requested and negotiated in advance,
says Walker. From a seller’s perspective,
it is a prudent thing to give a buyer an
inspection period, even if the buyer ends
up not doing the inspection, because the
seller may have protected himself against
possible future litigation. If required the
seller could testify in court, “I gave the
buyer time and access.”
“I’ve been an expert witness in a few
cases in situations like this,” says
Walker. “I was hired to talk about what
is customary in the industry. What is
customary, but not necessarily law, is to
give that buyer an opportunity, after a fair
offer has been negotiated, to inspect the
property in a timely period. On a holiday
weekend, to give somebody four days
on a 10,000-square-foot, multi-tenant,
industrial building isn’t reasonable.”
When it comes to inspections, Spears
offers some common-sense advice:
• In the industrial world, some of
the systems – mechanical, electrical,
structural, and cranes – are often so
complex that they require more than one
type of inspector (as opposed to a typical
residential inspection where you hire a
person to look at everything). Therefore,
you should hire a variety of specialists
to provide accurate assessments of the
various components of the facility.
• You should treat each building on a
case-by-case basis to determine what
should be inspected. In some cases,
such as with older buildings, you might
just need to assume there will be some
issues and, thus, should budget for
repairs, replacements, etc., that you feel
will need to be made. In those cases,
the willingness to proceed becomes a
business decision based on the impact of
the costs on the deal. For example, a 30-
year old building, with the original roof
still in place, is likely to require the new
owner to replace it at some point in the
near future (if not immediately). In that
case, it might be more feasible to just
budget for the replacement rather than
paying someone to climb up and tell you
what you already know.
• An Environmental Phase I report
normally should be done. This report
will take into consideration items on the
site as well as other sites located nearby
that might have an environmental impact
(such as groundwater contamination).
A typical one-stop-shop inspector is
not likely to have access to this type
of information and, thus, might not
be qualified to provide you with a
true assessment of your risk. These
good reports identify such items as the
previous occupants of the facility (to
determine the potential risks that may
cause contamination), a site inspection
which identifies any potential signs of
contamination and/or the existence of
wetlands, or even items which just need
to be addressed prior to closing.
• Be mindful of the qualifications of the
various inspectors you choose to engage.
The cheapest person is not always the
best one to use. In one deal, I received
a number of bids for an environmental
Phase I. The client, who wanted to
save money, chose the least expensive
inspector and he suggested an expensive
Phase II to be done due to portions of the
lawn being discolored. As it turned out,
the grass was discolored not because of
pollution, but because boards were stored
on the grass for a long period of time.
When the owner moved out, he took the
boards with him. The grass that was
discolored was in the shape of boards
and, obviously, should not have been
identified as a potential environmental
Finally, lack of correct information is
another problem that comes up often.
Spears represented a buyer of a building,
which was listed as having 2,000 amps
of power. Spear brought in inspectors
who eventually discovered the structure
only had 800 amps. “The existing tenant
didn’t use nearly that kind of power and
when he bought the building, he was told
it had 2,000 amps. He had no earthly idea
it didn’t,” Spears recalls. “But, amps
were important to my client and the
cost to install the right amount of power
would have been north of $200,000. For
the size of the deal, the added expense
Lack of information is more often than
not unintended – and a real shocker.
In another deal, Spears represented
a buyer for a building surrounded by
considerable property. A Phase II was
called because the past history of the
land indicated a foundry on the site.
Inspectors drilled into the ground on one
side of the property and all was good.
However, when they drilled elsewhere
on the property they kept hitting metal.
After excavating, it was discovered one
of the previous users had buried a bunch
of junk cars. The deal fell through as it
would have cost $100,000 to repair the
site. The seller didn’t even know.
Nothing takes the place of due diligence
and if you don’t have the expertise in-house, hire the right people for the
particular information you want to
ascertain. Don’t get caught with a leaky
roof, outdated equipment, underpowered
building or cars rusting away underneath
where you walk to work everyday.
"As a buyer
you have to
this building is
going to work
for you or not.
A new building
might have some
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