Commercial Real Estate Due Diligence in Portland: What to Verify Before You Sign
Due diligence separates disciplined real estate decisions from expensive mistakes. Too many tenants, buyers, and landlords sign deals based on the glossy tour and the broker's pitch, only to discover mechanical failures, zoning conflicts, or tenant credit problems months into occupancy. The difference between a strong investment and a financial drain often comes down to what was verified before the ink dried.
In Portland's commercial market, due diligence takes on specific weight. Seismic concerns, environmental history, zoning complexity, and rapid submarket evolution all require deeper investigation than surface-level inspection. Whether you're evaluating a warehouse in the Columbia Corridor, considering office space in the Central Business District, or leasing retail on the east side, the fundamentals are the same: verify everything material to your success before you commit.
This checklist walks through what tenants, buyers, investors, and landlords need to investigate — and when to do it. The goal is not to delay deals but to move forward with complete information.
What Is Due Diligence in Commercial Real Estate?
Due diligence is the systematic investigation of a property, lease terms, and parties involved to confirm that facts match claims. It answers the questions: Is the building what we think it is? Are the tenants creditworthy? Is the use allowed under zoning? Will operating costs stay stable? Can we exit if circumstances change?
In commercial real estate, due diligence is not optional. It's the period—typically 30 to 60 days after a letter of intent is signed—when you verify major assumptions before you're legally committed to the transaction. With a letter of intent, both parties signal serious intent and key terms, but the due diligence period is where deal breakage most often happens. That's by design.
Due Diligence for Tenants
Tenants must verify that the space works operationally, financially, and legally before a multi-year commitment.
Zoning and Permitted Use
Check that your intended use is permitted under Portland zoning. The building may be zoned Central Employment or Mixed Use, but your specific use—medical office, light manufacturing, food production—may require a conditional use permit or may be prohibited outright. City of Portland's zoning maps and land use code are public; a title company or real estate attorney can confirm in hours.
Building Condition and Systems
Walk the space with a mechanical engineer or experienced broker. Look for:
HVAC performance and age (expensive to replace)
Roof condition and remaining life
Plumbing and electrical adequacy for your operations
Insulation and weatherproofing (affects heating costs)
Asbestos, lead paint, and mold (testing is inexpensive; remediation is not)
Parking surface condition if included
ADA compliance—access, restrooms, elevators, signage
Get a Phase I environmental assessment at minimum. If the site has industrial history, a Phase II subsurface assessment may be warranted.
Operating Expenses and NNN vs Full Service Leases
Request three years of operating expense statements. Verify that the landlord's estimate is realistic, not understated. Compare proposed common area maintenance charges to recent actuals. If considering a NNN lease, understand your exposure to capital assessments—roof replacement, parking lot seal coat, structural repairs.
For full-service leases, confirm that the landlord has maintained the building properly and that the base rent and expense cap are competitive for comparable space.
Landlord Creditworthiness
Know who owns the building and whether they're financially stable. If the landlord sells the property mid-lease, you need confidence that obligations transfer or that the new owner honors the lease. A title search and basic financial check on the landlord entity take days.
Parking and Access
Count parking and understand lease terms around it. Inadequate parking kills tenant productivity. Confirm 24/7 access, loading dock availability, and turning radius for deliveries if critical to operations.
Lease Flexibility and Exit
Review renewal options, relocation rights, and early termination clauses. Understand the cost to exit if your business needs change. Weaker exit terms demand lower rent or higher tenant improvement allowance to offset the restriction.
Due Diligence for Buyers and Investors
Property buyers conduct deeper due diligence than tenants because the acquisition is permanent.
Title and Survey
Obtain a title commitment and current survey. Confirm ownership, easements, liens, and restrictions. A survey ensures the property boundaries and structures match what you believe you're buying. In Portland's older neighborhoods, boundary disputes are uncommon but worth confirming.
Environmental Phase I and II
A Phase I environmental site assessment is mandatory. It reviews the property's history, prior uses, regulatory records, and site conditions to identify recognized environmental conditions. If Phase I reveals concerns—former gas stations, dry cleaners, industrial tenants with chemical use—a Phase II subsurface assessment (soil and groundwater testing) may be required. Environmental liability is not forgivable once you own the property.
Financial Records and Rent Roll
Request:
Three to five years of P&L statements
Current rent roll showing all tenant names, lease terms, rents, and expiration dates
Verification of lease rates (call tenants if necessary)
Delinquency and default history
Management company records and contracts
Verify that income claims match reality. Overstatement of occupancy or rent is common in self-reported operating statements.
Capital Needs and Deferred Maintenance
Have a commercial real estate engineer or experienced property manager walk the building and provide a capital needs assessment. This estimates the cost and timeline for major replacements: roof, parking lot, HVAC, windows, building envelope. Portland's wet climate accelerates weathering; expect higher capital reserves for moisture and roof maintenance.
Tenant Quality and Stability
Beyond financial verification, understand your tenants' business models. Are they stable, long-term tenants or month-to-month occupiers. Do their uses align with market demand. A building full of month-to-month tenants is high-turnover and high-risk.
Utilities and Operating Baseline
Verify utility costs and whether they're stable or escalating. Check water and sewer rates in particular; Portland's utilities have increased significantly in recent years.
Due Diligence for Landlords
Landlords must assess tenant creditworthiness and use compatibility before signing a lease.
Tenant Credit and Financial Stability
Require current financial statements for any tenant not publicly traded. Verify bank references and existing commercial tenancy history. If the tenant is not creditworthy on their own, a personal or parent company guarantee may be required.
Business Viability and Market Fit
Understand the tenant's business model. A coffee roastery's need for raw space and loading dock is different from a professional services firm's requirement for Class A finishes and high visibility. The tenant's business must align with the building type, location, and typical market use.
Use Compatibility and Zoning
Confirm that the tenant's use is permitted under zoning and lease restrictions. If the building is restricted to office uses, a restaurant or light manufacturing tenant creates violation and resale problems. Zoning nonconformity is common in older Portland buildings; confirm the tenant's use does not trigger enforcement action.
References and Operating History
Talk to prior landlords where the tenant has leased space. Ask about payment history, maintenance practices, and whether they remained for the full lease term. Poor operating history is a yellow flag for future performance.
Lease Renewal Strategy for Existing Tenants
For lease renewals with existing tenants, conduct abbreviated due diligence: review payment history, verify the tenant is still in business and solvent, and confirm that any improvements or fixtures remain acceptable to your long-term strategy for the building.
Portland-Specific Due Diligence Considerations
Portland's market and regulatory environment raise specific due diligence questions.
Seismic and Unreinforced Masonry
Many older Portland buildings—especially in downtown and inner neighborhoods—are unreinforced masonry or lack modern seismic bracing. The City of Portland requires seismic retrofits for certain building classes. Confirm whether your building is subject to retrofit requirements and, if so, what the estimated cost and timeline are. This affects long-term operating expense and viability.
Portland Zoning and Land Use Code Complexity
Portland's zoning is nuanced, with overlays for historic districts, Design Review, and environmental zones. A use permitted in one zone may require conditional use review in another. Have a land use attorney review the proposed use and confirm no entitlements are required. This is especially important for industrial, retail, or mixed-use conversions.
Environmental Cleanup Sites
Portland maintains a database of known environmental cleanup sites, spill sites, and regulated facilities. Check the Oregon Environmental Cleanup and Accountability Program (ECAP) database to confirm the property is not on a remediation list or adjacent to one. Remediation costs can be substantial and may trigger liability for current property owners.
Transit and Infrastructure Changes
Portland is investing heavily in transit infrastructure, bike lanes, and pedestrian improvements. These changes affect property value and tenant appeal but also construction disruption during implementation. For commercial leases near transit projects, understand the timeline and impact on access, parking, and visibility.
Submarket Variation and Rental Rate Trends
Market conditions vary significantly across Portland subareas. Industrial space in Central Eastside commands different rates than the Columbia Corridor warehouses. Office rates downtown differ from tech-heavy subareas in inner southeast. Verify that proposed rents and lease terms are competitive for the specific submarket, not citywide averages.
When Does Due Diligence Happen?
Due diligence is formally triggered once both parties sign a letter of intent. The LOI establishes binding terms on major points—rent, size, lease term, renewal options—and opens a 30 to 60-day investigation period.
During this period, all parties are protected. A tenant can walk if environmental or structural issues emerge. A buyer can terminate if the financial statements don't match reality. A landlord can exit if tenant credit verification fails.
Once the due diligence period closes, the lease or purchase agreement is signed, and the right to terminate for discovered issues typically ends. Late-stage discoveries are costly and difficult to remedy.
Do not wait until after lease execution to ask basic questions about zoning, building condition, or tenant creditworthiness. Those investigations belong in due diligence, when you still have leverage and exit rights.
Moving Forward with Confidence
Due diligence is not bureaucratic delay. It's the window when both parties have aligned incentives to verify facts and avoid surprises. Invest the time and modest cost of third-party verification—engineer walk-through, title and survey, environmental assessment, credit check, zoning review—during the due diligence period, not after.
Ready to evaluate a space or close a deal in Portland. Start with a due diligence plan. A commercial real estate broker in Portland who knows the local market can help you avoid costly surprises and move forward with confidence.