Acquisition Risk

Acquisition Risk

Comprehensive risk taxonomy and due diligence checklist framework for CRE acquisitions. Used by /diligence-punchlist and /screen-deal for risk identification.

Risk Taxonomy

Market Risk

• Submarket oversupply (construction pipeline > absorption)
• Rent decline trajectory
• Major employer departure or downsizing
• Demographic shifts (population, income)
• Regulatory changes (rent control, zoning)

Tenant Risk

• Single-tenant concentration (>25% of rent)
• Near-term expirations without renewal visibility
• Tenant credit deterioration
• Below-market leases rolling to market (downside if market has fallen)
• Co-tenancy or kickout clauses (retail)

Physical Risk

• Deferred maintenance / capital backlog
• Structural issues (foundation, roof, HVAC at end-of-life)
• Code compliance gaps
• ADA compliance
• Seismic (West Coast), hurricane (Southeast/Gulf), flood zone

Environmental Risk

• Phase I findings requiring Phase II
• Known contamination (soil, groundwater)
• Asbestos, lead paint, mold
• Underground storage tanks
• Adjacent property contamination risk

Financial Risk

• Negative leverage (cap rate < borrowing cost)
• Thin DSCR coverage
• Floating rate exposure without cap
• Refi risk at maturity
• Tax assessment appeal risk

Legal / Title Risk

• Title defects or encumbrances
• Ongoing litigation
• Lease enforceability issues
• Easements restricting use
• HOA or CC&R restrictions

Due Diligence Checklist by Property Type

All Types (Standard)

• Title commitment and survey
• Phase I environmental site assessment
• Property condition assessment (PCA)
• Rent roll and lease abstracts
• Trailing financial statements (3 years + T-12)
• Tax returns or assessments
• Insurance loss history
• Zoning confirmation letter
• Estoppel certificates from tenants
• Service contracts review

Office (Additional)

• Building systems assessment (HVAC, elevator, BMS)
• Parking ratio adequacy
• TI obligation analysis for upcoming rollovers
• Amenity competitiveness assessment

Industrial (Additional)

• Clear height and loading capacity verification
• Truck court and trailer parking adequacy
• Power capacity (amps, phase)
• Rail access (if applicable)
• Environmental — chemical storage, waste handling

Multifamily (Additional)

• Unit condition audit (sample inspection)
• Rent control / stabilization compliance
• Utility system (master vs. individual metering)
• Amenity package competitiveness
• Crime / safety assessment

Retail (Additional)

• Tenant sales reports (percentage rent basis)
• Co-tenancy and exclusive use clauses
• Trade area demographics
• Anchor tenant viability
• Pad site and outparcel ground leases