Commercial building purchase - do you get an inspection?

Question

I am purchasing a unique property that is a mixed-use commercial and multifamily. This is my first deal in the commercial/mixed-use space.  I come from the residential investment where I always get inspections on the properties I buy. I was going to do the same for this property and I was surprised by the pricing. It is a 10-unit multifamily and a 8000 sq ft commercial building. I got the quote back for:

Property Condition Assessment:  $4800

Commercial Building Inspection: $2300

Phase 1 - Environmental Site Assessment: $2000

Capital Replacement Study: $750

For all you seasoned commercial/mixed-use investors what would you pay for as far as inspections, assessments, etc? Are some an absolute and others you just pass on?

Thank you!

Adam

Henri Meli · Answer

My bank required a Phase1. So, I had to comply. Phase1 could be critical, if there is a chance that there has been environmental contamination. It could cost you a lot, if it turns out later that there were. If you do it now, you know for sure prior to purchasing.

I don't know how much you are spending for the building, but how critical is $2,000 in a $1M building (Just a random number)? Would you still purchase the building, if it failed the Phase 1? I really can't determine criticality for you. It is up to you to determine it based on best case scenario, worst case scenario and your tolerance level.

Adam Macy · Answer

@Henri Meli I have not scheduled a survey as other investors I have talked to said it wasn't as critical as inspections and Phase 1. Do you think it is critical?

Thank you.

Henri Meli · Answer

When I purchased an office building, the only things required were the PCA and the Phase 1. I'm assuming the inspection is required for the multi units since your property is mixed-use. The PCA is like the inspection for commercial buildings, but a lot more in-depth. The cost might depend on the location. Mine was $3000 for an 18,000 square foot building in NC.  The Capital Replacement Study was suggested, but discouraged by my Tax person, because it wouldn't bring me anything.

Do you also have a survey scheduled?

Ronald Rohde · Answer

They are all optional to a cash buyer, lenders require Phase 1.

Gotta pay to play in commercial space...