Advice on how to structure a land lease with development

2 Replies

Hi BP commercial investing community!

I am a commercial real estate agent. I have never done a deal like this so I am looking for some input. I would like some opinions on options to structure a land lease for a client. I represent the owner of the land and another agent in my office is representing the potential tenant. I hope this is not too vague but here are the details.

It is a parcel of raw land, zoned highway commercial, in a high traffic area. It needs to be cleared. There are no permits filed yet.

The potential tenant wants to build and operate a car wash on the land.

What is the best way to calculate the value of the land for the lease? Is there a typical percentage of the value that the land owner should expect? What are the possible options for ownership of the structure (building)? Typical length of the lease? I have heard no less than 10 years. Possible lease option? Opinions on what each party should expect for a return?

I'm sure people will ask "what is the land worth?" The owner wants about $2M (typically he wants an outrageous number but backs off of it once there is offer on paper. I'm sure I'm the only one who deals with someone like that! ;) ). It is realistically worth $800k-$1M.

I apologize in advance if there isn't enough info here or these are not the best question to get to the answer. I'm just looking for typical structures and percentages. Let me know what info is needed to clarify.

Thank You!!

Sounds like you are dealing with a mom and pop commercial tenant ( car wash ).

Is this parcel a corner or just with highway frontage?? How much land are we talking here that is usable??

Corporate credit tenants tend to pay the most money. I would work for my client to try and land the highest use first with the highest amount and work my way down. Car washes for muni's generally aren't at the top of the list for approving.

Joe,

I am an intern at a commercial real estate firm.

Quick tip: When we evaluate a vacant lot, we look for curbs, manholes, and driveways. Government fees to add these can be steep. So check it out before you go to the comps.

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