The primary purpose of Due Diligence (DD) is to determine whether investing in a specific commercial real-estate asset is economically justified.
Both institutional and private investors typically commission — ideally from top-tier specialists — the following DD components:
1. Legal Due Diligence
Legal DD is conducted by lawyers specializing in commercial real estate.
Its core tasks include reviewing:
the building permit,
the lease agreement,
and all legal documentation associated with the property.
A detailed analysis of the lease agreement clarifies the exact distribution of responsibilities between the landlord and the tenant regarding maintenance, repairs and operational costs for different components of the property’s infrastructure.
It also confirms the current legally registered owner, as entered in the Land Register (Grundbuch) at the moment of transaction.
One of the most critical tasks of Legal DD in the food-retail segment: establishing the type of ownership
A private investor will rarely be interested in an asset classified under Erbbaurecht (heritable building right), where:
the land belongs to a third party,
the investor owns only the building of the discounter, supermarket or retail centre,
and pays a monthly ground lease for the right to use the land — without owning it.
Such plots are often held by the church or large institutions such as Deutsche Bahn.
They may be located in outstanding retail locations, but buildings on such land are not classic real estate — they are a form of financial investment, with land-lease terms typically ranging from 49 to 99 years.
When the land-lease term expires, and the landowner declines renewal, the building owner (or their heirs) legally loses the right to continue owning the asset on that site.
The building may be sold before expiration — but with important caveats:
The sale requires the consent of the landowner, who may reject the buyer.
Classic real-estate investors overwhelmingly prefer to own both the building and the underlying land.
Therefore, the first question an investor must require specialists to answer is:
“Is the property located on land subject to a heritable building right (Erbbaurecht)?”
After completing Legal DD, the same legal team usually represents the Buyer in the final stage of the transaction:
participating in drafting (or at least negotiating) the purchase agreement,
coordinating with the Seller’s legal representatives,
and working with the notary, as notarisation is mandatory for all real-estate transactions under German federal law.
Importantly, the Buyer has priority in selecting the notary.
Cost of Legal DD, including drafting and negotiating the purchase agreement and representing the investor at notary closing:
€12,000 – €25,000, depending on the firm’s profile.
2. Financial & Tax Due Diligence
Licensed tax advisors support investors acquiring commercial real estate in Germany by calculating:
the asset’s profitability,
full acquisition and operational costs,
and the tax impact of the investment.
After a successful transaction, these firms maintain the investor’s accounting, file tax returns, and represent the investor before German tax authorities.
Cost of Financial & Tax DD for a classic food-retail property up to 2,500 m²:
≈ €5,000.
Many investors attempt to save on this step, believing they can estimate profitability themselves — often correctly — based on the financial parameters provided.
However, when acquiring pre-owned or modernised food-retail assets, professional Financial & Tax DD can prevent an investor from buying a property whose actual financial performance turns out to be far below expectations.
Case Study: Netto Marken-Discount, Mannheim
In 2018, clients of our company became interested in a pre-owned Netto Marken-Discount supermarket located in the heart of Mannheim (310,000 residents; 480,000 including neighbouring Ludwigshafen — home to BASF’s headquarters).
After visiting the nearly 30-year-old property and observing exceptionally high foot traffic — mainly schoolchildren from several nearby schools and students from the local university — the investors signed a Letter of Intent (LOI), ordered full Due Diligence, and prepared for acquisition.
Their surprise and disappointment came when the Stuttgart tax-advisory firm conducting Financial & Tax DD reported that the newly signed 15-year lease (with three 5-year extensions) did not include any compensation for the landlord’s building-maintenance costs — a dramatic deviation from standard German food-retail leases.
This completely changed the asset’s pre-tax profitability, compared to the yield stated in the property’s presentation.
Why this happened:
In Germany, commercial leases typically allow the landlord to pass through a portion of annual operating and utility costs to the tenant.
The Netto Mannheim lease did not grant the landlord this right.
A brief investigation revealed the reason:
Netto had proposed financing a major modernization in exchange for a 30-year lease (15 + 3×5).
The landlord refused.
Netto then financed modernization independently — but removed from the new lease even the partial compensation rights that existed in the prior 30-year agreement.
3. No “Standard Lease Agreement” in German Food Retail
Investors entering the German commercial real-estate market must understand:
There is no such thing as a standard lease.
Two supermarkets of the same chain, just 5 km apart, may have entirely different lease structures.
This difference is driven by one factor:
the balance of negotiating power between the developer and the retail chain.
The stronger the developer (financially and reputationally),
the more landlord-friendly the resulting lease —
and all clauses transfer unchanged to the new investor under federal law.
4. Technical Due Diligence
Cost: from €5,000.
The optimal moment to conduct Technical DD is not during acquisition, but about six months before the expiration of the 5-year construction warranty.
Objective:
Identify and document as many significant structural or technical defects as possible — while the developer is still legally responsible for correcting them.
After the warranty expires, all such costs (except tenant-owned equipment like refrigeration units, shelves, displays) are borne by the property owner.
5. Location Analysis
Location Analysis helps investors:
assess long-term potential,
understand competitive dynamics,
minimize risk,
and leverage local advantages.
For newly built food-retail assets or projects under construction, investors can often skip this step (cost: €5,000 – €15,000).
Why?
Because if a developer is offering a new food-retail asset for sale, it means the retail chain has already conducted a full-scale location study, evaluating:
economic development of the area,
purchasing power,
current and future competitors,
synergy anchors (e.g., proximity to drugstores, discount stores, or full-range supermarkets).
If this analysis led the chain’s top management to sign a 30-year lease, there is little reason for the investor to doubt the location.
The Exception
If a developer builds opportunistic assets for second-tier chains in rural areas — small discounters located outside the central village square (the “prime square” of German rural planning) — the investor must be cautious.
In such cases, either:
order an independent Location Analysis, or
trust your instincts and walk away.
Location nuance: when an “outskirt” is not an outskirt
Summer 2024:
Our company received an exclusive mandate from one of Europe’s oldest developer groups to sell a newly built full-range supermarket on the “outskirts” of a village of 7,500 inhabitants near Hanover.
A Top-4 food-retail chain signed a 20-year lease (instead of the standard 15), with a priority renewal option — a clear signal of exceptional location quality.
Why?
Because the village is a regional centre.
Nine surrounding villages do not — and will never — qualify for their own full-range supermarket under Germany’s strict population standards.
Therefore, residents seeking the widest and best assortment will always travel to this particular store.
Notably, the retailer had already operated a supermarket on the same plot for 20 years.