Investor Resource
Commercial Real Estate Transaction Guide
A complete reference for commercial real estate transactions — from Letter of Intent through post-closing. Every stage explained for investors and buyers.
Property Identification & LOI
The process begins with identifying a target property and performing preliminary due diligence — reviewing financials such as rent rolls, operating statements, and tax returns.
Once you decide to pursue, the next step is submitting a Letter of Intent (LOI). The LOI is a non-binding document outlining key deal terms: purchase price, due diligence period, earnest money deposit, contingencies, and proposed closing timeline.
The LOI stage is more formalized in commercial deals. Expect multiple rounds of negotiation before a formal contract is drafted.
Contract Negotiation & Execution
Once the LOI is agreed upon, attorneys draft and negotiate the Purchase and Sale Agreement (PSA). Commercial PSAs cover representations and warranties, environmental indemnifications, tenant estoppels, assignment of leases, default remedies, and more.
Due Diligence Period
Typically 30-90 days. This is your window to investigate everything about the property.
Earnest Money
Usually 1-3% of purchase price. Understand when it becomes non-refundable ('going hard').
Representations & Warranties
Seller's statements about property condition, environmental status, litigation, and tenant matters. These survive closing.
Default Remedies
Specific performance, liquidated damages, and earnest money forfeiture are commonly negotiated.
Physical & Environmental Inspections
This is the heart of due diligence and the area that differs most from residential transactions.
Property Condition Assessment (PCA)
The commercial equivalent of a home inspection. A licensed engineering firm inspects structure, roof, HVAC, plumbing, electrical, parking, and site improvements. Reports project capital expenditures over a 10-12 year horizon.
Phase 1 Environmental Site Assessment (ESA)
A records-based investigation reviewing historical records, aerial photographs, government databases, and a physical site visit. Identifies Recognized Environmental Conditions (RECs). Almost always required by lenders.
Phase 2 ESA (if triggered)
Physical testing: soil borings, groundwater sampling, and lab analysis. Adds $10,000-$50,000+ in cost and 4-8 weeks. If contamination is confirmed, negotiate remediation responsibility or walk away.
Financial & Legal Review
While physical inspections are underway, the financial and legal review runs in parallel.
Tenant Lease Review & Estoppels
Every lease is reviewed in full. Estoppel certificates are collected — signed statements from each tenant confirming lease terms, rent amounts, security deposits, and any claims against the landlord.
Operating Expense Review
Analyze 3-5 years of operating statements, tax returns, utility bills, insurance policies, and service contracts. Compare actuals against pro forma projections.
Legal Review
Review pending litigation, ADA compliance, building codes, zoning compliance, and existing warranties. Examine all service and vendor contracts.
Title & Survey
A title commitment is ordered and reviewed by the buyer's attorney. Commercial title review examines all recorded easements, restrictions, liens, encumbrances, and exceptions to coverage.
An ALTA (American Land Title Association) survey maps property boundaries, all improvements, easements, encroachments, setback lines, access points, and flood zone designations. Both owner's and lender's title insurance policies are standard.
Financing
Commercial lenders underwrite the property's income-producing ability, not just the borrower's creditworthiness. Debt service coverage ratio (DSCR) and loan-to-value (LTV) drive the terms.
Pre-Closing Preparation
As due diligence wraps up, attorneys, title company, lender, and both parties coordinate to assemble all required documents. Key items include collecting remaining estoppel certificates, obtaining SNDAs, and preparing closing statements with prorations for rent, property taxes, CAM charges, and utility deposits.
A Subordination, Non-Disturbance, and Attornment Agreement (SNDA) protects tenants in the event of foreclosure, ensuring the new owner honors existing leases. A final property walk-through confirms condition hasn't changed since inspections.
Closing
Closings are handled through a title company or escrow agent. All documents are executed — deed, bill of sale, assignment of leases, affidavits, and lender documents. Funds are wired, the lender funds the loan, and the title company records the deed and mortgage.
The full transaction from LOI to closing commonly takes 60-120 days, though larger or more complex deals can take six months or longer.
Post-Closing
Tenant notification letters inform tenants of the ownership change and new payment instructions. Vendor and service contracts are transferred, and utility accounts switched.
A proration true-up is done 90-120 days after closing, reconciling estimated prorations against actual tax bills and operating expenses.
This guide provides a general overview of a typical commercial real estate transaction. Specific requirements may vary based on property type, jurisdiction, lender, and deal structure. Always consult with your real estate attorney for guidance specific to your transaction.
Ready to Start a Transaction?
Whether you're buying or selling commercial property, MaxLife Development can guide you through every stage of the process.