Due diligence is an important task in the commercial real estate industry. When a business or developer is looking to purchase property for an intended purpose, it is critical that due diligence is done to ensure that the property is suitable for that purpose and that the project is feasible.
There are a number of possible problems that can arise when a business or developer fails to perform due diligence on a tract of property before making the purchase. Due diligence is closely connected to and should be directed by the specific use a business or developer has in mind for the property. This is probably at least part of why the University of Texas’s purchase of a 300-plus acre tract of land in Houston has generated some attention.
The University recently paid $214.8 million for the property, which is an abandoned oil field containing several acres that are polluted by a closed down polymer facility. Although the University of Texas System’s Chancellor has said that the polluted condition of the property will not prevent the university from fully developing the tract, a certain amount of criticism has been leveled at the decision to acquire the property, including from state lawmakers and University of Houston donors.
The University of Texas has given assurance that it did conduct due diligence on the property prior to the purchase, and had an environmental assessment performed as part of the process. The university has apparently allotted less than $2 million for environmental cleanup and for ensuring that the property is in compliance with environmental regulations. Part of the criticism has focused, though, on the fact that the university has not stated a purpose for the land.
It seems that the exact purpose of the property has not yet been determined, making it hard to understand how the university can provide solid assurance of due diligence.
In future posts, we’ll look a bit more at the topic of due diligence, and how an experienced attorney can help businesses and property developers ensure they have guidance and assistance in this area, particularly with respect to legal matters related to the acquisition and development of property.