What due diligence actually costs on a 1.1M single tenant NNN dollar store

Question

Diligence on small apartment buildings is often just an inspection and a sewer scope, running under a thousand dollars. A single tenant NNN deal, say a 12,000 sf retail building on a 1.1M purchase, comes with a longer checklist: Phase I environmental site assessment, property condition assessment, ALTA survey, and a zoning report. Of those, the Phase I ESA and the PCA are close to mandatory in practice, since most lenders require both before funding. The ALTA survey is usually lender-required as well, particularly on a first mortgage. The zoning report is more negotiable and sometimes skipped on a straightforward retail parcel with no expansion plans. All in, a full diligence stack on a deal this size typically runs 6,000 to 15,000 depending on property complexity and how many items the lender insists on, well short of 25,000 in most cases, though environmental issues found in a Phase I can push a Phase II and add meaningfully to that number.

Rena Guide · Answer

Rough ranges people quote on a single tenant retail building at that size, and they vary a lot by market and by how fast you need the report.

Phase I environmental site assessment, generally $2,200 to $3,800. That's a records and site review with no sampling. If the site was ever a gas station, dry cleaner or auto shop, the report may recommend a Phase II with borings and lab work, and that starts around $10,000 and goes up fast. Property condition assessment, roughly $2,500 to $5,000, and it's the report that gives you roof and paving remaining life. ALTA survey, $2,500 to $6,500, longer lead time than anything else on the list, so order it first. Zoning report from a third-party firm, about $1,000 to $2,000, or a free-ish letter from the city if the municipality is cooperative. Lender appraisal on a single tenant property, commonly $3,500 to $7,000 because the appraiser has to value the lease and the real estate separately. Then legal for the lease review and closing, which on a straightforward net lease is often a few thousand. Title and escrow sit on top and vary by state, and a dozen or so states handle title practice quite differently.

So the realistic stack is $15,000 to $25,000, and most of it is required by whoever is lending rather than by law.

Two items on that checklist cost nothing but time and matter more than the reports. The tenant estoppel certificate, where the tenant confirms in writing what the rent is, when the lease ends and that nobody owes anybody anything. And the SNDA, which sorts out what happens between your lender and your tenant if the loan defaults. Chasing signatures from a corporate real estate department takes weeks, so start the day you go under contract.

nicole_adeyemi · Answer

Order the survey first. On a retail pad with shared access and a reciprocal easement agreement, the surveyor is the one who finds out the drive aisle a tenant uses actually belongs to the shopping center next door, and that the REA behind it expires in a few years.

paulgrant17 · Answer

The estoppel point is the one I'd underline. On residential I verify rent with bank statements. Here the tenant is the only source of truth about what's actually owed, including whether the landlord ever gave them free rent or a repair credit that's still sitting unused.

kevin_lombard · Answer

Is the PCA optional if the lease is absolute net and the tenant handles the roof? Genuinely asking, because if none of those costs can ever land on me I'm not sure what the report is for other than the lender's file.

dmitri_248 · Answer

Juniper, it's for the day the lease ends or the tenant defaults and the building becomes the owner's to fix. It also tells you whether the tenant has been maintaining what they promised to maintain, which is a lease compliance question. A deferred maintenance box sitting next to a compliant rent check is a real situation worth pricing in.

carlos_nunez · Answer

Add reliance letters to the budget. If the Phase I was ordered by the seller, relying on it often requires paying the environmental firm a few hundred to a thousand dollars for a reliance letter, and a lender may want their own name on it too. That gap has tripped up closing timelines more than once.

angela_burke · Answer

One thing nobody prices: the site visit itself. Sending a roofer and a paving contractor to walk it costs maybe $600 total and gives a bid, not a range. A PCA tells you the roof has five years left. A roofer tells you it's $94,000 to replace it and $11,000 to fix the two seams that are actually failing.

megan_doyle15 · Answer

So the diligence bill on a $1.1M building is roughly 2% of the purchase price. That reframes the whole idea of walking away in week three for me.

What due diligence actually costs on a 1.1M single tenant NNN dollar store

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