Due diligence can make or break your retail property investment. Today’s market leaves little room for error. A thorough review before closing isn’t just smart—it’s essential. Knowing what to check and which warning signs to spot will save you from expensive mistakes.
Check the Physical Property First
Start with the basics: the building itself. Look beyond fresh paint and new carpeting. Check the bones of the building—the structure, roof, heating and cooling systems, and parking lot. Small maintenance problems can quickly turn into huge expenses that eat up your profits.
Environmental issues need extra attention. Most buyers get a Phase I environmental report, but that’s not always enough. If the property ever housed a dry cleaner, gas station, or auto shop, you’ll need a Phase II study. Environmental problems can turn a good deal into a financial nightmare.
Don’t forget about building codes. Rules for disability access, fire safety, and local regulations change often. A building that met code when built might need costly updates today. Sellers rarely mention these costs, but they can hurt your returns.
Review Every Lease Carefully
Read each lease in full—not just the summary sheets. Watch for hidden landlord duties, unusual cancellation rights, or exclusive use rules that limit your options. Be extra careful with co-tenancy clauses. These let tenants leave or pay less rent if anchor stores close.
Look beyond credit scores when checking tenant health. Visit stores at various times to see actual traffic. Get sales reports when possible. Read online reviews and check social media. Even national chains fail when specific stores struggle.
Think about renewal chances. Tenants with expiring leases need immediate attention. Call their representatives early to learn their plans. Include potential vacancy and renovation costs in your calculations. Some spaces need major work for new tenants.
Verify All Financial Information
Double-check every number. Compare the seller’s statements with bank records, tax returns, and utility bills. Sellers often present numbers that don’t match reality.
Pay close attention to common area fees. Many properties haven’t properly tracked these charges for years. This creates problems—either money you owe or income you’ve missed. The real recovery rate for these fees directly affects your income projections.
Study property tax records closely. Recent sales or new assessments often trigger big increases. In California, Proposition 13 means taxes can jump sharply after purchase. Use realistic future rates in your planning, not past numbers.
Study the Local Market
Explore the area in person. Drive around at different times of day. Look for competing stores, new construction, and demographic shifts. The neighborhood might be changing in ways reports don’t show.
Research future developments and road projects. New shopping centers, highway changes, or transit lines can help or hurt your property. City planning offices and business groups know things that standard market reports miss.
The Bottom Line
Smart due diligence protects your investment. Each property has unique risks that need careful review. Taking time to investigate thoroughly now prevents expensive surprises later.
Williams Capital Advisors provides complete due diligence services for retail property purchases. Our proven process finds problems others miss. We help you make informed decisions and avoid costly surprises.
Ready to protect your investment?
(213) 880-8107 | francisco.williams@williamscap.ai | williamscapitaladvisors.com
