Start to Finish... Ground Up Single Tenant NNN Lease Development

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So I felt like this would be a good subject to journal, both for the input from the pros and as a loose guide for others venturing into this field of investment.

Although I have been involved in the purchase of existing NNN lease investments I have yet to get involved from the ground up, much less as the actual point man.

I will go ahead and ask for forgiveness ahead of time for any typos, misspellings, or grammatical disasters. I am not a writer, a poet, or a prude.

Chapter One " What was I thinking" January 2014

I started the process by assessing/evaluating which credit tenant I wanted to focus on, and settled with the Dollar type national credit tenants.

I then looked at markets within 90 miles of Tallahassee, and studied the footprint of the three major Dollar tenants looking for gaps in the foot print and assessing why there were gaps. Simultaneously, I studied the age of existing Dollars in an attempt to add to the gap study the need for potential relocation of old Dollar types to new free standing buildings. Eventually I had a list of target stores and gaps. This is when the real work began.

With my maps and list I began to eliminate potential relocation options for various reasons but mainly do to remaining term on the leases. My focus started to narrow to areas that were missing one of the four large players in the Dollar game. once I narrowed my target markets to "gap zones" I started searching those zones for the most attractive parcels of land which in my mind is a parcel with good ingress and egress, preferably a corner lot with a market high traffic count. whether they were actively for sale or not. I also remained mindful that I may need to assemble multiple parcels, always considering the fact that I may need to tear down existing structures.

Over the first three months I continually narrowed my list of target parcels continually assessing the potential for the relocation of an existing Dollar, or filling the gap between existing Dollars with a competitor.

I contacted owners, existing listing agents, past listing agents (in an effort to cut through the time and BS of identifying and contacting the owner). Now, when asked what I was interested in with each parcel, I always said sandwich shop, package store, or carwash; something that threw off the scent of a fresh idea.

Coming into early March and I have identified four sites that will work as a relocation or a new competitor, and have three under contract. With my contract I typically don't negotiate the price aggressively up front, I prefer to appease the sellers desire to met their individual pot of gold, and hold them to a lengthy due diligence period (120-180 days). I will revisit the price, if necessary, after the potential tenants have done their market feasibility study to assess their potential gross sales. From this study the tenants will determine the price per sqft the market will justify. I do have an idea of both market rents and how they associate with the land acquisition prior to this stage but I leave room for future negotiations. For the purposes of this writing I am going to focus on the site that has the most components to the redevelopment. Assemblage, and Demolitions of a old gas station "The Site"

Chapter Two "Presentation to Tenants"

Now that i have the parcels under contract, I start bouncing the opportunity of relocation to any aged tenants in the area, and present the options for new locations to competitors of current market tenants. My recommendation is to find the tenant rep for each target tenant and present a site sketch of the proposed layout to the prospective tenant. I personally go all out with this step, because I am just fluent enough with CAD to be dangerous. I provide traffic counts, site foot prints including parking, holding ponds, ingress egress and maybe two elevations ( building views from different angles). The tenant market evaluation has been a month long process, but BOOOOM finally produced interest from two tenants, one is a relocation the other is a new competitor. The new competitor actually fits The Site better than the relocation because it only requires 10,000 sqft.

The Projected Numbers:



Development $65 Ft2




Rental Rate NNN


Square Footage


Gross Revenue



7.5% Cap




6.5% Cap


Cost of Sale:

R/E Commission


Closing Cost


Lease Commission


Net Proceeds


Less Cost to Build


Net Profit


Way to create value, Jay. I don't remember anyone at BP ever describing NNN spec development. Thanks for sharing and I'm looking forward to following your story.

@Jay H. Very impressive. We've built many spec buildings in our time, however; we were always familiar with the local market, and knew what would work on the available vacant parcels. I've never thought about taking it from the direction you have, trying to narrow down a tenant for the lots that were available, and designing to target them, and marketing the proposed project to them. We have developed build to suits, etc.

Good luck, and keep us posted. I will definitely monitor this thread.

I actually was going down this exact path a few months ago but I never located a suitable dollar store site at a sensible price. But I was not looking at it from a development standpoint, only as a land deal.

How much land do you get in your market for $285,000? Does that include demo?

Leaving room for price negotiations with the seller is a good idea - its probably worth $8/sf but they want $10/sf, you say fine give me some time to see if I can make $10/sf work. But what do you tell the tenant regarding land/development cost?

How do you build it - they just tell you their requirements and you get some bids?

How much cash will you need to come up with to get your construction loan?

It may be worth getting your RE license to earn half the acquisition, lease & sale commissions.

First off, in my haste I didnt review the title...Tennnnnant...Nice! Note to self rerereread before you hit post.

Thanks @Jon Klaus @Karen Margrave It should be interesting.

@Larry Flanagan $285M 1.8 acres represents the area I am allocating to the Dollar. this is an assemblage of two parcels. I am paying an additional $75M for the hard corner, which has an old gas station and is about .25 acres. I am buying this to potential add a small cellular/little caesars/something . I will post my site sketches soon.

Karen, What is your average cost per ft2 on these type of stores for soft, cost horizontal (assuming flat) and vertical? I am getting quotes of around 65 a foot.

So far my engineering quote is $12,500.00 start to finish.

I am awaiting my Architects quote.

Fixed tenant. What kind of environmental do you need to do to make sure the old gas station site is clean?

Phase 2 (just to be safe). The tanks were removed 15 years ago, and the site got a clean report.

When you submit your site plan to prospective tenants, do you also propose a rent?

In the actual phone conversations I make "suggestions", but ultimatly it will boil down to their own market study. I believe the average is about 6% of gross sales determins their annual rents...I think...

I always wondered how these establishments forecast revenues for a potential location and how accurate they are. There are so many variables to consider.

Originally posted by @Larry Flanagan :
I always wondered how these establishments forecast revenues for a potential location and how accurate they are. There are so many variables to consider.

Dollar General has 9322 stores. I bet they are extremely good at crunching their own data in order to make good predictions.

I think the number is closer to 4% of gross sales.

@Jay H.

great info, thank you for sharing!

I find myself between meetings and have a few minutes to punch up an update on my bear with me.

Chapter 3 "Tenant First Date to Promise Ring" The LOI ( Draft Letter of Intent)

Over the past month I have narrowed my prospective tenant down to the one that is new competition, within two weeks we had a draft LOI in hand and started negotiating the finer points of of the LOI. It becomes evident quickly that these national tenants pretty much dictate the terms of the relationship. As I explained in my first post this will be a NNN lease, which I always assumed was the same as a absolute net, well here in Florida brokers call leases where the property owner is responsibility for roof and structure NNN. I always assumed that was NN? But whatever..... This tenant will occupy 10,000 sqft @ $10.00 per sqft, with two five year options for renewal, and what amounts to .50 cent bump per square foot for each renewal. I will only be responsible for the structure and roof. The construction criteria is in line with what I had budgeted, but, wow the penalty for missing the delivery date is HUGE... $1000 per day. So I decided to add 4 months to my contractors estimated delivery date for my guaranteed delivery date, then write my contract with the contractor in a way that his penalty kicks in 30 days prior to my guaranteed delivery date. My thought process was such that I feel it would be better to sit two -three months complete before the delivery then miss the delivery and get hit with a $1000 per day fine.

Chapter 4 Assembling the Team

While dealing with the LOI, I have also been assembling the team, GC General Contractor, Civil Engineer, and Architect. With regard to the GC, I knew going into it I wanted to use the guy that I have chosen, because he has experience building and delivering credit tenant facilities on time and under budget. The Civil engineer was also and easy choice because I have had experience with him in the past. Now the Architect was a different story, I interviewed four locals and decided on the fifth. Fifth?? But i thought you interviewed four? Well in the interview process one thing became very clear, the locals had no base designs for this tenant and basically I was going to be paying for them to draw a base design that would or could be duplicated over and over again in the future at a discount to me or others. Once I understood this little fact I decided to seek out an Architect that had tons of experience designing for this tenant. His quote was 1/3 the price of the other four.

Its now May 8th and I have my binding LOI in hand and I am in the process of ordering reports phase 1, survey, geo, etc. I will try and update this more frequently..... got to run...

Good work.

Have you determined your $65/sf build cost is accurate?

@Larry Flanagan Not to the penny, I am confident with regard to the vertical, but horizontal is the make or break $65/sf budget. This will be determined based on the soil quality-import-export and required stormwater management.

NNN saying it is roof and structure is the brokers/agents in that area being LAZY.

I see so many problems with marketed listings and misinformation all the time.

Dollar General is doing well with sales growth of 3% per quarter and so is Dollar Tree. Family Dollar has taken a bath recently declining 3 to 4% per quarter. They were losing sales due to poor site selection, not having quality merchandise, and running the right sales on loss leaders to get traffic in the stores.

About 2 to 3 years ago Dollar Stores made sense for purchasing. Most of my clients I tell to stay away from them now. They are just highly overvalued in my opinion. You used to get them at an 8 to 9 cap with rental increases in primary term. Now the dollar stores think they are the cat's meow of the NNN space. They are doing brand new double net 10 year lease with low crap caps in the 6's and no rent bumps in primary term. You have to put 25% down or more to get a loan on them. The buildings unless forced architectural building controls by the county or city are brick front and sheet metal sides and back.

The only plus side is they are cheap in purchase price. Most are in sub-standard locations so 2nd generation tenant once dark you will not get the same rents.

If you are going to do that take your money and go 10 to 15% down and just get an existing CVS or Walgreens in a much better location and the building is all concrete, brick. You can also go for an Auto Zone, NAPA, etc. which give rent bumps mostly in primary term and caps in 6's to 7's.

Be really careful on the lease you agree to as a developer. I see many crap leases where the developer has a hard time selling off later. Yes to a certain extent they dictate lease terms but you also have to push back to have a salable lease to the next buyer so you can move on to your next project.

Great topic - looking forward to new posts.

I did laugh at your NNN, NN thing -- my main business is negotiating retail leases (mostly from tenant side) and have a client fighting over that very thing. The lease says it is a "net, net, net lease" but they never defined what that meant and now we are fighting over who owes what for various items.

As far as your delivery date with penalty, I have done many deals where the delivery was "no later than ________" - this allows delivery sooner -- might look into that for your deal so you can get rent faster after completion but still allow time to avoid the penalty.

@Joel Owens What are the biggest negociable issues within the lease that hinder a developers ability to sell off?

"Be really careful on the lease you agree to as a developer. I see many crap leases where the developer has a hard time selling off later. Yes to a certain extent they dictate lease terms but you also have to push back to have a salable lease to the next buyer so you can move on to your next project"

@Andy B. Our plan is to revisit the delivery date once we are dried in. September+/- and move the delivery date up to January. From my research and discussions with other developers that have developed for this tenant, moving the date up is rarely an issue.

New Site Layout 10,000 sf2 and 3000 sf2 front out parcel. still working on tenant for out parcel.

@Jay H.

Exciting thread....looking forward to seeing your progress.

How are you financing the project?

@Chris Winterhalter at the moment we are all cash, but may tap local bank financing. My background is CMBS and life lending, so ultimately I will place the deal in an assumable life loan if its not sold.

Originally posted by @Joel Owens :
NNN saying it is roof and structure is the brokers/agents in that area being LAZY.
I see so many problems with marketed listings and misinformation all the time.
Be really careful on the lease you agree to as a developer. I see many crap leases where the developer has a hard time selling off later. Yes to a certain extent they dictate lease terms but you also have to push back to have a salable lease to the next buyer so you can move on to your next project.

@Joel Owens I will detail more about the tenant once I have the outparcel tenant tied up in an LOI. still trying to be somewhat discreet while also providing real time information. I will say this my eastern neighbor is KFC, just east of KFC is BK and McD respectively. Directly across the intersection is Win Dix, Cato and a few others. Traffic count is 26,000+/- VPD Median income has risen over the past 5 years by 10%. I am building four sided block, not steel.

As for the lease, I would love to hear what things to look out for. Deal breaker with me would be any type of kick out clause.

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