The Million Dollar Mistake In Commercial Real Estate

Jordan Lipsey Uncategorized Leave a Comment

Regardless of what you’re developing or purchasing, whether it’s a 5,000-square-foot building or a million-square-foot distribution center, you need a defined process for checks and balances to manage due diligence and ensure you’re not leaving out any steps through acquisition, design, and construction. Your process must mitigate as much risk as possible by following a known pattern for success in the development of the site. Here is a great example, shared with me by a colleague, of what can happen if you don’t perform proper due diligence and quality control throughout the entire acquisition and development process.

A contractor was hired by a principal with one of the nation’s largest private development firms to develop a 100,000 square foot big box home improvement facility. The contractor was directed to bring a certain amount of fill material in from a location nearby, which the developer had purchased directly from the supplier as a cost savings measure. The material was brought in, the building pad was compacted, concrete was poured over the building pad, and the entire store was constructed. Racking was installed inside, and inventory was about to be brought in, when an issue with the underlying soil was discovered—the integrity of the foundation was in question. The developer had failed to conduct quality control measures to check the soil characteristics of the inbound fill material to ensure it was suitable and free of contaminants. After further analysis, everything had to be removed from the entire facility, the concrete slab had to be demolished, and all the underlying material dug out and shipped to another location for remediation. While the building shell did remain in place, the entire interior portion of the building had to be constructed over again from scratch. It ended up costing the developer more than a million dollars, which was a substantial cost, impacting the developer’s bottom line. As a developer or owner, it is your responsibility to make sure someone is checking off all the boxes in the process. In this case, the contractor who brought in the dirt, and then later had to take it out and replace it, got paid three times for the same result. This was a hard lesson for the developer, and it is exactly this sort of scenario that you can avoid by making sure you have performed your due diligence.

Learn more about due diligence and download sample checklists at www.warehouseveteran.com.

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