Key Takeaways
- A typical CRE closing takes 45–90 days from LOI to close, with the due diligence period (30–45 days) being the most critical window for identifying deal-breaking issues — title defects, environmental concerns, and operating expense surprises
- The earnest money deposit structure is a negotiation tool: when it goes hard (becomes non-refundable) determines the true commitment point of the deal, and a well-structured EMD timeline protects the buyer's optionality during due diligence
- Closing costs in CRE typically run 2–4% of the purchase price and include title insurance, survey, environmental reports, legal fees, lender fees, and transfer taxes — all of which should be underwritten into the acquisition basis from day one
Most people who haven't been through a commercial real estate closing imagine something like a residential deal: sign some papers, write a check, get the keys. The reality is a 45–90 day process involving dozens of parties, hundreds of pages of documents, and multiple workstreams running in parallel — any one of which can delay or kill the deal.
Understanding the closing process isn't just academic. For investors in syndicated deals, it explains why there's a lag between commitment and capital calls, why closing dates move, and why the sponsor might walk away from a deal after investing months of work and significant non-refundable deposits. For operators, process discipline during closing is what separates deals that close on time from deals that drag, renegotiate, or fall apart.
Phase 1: Letter of Intent (Week 1–2)
Every deal starts with a Letter of Intent (LOI) — a non-binding document that outlines the key terms of the transaction. The LOI isn't a contract, but it serves as the framework for the Purchase and Sale Agreement (PSA) that follows. Key LOI terms include:
- Purchase price and any price adjustment mechanisms
- Earnest money deposit amount, timeline, and refundability conditions
- Due diligence period length (typically 30–45 days for multifamily)
- Financing contingency timeline and conditions
- Closing date or closing deadline
- Exclusivity period during which the seller won't negotiate with other buyers
The LOI negotiation reveals a lot about both sides. A seller who insists on a 15-day due diligence period is either hiding something or is working with a strong competing offer. A buyer who requests 90 days of due diligence with a fully refundable deposit is looking for optionality, not commitment. The best deals happen when both sides are motivated and the LOI reflects realistic timelines based on the property's complexity.
Phase 2: Purchase and Sale Agreement (Week 2–3)
Once the LOI is executed, attorneys draft the Purchase and Sale Agreement — the binding contract that governs the transaction. The PSA translates the LOI's bullet points into legal language and adds critical provisions that the LOI typically doesn't cover:
Representations and warranties. The seller makes specific claims about the property — no pending litigation, no known environmental issues, no unreported building code violations. If any representation proves false, the buyer may have the right to terminate or seek damages.
Conditions to closing. Both sides must satisfy certain conditions before closing: the buyer must secure financing, the title must be "clear" (free of unexpected liens), and the property's physical condition must be substantially as represented.
Default and remedies. What happens if either side doesn't close? Typically, if the buyer defaults, the seller keeps the earnest money deposit as liquidated damages. If the seller defaults, the buyer can pursue specific performance (forcing the sale) or seek damages.
Phase 3: Due Diligence (Week 3–8)
The due diligence period is the buyer's window to inspect every aspect of the property before committing non-refundable capital. It's the most intensive phase of the closing process, involving multiple parallel workstreams:
| Workstream | Timeline | Key Deliverables |
|---|---|---|
| Physical Inspection | Week 1–2 | Property condition report, roof inspection, MEP assessment, deferred maintenance estimate |
| Environmental | Week 1–4 | Phase I ESA, Phase II if triggered |
| Title & Survey | Week 1–3 | Title commitment, ALTA survey, easement review, legal description confirmation |
| Financial Review | Week 1–3 | T-12 operating statement audit, rent roll verification, lease abstraction, tax bill review |
| Legal Review | Week 2–4 | Zoning confirmation, compliance certificates, permit history, litigation search |
| Insurance | Week 2–4 | Replacement cost estimate, flood zone determination, insurance quotes |
The due diligence period is where most deals either get confirmed or killed. Common deal-breakers include: significant deferred maintenance not reflected in the seller's disclosures, environmental contamination requiring remediation, title defects that can't be cured before closing, operating expenses that are materially higher than represented, and zoning issues that restrict the buyer's intended use.
The expiration of the due diligence period is the most critical milestone in a CRE closing. When the DD period expires, the earnest money deposit "goes hard" — it becomes non-refundable. For a $10M acquisition with a 2% EMD, that's a $200,000 commitment that the buyer forfeits if they walk away.
Disciplined operators treat the DD expiration as a formal decision point. They convene their acquisition committee, review all due diligence findings, confirm that the underwriting still holds, and make a go/no-go decision. If any material issue remains unresolved — even if we're 95% sure it will be resolved — we either extend the DD period (if the seller agrees) or terminate.
We've walked away from deals after spending $25,000+ in due diligence costs because the findings didn't support the underwriting. It's always a difficult decision, but it's far less painful than closing on a property with unresolved issues that cost $250,000 to fix post-closing.
Phase 4: Lender Underwriting (Week 4–8)
For financed deals, the lender's underwriting process runs largely in parallel with buyer due diligence but extends beyond it. The lender conducts their own independent analysis and requires their own set of third-party reports:
- Appraisal: An independent property valuation that determines the maximum loan amount based on LTV requirements. Lender appraisals sometimes come in below the purchase price, requiring renegotiation or additional equity.
- Environmental report: Lenders require their own Phase I ESA (or a reliance letter on the buyer's report) to protect against environmental liability.
- Property condition assessment (PCA): A lender-ordered inspection that identifies deferred maintenance and estimates replacement reserve requirements.
- Seismic risk assessment: Required in earthquake-prone areas (less common in Florida).
- Borrower financial review: The lender reviews the borrower's financial statements, track record, net worth, and liquidity to confirm they meet sponsorship requirements.
The lender's loan commitment letter is one of the last pieces to fall into place before closing. It specifies the exact loan amount, interest rate, term, amortization, and all conditions that must be satisfied before funding. Any condition not satisfied is a potential closing delay.
Phase 5: Pre-Closing and Settlement (Week 8–10)
The final phase involves assembling the closing package — a collection of documents, agreements, and financial calculations that formalize the transfer of ownership:
Prorations. The most detailed calculation in the closing process. Prorations divide ongoing income and expenses between buyer and seller as of the closing date:
Proration Example — March 15 Closing on $8M Multifamily
Monthly rent collected: $65,000 (received by seller on March 1)
Seller's portion: 14/31 × $65,000 = $29,355 (kept by seller)
Buyer's credit: 17/31 × $65,000 = $35,645 (credited to buyer at closing)
Annual property taxes: $96,000 (paid Q1, seller prepaid through March 31)
Buyer's tax credit to seller: 16/365 × $96,000 = $4,208 (credit to seller for prepaid taxes)
Security deposits on hand: $48,500
Net proration credits to buyer: $35,645 + $48,500 − $4,208 = $79,937
Closing costs. Both sides incur costs at closing. Buyer-side costs typically include: title insurance (~$5–$10 per $1,000 of purchase price), survey ($3,000–$8,000), legal fees ($10,000–$25,000), lender fees (0.5–1.5% of the loan amount), recording fees, and transfer taxes (varies by state — Florida charges documentary stamps at $0.70 per $100 of consideration). On a $10M acquisition with a $7M loan, buyer-side closing costs typically run $200,000–$350,000.
The closing table is where months of analysis, negotiation, and due diligence converge into a single moment. When you wire $3 million in equity into a title company's escrow account, you want absolute confidence that every document, proration, and contingency has been handled correctly. That confidence comes from process — not from luck.
Post-Closing: The First 30 Days
Closing isn't the end — it's a transition. The first 30 days after closing are critical for establishing operational control and ensuring a smooth handoff:
- Tenant notification: All tenants must be notified of the ownership change, new management contact information, and updated rent payment instructions. This is both a legal requirement and a practical necessity.
- Vendor transition: Services contracts (landscaping, trash, pest control, elevator maintenance) must either be assigned to the new owner or terminated and replaced.
- Insurance activation: The new property insurance policy takes effect at closing, and certificates must be distributed to the lender and any required additional insureds.
- Banking setup: New operating accounts, rent collection systems, and property management software configuration must be in place before the first rent cycle.
- Physical walkthrough: A detailed unit-by-unit inspection confirms the property's condition matches what was represented during due diligence and identifies any immediate maintenance needs.
The closing process in commercial real estate is complex, expensive, and occasionally frustrating. Deals get delayed by lender requirements. Title issues surface at the last moment. Sellers try to renegotiate after the deposit goes hard. But a disciplined process — with clear checklists, experienced legal counsel, and realistic timelines — turns complexity into manageable steps. At Midwood, experienced operators follow a systematic closing approach, because the closing process process discipline is as important as underwriting discipline.