Industrial · Due Diligence Checklist
Industrial Due Diligence Checklist
Industrial due diligence checklist for institutional buyers: single-tenant credit review, NNN pass-through audit, roof/structure capex checks. Free template.
Why the due diligence checklist looks different for industrial
Industrial NOI concentrates in one or two tenants far more than any other asset class, so credit diligence is the deal. A single-tenant building's valuation moves entirely on that tenant's covenant strength, and diversified-portfolio checklists have no mechanism for that concentration.
NNN pass-throughs shift most operating costs to the tenant, but landlord-responsibility items (roof, structure, parking lot base) stay on the owner's balance sheet and rarely show up in the T-12 because they're capital, not operating expense. Diligence has to separately underwrite building condition, not just lease economics.
Long weighted-average lease terms common in industrial (10-20 years) lock in rent escalations that are usually flat 2-3% annually, while market rents in supply-constrained submarkets have moved 30-40% over a hold period. Mark-to-market exposure needs explicit quantification, because in-place rent can sit far below what the space would lease for today.
The industrial-specific checklist
- 1
Confirm title is clean
Verify: title commitment, policy exceptions, recorded liens
- 2
Reconcile rent roll to executed leases
Verify: rent, expiration, deposit, and options match each lease 1:1
- 3
Tie rent roll to T-12 general ledger
Verify: three months of GL tie to within 1% of rent roll totals
- 4
Review property condition assessment (PCA)
Verify: deferred maintenance budgeted and reflected in the pro forma
- 5
Review Phase I environmental report
Verify: no REC, no HREC, no CREC without remediation plan
- 6
Review zoning and entitlements
Verify: current use is a permitted use; no pending rezoning
- 7
Confirm tax status
Verify: tax bills paid current, no special assessments pending
- 8
Audit operating expenses
Verify: three-year trend; flag any single-line change >10% YoY
- 9
Pull tenant financials and credit reports for every tenant over 10% of GLA
Verify: current ratio, EBITDA margin trend, and any public bond rating or D&B score; flag any tenant below investment-grade equivalent carrying >30% of NOI
- 10
Commission or review a property condition report focused on roof and structure
Verify: remaining useful life in years and replacement cost; flag any roof system with less than 5 years remaining useful life
- 11
Calculate mark-to-market gap between in-place rent and current market rent
Verify: $/SF in-place vs. broker/comp market rent; flag any gap exceeding 15%
- 12
Verify clear height, column spacing, and dock door count against the lease and marketing materials
Verify: physical specs match what's represented; confirm functional obsolescence risk for clear height under 28 feet on bulk product
- 13
Confirm landlord vs. tenant responsibility allocation for every capital system
Verify: roof, HVAC, dock levelers, parking lot; read the lease's maintenance and capital-repair sections line by line, not the summary
- 14
Review rail spur, power capacity, and trailer parking against tenant's actual usage
Verify: amperage and rail access sufficient for tenant's current operations and any expansion rights in the lease
Metrics that matter for industrial
| Metric | Target | Calculation |
|---|---|---|
| Tenant credit concentration | <50% of NOI from any single sub-investment-grade tenant | annual base rent from tenant / total property NOI |
| Mark-to-market gap | <15% | (market rent per SF - in-place rent per SF) / market rent per SF |
| Capex reserve adequacy | >100% of PCA-identified need | funded capital reserve / property condition assessment estimated capital needs over hold period |
| WALT (yrs) | >5 for core, >3 for value-add | weighted avg remaining lease term |
| Mark-to-market | >0% | (market rent - in-place rent) / in-place rent |
| Clear height (ft) | >32 for modern logistics | building clear height |
Red flags unique to industrial
-
Single tenant below investment grade carrying more than 80% of NOI
there's no diversification to absorb a default, and re-tenanting a large single-user building can take 12-24 months in secondary industrial markets
-
Roof or structure nearing end of useful life with no landlord capital reserve
NNN pass-throughs don't cover landlord-responsibility capital items, an unreserved roof replacement is a six-figure surprise that hits cash-on-cash directly
-
In-place rent more than 20% below current market with 8+ years of term remaining
the mark-to-market upside is real but unrealizable until rollover, the deal's IRR depends on an event that won't happen for most of the hold
-
Short-notice termination right within option period
re-leasing at market-down-cycle timing is the main scenario that breaks industrial underwriting
-
CPI escalator capped below 2%
inflation erosion over a 10-year hold
-
Tenant credit below investment grade without guaranty
NNN economics rely on tenant credit — no guaranty means no backstop
-
Mark-to-market gap below 0%
in-place rents above market suggest re-leasing risk at renewal
Example — industrial due diligence checklist walkthrough
Say you're underwriting a 340,000-square-foot single-tenant bulk distribution facility in the Memphis submarket at $47.6M: $140 per square foot on a 6.4% cap rate against $3.05M of in-place NOI. The tenant is a regional third-party logistics operator, not a rated credit, on a 12-year NNN lease with 8 years remaining and 2.5% annual escalations. The broker's pro forma treats the lease as bond-like income for the full hold.
Credit comes first. With no public rating, the tenant's financials have to be requested directly. Two years of statements show revenue growing but EBITDA margin compressing from 11% to 7%, and the current ratio sitting at 1.1x, thin but not distressed. This tenant carries 100% of the building's NOI; there's no diversification if it stumbles. That concentration alone changes the deal's risk profile relative to a multi-tenant industrial park at the same basis.
The property condition report puts the roof, a 22-year-old TPO membrane, at an estimated 3-4 years of remaining useful life with a replacement cost of $890,000. The lease's NNN structure passes through operating maintenance, but roof replacement is capital and stays with the landlord under this lease's specific allocation language. The seller's rent roll and OM made no mention of a capital reserve for it; the pro forma NOI assumed no near-term capital outlay.
Mark-to-market is the third data point. In-place rent runs $4.35/SF versus $5.60/SF for comparable bulk space transacted in the submarket over the trailing 12 months, a 22% gap that won't close until the 2034 lease expiration, six years past a typical hold. None of that upside is realizable in a 5-year hold model.
The $890,000 unreserved roof replacement needs to come out of the purchase price or into a seller credit, and the single-tenant credit concentration argues for a lower entry basis than the pro forma's 6.4% cap. In this case the deal closed at $46.5M with a $600,000 roof escrow funded at close, the escrow sized to cover most of the replacement cost when the membrane reaches end of life.
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Get the template →Questions about industrial due diligence checklist
Pull the tenant's financials directly if there's no public rating: revenue trend, EBITDA margin, and current ratio at minimum. Because one tenant typically carries the entire building's NOI, weight credit risk far more heavily than in a diversified multi-tenant asset, and size any pricing discount to the cost and timeline of re-tenanting if that tenant defaults.
It depends entirely on the lease's specific capital-repair allocation, many NNN leases pass through maintenance but keep roof and structural replacement as a landlord responsibility. Read that section directly rather than assuming 'triple net' means the tenant covers everything; this is the single most common landlord capital surprise in industrial deals.
It's the gap between in-place contract rent and current market rent, which matters more in industrial than other asset classes because lease terms run 10-20 years with flat 2-3% escalations. A large positive gap looks like upside but isn't realizable until rollover; model it as a terminal-value input, not current cash flow.
30–60 days is typical for institutional commercial assets. Multi-property portfolios run longer.
Typically the acquisitions team quarterbacks, with specialists pulled in for environmental, title, zoning, and legal review.
Related guides
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Same property, other actionIndustrial Rent Roll Analysis
Pillar guideThe full Due Diligence Checklist guide
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