm start dates, end dates, and renewal options. One “month-to-month” tenant can change risk fast.
Review these lease items first:
- Base rent and any scheduled increases
- Renewal options and who controls them
- Who pays CAM, taxes, and insurance
- Security deposits and past-due balances
- Tenant improvements (TI) and landlord duties
- Early exit clauses and sublease rules
After you review this list, compare it to the real payment history. Then ask for estoppel letters to confirm key terms. Estoppels help you avoid surprises after closing.
Confirm Income And Operating Expense Numbers First
Next, build a simple income and cost snapshot. You do not need complex math. Start with NOI, which means net operating income. A simple way to think of it is: NOI = income − operating costs. Do not include the loan payment in NOI. Lenders also look at NOI for underwriting.
Ask for documents that prove the numbers:
- 12–24 months of rent ledgers
- Bank deposit records for rent payments
- Year-to-date profit and loss statement
- Last two years of tax bills
- Insurance quotes and claim history, if available
- Utility bills and service contracts
After you gather these, compare trends month to month. Then watch for one-time items. For example, a big repair may not repeat. But a rising insurance bill may continue. Also, check for “owner-paid” items that will become your cost. Finally, confirm how CAM is billed and reconciled. Small CAM errors can create big tenant disputes.
Check Property Condition And Near-Term Repairs
A building can look fine and still have expensive issues. So, walk the site with a checklist. If possible, use qualified inspectors for major systems. Focus on items that can stop operations or trigger safety problems. Also, ask for repair records and warranties.
Key areas to inspect and document:
- Roof age, leaks, and drainage
- HVAC age, maintenance logs, and cooling capacity
- Plumbing leaks, water pressure, and sewer line notes
- Electrical panels, load capacity, and code issues
- Parking lot cracks, striping, and lighting
- Fire and life safety items, like alarms and exits
After the inspection, sort findings into two groups. First are “must-do” items that affect safety or use. Second are upgrades that can wait. Then add rough costs and timing. Also, ask if permits are needed. Permits can add delays, and delays can reduce income if spaces sit empty.
Review Legal, Zoning, And Environmental Deal Risks
Legal issues can limit what you can do with the property. So, check the title and zoning early. Order a title report and review exceptions. Exceptions can include easements, shared driveways, or access limits. Also, ask for a survey so you can see boundaries and encroachments.
Look for these common risk areas:
- Easements that reduce usable space
- Shared access or parking agreements
- Zoning that blocks your intended use
- Open permits or unresolved code issues
- ADA-related access concerns in public areas
- Environmental flags, like prior dry cleaning or fuel tanks
After you review these, consider a Phase I environmental report. A Phase I is a standard “history and site review.” It does not test soil. Yet it can flag risks that need more review. If a Phase I raises concerns, talk to a qualified expert before you sign final papers.
Validate Financing, Valuation, And Exit Plan Early
Even a strong property can fail if the loan terms do not fit. So, align financing with real numbers. Lenders often use ratios like DSCR and LTV. DSCR is the debt service coverage ratio. It compares NOI to the yearly loan payment. A low DSCR can cause a denial or a smaller loan.
Review these items before you commit:
- DSCR targets and how your NOI supports them
- LTV limits and your required down payment
- Rate type, reset timing, and prepayment rules
- Required reserves for repairs or vacancies
- Appraisal conditions and timeline
After this, double-check the price using the cap rate. Cap rate is a way to compare price to NOI. It is often shown as Cap Rate = NOI ÷ Price. If the cap rate seems far from similar deals, ask why. Finally, plan your exit. Will you hold long-term, refinance, or sell? Your exit plan affects how much risk you can accept today.
Final Sign-Off Checklist Before You Commit Fully
Before you sign the final documents, run a short checklist. Confirm the rent roll matches the leases. Confirm the last 12 months of deposits match the billed rent. Confirm taxes and insurance match current quotes. Confirm the repair list has costs and timing. Confirm title and zoning allow your use. And confirm lender conditions are clear and in writing. If you want a cleaner, document-based evaluation, Hannibal Group can help review leases, numbers, and risk items before you commit. That extra review can help you sign with clearer facts and fewer surprises.
