Questions to Ask About Commercial Real Estate
Questions to ask a broker, a seller, or an experienced investor before committing to a commercial property: what the rent roll really shows, which costs the pro forma leaves out, what a lender will require, and the point at which the deal stops working.
The questions
Open any question for the note
Can I see the rent roll: who is in the building, what they pay, and when each lease ends?
Why ask it
Ask for the document rather than a summary. The rent roll puts concentration and expiry dates on one page, and a cluster of leases ending in the same year is a risk no yield figure will show you. If the roll is not forthcoming, that answers several of the later questions.
Which of those tenants have signed a renewal, and which have gone quiet about it?
Why ask it
Signed renewals are worth considerably more than stated intentions, and a broker will usually separate the two when pressed. A tenant who has stopped answering renewal calls is often already touring other space, which changes the value of the income you are buying.
Can I see the last twelve months of actual operating expenses, not the pro forma?
Why ask it
Projected expenses are routinely optimistic on management, repairs, and insurance. Ask for twelve months of statements and compare them line by line against the offering. The gaps usually appear in insurance, grounds and snow work, and the vacancy allowance.
How was the cap rate derived, and which comparable sales support it?
Why ask it
A cap rate means nothing without the sales behind it. Ask which properties, on what dates, and whether the income used was actual or projected. A defensible rate applied to optimistic income produces a price that looks disciplined and is not.
Is the price based on in-place income or on projected rents after work is done?
Why ask it
This separates buying an income stream from buying a project. A price resting on rents that do not exist yet asks you to fund the work, carry the vacancy, and accept the risk that the market disagrees with the projection.
Are the leases net or gross, and who actually pays taxes, insurance, and the roof?
Why ask it
Lease structure decides who absorbs a reassessment or a new roof, and the labels get used loosely. Read the clauses on structure, roof, and capital repairs, because a lease described as triple net can still leave several large items sitting with the landlord.
What capital spending is due in the next five years: roof, HVAC, paving, elevator?
Why ask it
These items have known service lives and large replacement costs. Ask for ages and last service dates, then put the replacements into your own model. A maintenance line in someone else's projection is not a substitute for a reserve you calculated.
When was the last environmental assessment, and what did it recommend?
Why ask it
Environmental liability can attach to an owner regardless of who caused the problem, which is why lenders usually require an assessment. Ask which phase was done, when, and what followed. Former dry cleaners, garages, and any site with a buried tank deserve extra attention.
What does zoning allow here, and is the current use conforming or grandfathered?
Why ask it
Existing use is not evidence of permitted use. A legally nonconforming building may not be replaceable as-is after a fire, and the status can block expansion or a change of tenant. Get the designation and confirm it with the municipality yourself.
Are there any special assessments, liens, open permits, or code violations?
Why ask it
These travel with the property and tend to surface at the worst possible moment. A title search plus a call to the building department costs very little against what it can find, and a long-term owner may genuinely not know what is on file.
What share of the income comes from the largest tenant, and does the loan still cover without them?
Why ask it
Concentration is the usual reason an otherwise sound property fails. Work out the percentage, then run the debt service without that tenant. If the answer is that it does not cover, you are underwriting one company's future rather than a building.
What has a lender actually quoted on this asset, and what coverage ratio do they require?
Why ask it
Financing terms move fast and are specific to the asset type, so last year's numbers are not a guide. The required debt service coverage is what will set your real maximum price, regardless of what the seller is asking for.
When does the loan mature, and does the deal still work at a materially higher rate?
Why ask it
Commercial loans commonly come due long before they amortize, which means refinancing at rates nobody can predict. Ask for the maturity date and rerun the payment several points higher. If it only works at today's rate, the purchase is a bet on rates.
What is the vacancy rate for this property type in this submarket, and how long does space sit empty?
Why ask it
These two figures tell you what an empty suite really costs. Six months of carrying it plus concessions can exceed a year of the profit you are underwriting. Ask where the numbers came from, since broker-supplied market data is often the optimistic version.
What did it cost to re-tenant the last two spaces here, all in?
Why ask it
Leasing commission, tenant improvement allowance, free months, and legal fees are routinely absent from projections. Ask for the actual cost per square foot on the last two deals in this building, because that is the figure your own model needs.
How much does this location depend on one employer or one anchor nearby?
Why ask it
Single-employer towns, hospital campuses, and anchor-dependent retail carry correlated risk that market averages hide. Ask what happens to surrounding demand if that employer or anchor contracts, because your tenants will feel it before your rent roll shows it.
How is the property managed, what does it cost, and who is doing it?
Why ask it
Management is both a cost and a dependency. Ask the percentage, what falls outside it, who takes after-hours calls, and whether the manager is connected to the seller. Self-managed buildings often look more profitable only because nobody priced the owner's own hours.
What insurance quotes have you actually received, and what has the premium done in three years?
Why ask it
Premiums have moved sharply in many regions, so the seller's renewal figure is not a guide to yours. Ask for a current quote in your own name, and ask about flood and wind exposure separately, because that is often where the increase is concentrated.
Why is the seller selling, and how long have they owned it?
Why ask it
Motivation shapes both the price and the disclosure. A dissolving partnership, a maturing loan, and an anchor lease about to expire produce very different negotiations. Long ownership with little reinvestment usually means deferred maintenance is waiting for you.
What would have to happen for this to lose money, and how much cushion is there?
Why ask it
Ask for the downside case explicitly, because presentations contain only the upside. You want the vacancy level, interest rate, or expense increase at which the property stops covering its debt, stated as a number you can check yourself.
If this were your own money, what would you want changed before signing?
Why ask it
This closes on candour rather than on the pitch. Brokers and experienced investors usually name something concrete: a longer lease term to negotiate for, a price adjustment, a repair made a condition of closing. Silence here tells you what kind of relationship this is.
How to check a commercial deal before you commit
Practical guidance for the conversation itself
Before you make an offer
Ask for documents, not descriptions
The rent roll, the operating statements, the leases, the tax bill, and the insurance loss run answer more than any meeting will. Request them early and treat slow production of them as information about the deal.
Rebuild the numbers yourself
Put actual expenses, market vacancy, real re-tenanting costs, and a capital reserve into your own spreadsheet. Where your version and the offering memorandum diverge is exactly where the negotiation sits.
Know who the broker works for
A listing broker owes their duty to the seller, and helpful guidance is still marketing. Ask in writing whose agent they are, and get your own representation if this is your first purchase of this type.
Bring in specialists early
A property attorney, an inspector who works on this asset class, and an environmental consultant together cost a fraction of one wrong assumption. Your lender will require some of them regardless.
Documents worth requesting by name
- A certified rent roll showing lease start and end dates and any options.
- Twelve to thirty-six months of operating statements, not a summary.
- Every lease, amendment, and side letter, including the ones described as informal.
- Estoppel certificates signed by each tenant.
- The current tax bill and the history of any assessment appeals.
- The environmental report and whatever it recommended.
- The insurance loss run for the past five years.
- Service records for roof, HVAC, and elevator.
Common pitfalls
Buying a cap rate rather than a building
A cap rate is arithmetic. It says nothing about the roof, the tenant's business, or whether the rents sit above market. Two properties at the same rate can be entirely different risks.
Taking the pro forma as a baseline
Projections are a sales document. Vacancy, management, and repairs are the lines most often understated, and every one of them is open to challenge with actual statements.
Ignoring clustered lease expiries
Income that all comes up for renewal inside the same eighteen months is not stable income, no matter how solid it looks on the day you buy.
Not asking whether the loan is recourse
Commercial lending terms vary, including personal guarantees. Establish whether you are personally liable, and under what conditions, well before the closing documents appear.
A first meeting with a broker or seller
- Start with the basics: use, size, age, current occupancy, and who manages it.
- Move to the income: rent roll, lease structures, expiry dates, and who has actually renewed.
- Then the costs: real operating statements, upcoming capital items, insurance and taxes.
- Then the financing: what a lender has quoted, the coverage requirement, and the maturity date.
- Close with why the seller is selling and what they would change if the money were theirs.